The Nation's Long-Term Fiscal Outlook:
September 2006 Update
GAO-06-1077R: Published: Sep 15, 2006. Publicly Released: Sep 15, 2006.
Since 1992, GAO has published long-term fiscal simulations of what might happen to federal deficits and debt levels under varying policy assumptions. GAO developed its long-term model in response to a bipartisan request from Members of Congress who were concerned about the long-term effects of fiscal policy. In 1992 GAO said: "The federal budget is structurally unbalanced. This will do increasing damage to the economy and is unsustainable in the long term. Regardless of the approach chosen, prompt and meaningful action is essential. The longer it is delayed, the more painful it will be." These words are as relevant today as when GAO first published them. GAO updates its simulations three times a year as new estimates become available from the Congressional Budget Office's (CBO) Budget and Economic Outlook (January), Social Security and Medicare Trustees Reports (early spring), and CBO's Budget and Economic Outlook: An Update (late summer).
The long-term outlook has not changed significantly since the last simulations. Although this year's deficit outlook has improved, the long-term continues to be unsustainable. GAO's current long-term simulations continue to show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control. The timing of deficits and the resulting debt build up varies depending on the assumptions used, but under either optimistic ("Baseline extended") or more realistic assumptions, current fiscal policy is unsustainable. Simulations are not forecasts or predictions. They are designed to ask the question "what if?" GAO's "what ifs" are that discretionary spending may grow faster or slower, and tax cuts may be renewed or allowed to expire--but in both cases, the Nation's long-term fiscal future is "at risk." Under any reasonable set of expectations about future spending and revenues, the risks posed to the Nation's future financial condition are too high to be acceptable. By definition, what is unsustainable will not be sustained. The question is how our current imprudent and unsustainable path will end. At some point, action will be taken to change the Nation's fiscal course. The sooner appropriate actions are taken, the sooner the miracle of compounding will begin to work for the federal budget rather than against it. Conversely, the longer action to deal with the Nation's long-term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing. Acting sooner rather than later will give us more time to phase in gradual changes, while providing more time for those likely to be most affected to make compensatory changes.