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 historically low, 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 2094. 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 2021 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 (PDF, 3 pages).
Data: TXT | PDF
Fiscal Exposures Also Drive Federal Spending
The federal fiscal outlook also faces risks from other fiscal exposures — responsibilities, programs, and activities that may either legally commit the federal government or create the expectation for future federal spending. Examples of these fiscal risks are responses to natural disasters, pension guarantees, and financial crises. Some of these fiscal exposures have increased over the past decade due to external events and trends, and the government’s response to them. Increased attention to risks from fiscal exposures will be important both for understanding those risks and enhancing oversight of federal resources.
Health care costs drive the growth in spending for the state and local government sector. GAO’s simulations 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 such as 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.
Source: GAO, see GAO-20-269SP.
Note: For more information about what's included in the expenditures in this graphic, see the report.
Health and Nonhealth, Noninterest Expenditures of State and Local Governments as a Percentage of Gross Domestic Product (GDP), 2009 through 2068: TXT | PDF
With regard to revenue growth over the long term, our simulations suggest that state and local sector total tax revenues increase 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.