Growth in deficits and debt is driven by the gap between revenue and spending; both sides of the equation are relevant.
Over the long term, the imbalance between spending and revenue that is built into current law and policy is projected to lead to continued growth of the deficit and debt held by the public as a share of gross domestic product (GDP).
Revenue as a percentage of GDP can vary for a number of reasons, including changes in tax policy and the economy. In our simulations, revenue covers a decreasing percentage of spending over time.
On the spending side health care spending and net interest continue to grow and absorb more resources. Key factors driving health care spending growth are an aging population, increased spending per beneficiary, and the rising cost of health care. Key factors driving net interest growth are the growth in debt and interest rates the Department of the Treasury must pay on the borrowing. While interest rates are currently near historic lows, they are expected to grow over the long term.
Social Security costs are also expected to increase as a percentage of GDP through 2038 before leveling off through 2092. The program has its own separate revenue stream - the Old-Age and Survivors Insurance and Disability Insurance trust funds—but those funds are projected to be insufficient to cover costs. Read more on our Social Security page.
Notes: Data are from GAO's 2019 alternative simulation. The alternative simulation assumes that health care cost containment mechanisms, including those enacted in the Patient Protection and Affordable Care Act, are not sustained over the long term (the baseline extended simulation assumes that they reduce excess health care cost growth over the long term). Read about the assumptions underlying this simulation.
Data: TXT | PDF
The story is similar at the state and local levels — with health care costs driving growth in spending. GAO’s simulations of long-term fiscal trends in the state and local government sector show that state and local Medicaid expenditures per capita and health care compensation costs for state and local government employees and retirees generally grow at a rate that exceeds GDP. In contrast, nonhealth, noninterest spending, (including consumption expenditures like wages and salaries for state and local government workers; pension plan contributions; non-health related employee benefits; and purchases of intermediate goods) declines as a percentage of GDP.
Health and Nonhealth, Noninterest Expenditures of State and Local Governments as a Percentage of Gross Domestic Product (GDP), 2008 through 2067
Source: GAO, see GAO-19-208SP.
Note: For more information about what’s included in the expenditures in this graphic, see the report.
Health and Nonhealth Expenditures of State and Local Governments as a Percentage of Gross Domestic Product (GDP): TXT | PDF
With regard to revenue growth over the long term, our simulations suggest that state and local sector total tax revenues increases slightly as a percentage of GDP. However, revenues will not be sufficient to allow the sector to avoid a negative operating balance. The simulated operating balance measure is an indicator of the sector’s fiscal outlook and measures its ability to cover its current expenditures out of current receipts.
State and Local Government Tax Revenues as a Percentage of Gross Domestic Product (GDP), 2008 through 2067
Source: GAO, see GAO-19-208SP.
Note: Sales tax revenue is the sum of general sales tax revenue and excise tax revenue.
State and Local Government Receipts as a Percentage of Gross Domestic Product (GDP): TXT | PDF