How are government transfers like Social Security treated in GDP calculations?

Government transfers, such as Social Security, are excluded from GDP calculations because they do not represent payment for goods or services produced within the economy. Gross Domestic Product measures economic activity based on production, specifically the total value of goods and services produced. Since government transfers are not tied to immediate production but rather are redistributions of funds to individuals, they do not contribute to the economic output that GDP quantifies. Therefore, recognizing these transfers as excluded from GDP allows for a clearer understanding of actual economic performance rather than merely financial exchanges that do not reflect production activities.