My latest animated “bar chart race” visualization above shows the rise over time of federal spending on Social Security payments as a share of total federal government outlays. The animation starts in 1947 and shows the top five spending categories of the federal government as a share of total spending in each year, estimated through 2024 based on data from the Office of Management and Budget (Table 3.1).

Social Security payments were among the top five federal spending categories for the first time in 1951 at 3.3%. Starting in 1959, Social Security payments as a share of total spending exceeded 10% and rose above 20% for the first time in 1977. By 1993, spending on Social Security topped 21% of the federal outlays and overtook spending on National Defense for the first time as the largest spending category in the federal budget. For the last quarter century, spending on Social Security has claimed the largest share of federal outlays and is expected to exceed 24% for the first time in 2023 before rising above 25% five years from now in 2024.

What can we expect in the future? According to most projections, Social Security benefit payments will start to exceed the program’s costs by next year in 2020, and the program will deplete its nearly $3 trillion reserve fund by 2035. The Social Security Administration (SSA) is a little more optimistic, predicting that “benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted.” What then? According to the SSA:

At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76% of scheduled benefits. Thus, Congress will need to make changes to the scheduled benefits and revenue sources for the program in the future. The Social Security Board of Trustees project that changes equivalent to an immediate reduction in benefits of about 13%, or an immediate increase in the combined payroll tax rate from 12.4% to 14.4%, or some combination of these changes, would be sufficient to allow full payment of the scheduled benefits for the next 75 years.

And why is the Social Security system headed toward insolvency, or near-insolvency? The SSA explains:

This increase in [program] costs results from population aging, not because we are living longer, but because birth rates dropped from three to two children per woman.

In other words, Social Security is an unsustainable program similar to a Ponzi scheme or pyramid scheme that eventually collapses because there aren’t enough new “investors” (i.e., taxpayers) to pay off the older “investors” (Social Security recipients). But the SSA remains hopeful:

Importantly, this shortfall is basically stable after 2035; adjustments to taxes or benefits that offset the effects of the lower birth rate may restore solvency for the Social Security program on a sustainable basis for the foreseeable future.

Translation: The only way Social Security will restore solvency is to raise taxes on those paying into the system, or reduce payments for those collecting benefits, or most likely BOTH higher taxes and reduced benefits.

The post Animated chart of the day: The rise over time of Social Security spending as a share of federal outlays appeared first on American Enterprise Institute – AEI.