Are Social Security Payments Included in the U.S. GDP Calculation?

No, Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Social Security payments are transfer payments, which are not included. They are, however, counted as personal consumption expenditures (PCE) once they are used to purchase something. Because of this, counting Social Security payments issued from the government to the recipient would be counting the same money twice.

Key Takeaways

• Gross domestic product, or GDP, is a common measure of a nation’s economic output and growth.
• GDP takes into account personal consumption, investment, government purchases, and net exports.
• While GDP considers government spending, it does not include transfers such as Social Security payments because they don’t represent production.
• This is also prevents money spent from Social Security from being double-counted.

Transfer Payments

When calculating GDP, government spending does not include transfer payments (the reallocation of money from one party to another), such as payments from Social Security, Medicare, unemployment insurance, welfare programs, and subsidies. Because these are not payments for goods or services, they do not represent a form of final demand, also known as GDP.

However, once the recipient uses funds received from one of these transfer payment programs to buy a good or service it is captured in the PCE component of GDP. To include Social Security or other transfer payments and personal consumption in GDP would skew the calculation because it would be a form of double-counting.

While they are not included in GDP, transfer payments are included in the government’s budget and spending calculations.

Calculating Gross Domestic Product

The GDP measures the value of the production of goods and services, and it is the most common gauge of the overall size of an economy. GDP is an economic accounting identity composed of four main components: personal consumption expenditures (C), investment (I), government spending (G), and net exports (exports minus imports, or X-M).

The GDP formula is:



​GDP=C+I+G+(X−M)where:C=Personal consumption expendituresI=InvestmentG=Government spendingX=ExportsM=Imports​

Explaining the Terms

Personal Consumption Expenditures

Personal consumption expenditures are a comprehensive measure of consumer spending. This component makes up a bit less than 68% of the U.S. economy and is the main driver of economic growth.

Investment

The component of gross domestic product primarily coming from businesses, is called investment. This includes capital expenditures by companies as well as some other categories. Specific examples of investment include businesses’ purchase of equipment, property, and investment in inventory. Consumers’ home purchases are also included in this category.

In 2013, the U.S. Bureau of Economic Analysis expanded coverage of intellectual property rights within the investment component of GDP to better capture businesses’ expenditures on research and development and for entertainment, literary, and artistic originals for which there is a long-lasting economic benefit. Industries heavily reliant on intellectual property accounted for about 41% of the US GDP in 2019.

Government Spending

This component measures all government (federal, state, and local) consumption and investment. For example, U.S. Federal government consumption includes government employee salaries and the payments for goods and services, such as maintenance of the White House and salaries of its staff.

Government investment includes the purchase of structures, equipment, and software. Government spending makes up about 19% of the U.S. economy; it does not include transfer payments, such as Social Security.

Net Exports

This component represents the net value of a country’s total exports minus the value of its total imports within a specific period, such as one year. This component is usually a net negative for the U.S. GDP of about 3%, meaning that the United States usually imports more goods and services than it exports. When an economy exports more than it imports, net exports are positive, indicating a positive trade balance.

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