National Health Expenditure measures the total amount spent in the U.S. to purchase healthcare goods and services during the year. The amount invested in medical sector structures and equipment and in non-commercial research in the United States is also included.

The United States is the only country where healthcare accounts for more than 13 percent of the Gross Domestic Product, spending 16.5 percent in 2006.

Since 1981, the amount spent on elementary and secondary education (K through 12) in the United States has risen from just over $100 billion to almost $600 billion in 2007. This is slightly more than the total of Social Security payments ($581 billion) in the same year. These institutions are funded by federal, state and local taxes, as well as private tuition. Although expenditures have increased almost 600% during the past 27 years, expenditures as a percentage of the Gross Domestic Product have fluctuated within a narrow band of 3.9% to 4.7% of GDP. The chart indicates that for the school year ended in 2007, expenditures totaled approximately $599 billion, which represented 4.5% of GDP for the year.

The United States ranks 28th in the world for military expenditures as a percent of GDP at 4.06%, spending about the same percentage as China (4.30%) and Russia (3.90%). The average military expenditure for all countries is 2%. Most of these estimates were made by the U.S. Central Intelligence Agency (CIA) in 2005. See the CIA World Factbook.

The U.S. economy is more than three times larger than that of its closest competitor, Japan. Clearly, the United States is the economic engine of the world. Even though the population of China is more than four times larger than that of the United States, the Chinese gross domestic product is less than one-quarter the size of the U.S. economy. For comparison purposes, the gross domestic product for the state of California falls between those of Italy and Spain.

The term tipping point can be applied to a process in which, beyond a certain point, the rate at which the process continues will increase dramatically. The budget of the United States has reached its tipping point. A recent event could have, in fact, marked the point in time. The first Baby Boomer—born January 1, 1946—has applied for early retirement at age 62 and received her first Social Security check. On the chart, an upturn in the Medicare growth rate can be detected in 2011 when the first Baby Boomers turn 65. Thereafter, the number of retirees continues to increase while the number of workers per retiree continues to decrease. The pyramid scheme has collapsed.

This chart simply selects the data for the year 2032 from the Entitlements as a Percentage of GDP chart and compares the estimated growth in the entitlement programs against the estimated growth of the economy at that point in time. These projections assume that no new programs are added to the existing forms of coverage. Even absent any additional coverage, it is evident that more has been promised than can be delivered under the existing levels of taxation.

The Government Accountability Office prepared the data for this chart using information from the Office of the Chief Actuary of the Social Security Administration, the Office of the Actuary of Medicare and Medicaid Services, and the Congressional Budget Office. The conclusion needs little explanation: Government spending for the big three entitlement programs, as a percentage of GDP, will triple in 70 years, primarily as a result of projected increases in healthcare costs.

The problem with the CBO Baseline is that the projection is based upon an assumption that has no historical basis. The assumption is that the growth in health care spending will decline to a growth rate that is 1% greater than GDP growth. In fact, the historical increase in Medicare and Medicaid spending has averaged 2.5 percentage points greater than the growth of GDP over the past 40 years. Using the historical rate of increase, Medicare and Medicaid alone would consume all tax collections by 2044 if the tax rate remained at the 2007 level of GDP (18.8%).

In this chart the blue line, Total Discretionary Spending, is the sum of the red line, Defense Spending plus the green line, Non-Defense Spending. For example, in 2007 Defense Spending was 3.9% of GDP while Non-Defense Spending was 3.6%. Therefore, Total Discretionary Spending was 7.5% of GDP as shown in the chart.

Non-Defense Spending has remained remarkably stable at an average of 3.9% of GDP—fluctuating in a very narrow band between 3.3% and 5.2% during the previous 46 years. As a result of the relatively flat line for Non-Defense spending, it easy to see that Defense Spending has been the victim of the “crowding out” effect of the increase in Mandatory Spending.