To see exactly how unsustainable the government’s fiscal policies are, we run two simulations of the federal budget that illustrate the potential implications of different policy choices.
Source: GAO and GAO analysis of Congressional Budget Office data.
Notes: Data for the simulations are from GAO's 2019 simulations. Read more about the analyses we did with different assumptions below. Both of GAO’s simulations assume that Social Security and Disability benefits are paid in full regardless of the current projections of revenues into the Old-Age and Survivors Insurance and Disability Insurance trust funds. Read about the assumptions underlying these simulations.
Data: TXT | PDF
The baseline extended simulation generally assumes current laws continue into the future (e.g., that tax provisions expire as scheduled).
The alternative simulation changes some of the assumptions to reflect historical trends, rather than current law (e.g., that tax provisions that are scheduled to expire are extended).
The dollar value of a nation’s debt is difficult to interpret without some sense of the size of the economy supporting it. So, you can measure the amount of debt held by the public against the nation's gross domestic product (GDP). Both simulations show that the federal debt is projected to grow faster than GDP, which means the current federal fiscal path is unsustainable. Debt held by the public was 78 percent of GDP at the end of fiscal year 2018. This compares to an average of 46 percent of GDP since 1946. The debt-to-GDP ratio is projected to surpass its historical high of 106 percent within 14 to 20 years, according to GAO's simulations.
The timing and pace of debt growth vary if the assumptions used in the simulation change. For example, the simulation relies heavily on projected health care cost growth. We ran the simulations with varying amounts of excess health care cost growth to show how this might change the debt picture. Read more about the analyses we did with different assumptions below.
We ran both of our simulations by making assumptions about key factors, such as health care cost growth and interest rates. We determined that changes in these factors change the timing and pace of debt growth. However, under all of these analyses, the federal fiscal path continues to be unsustainable.
Notes: For each factor except for excess health care cost growth, GAO gradually transitions to the sensitivity test assumption beginning in 2019. For excess health care cost growth, GAO transitions to the sensitivity test assumption beginning in 2027. Excess health care cost growth and interest rates are increased and decreased by 1 percent over the long term in each of the simulations. Discretionary spending and revenues are increased and decreased by 5 percent over the long term in each of the simulations.
Federal grants, in addition to other funding sources, help state and local governments finance a broad range of services including health care, education, social services, infrastructure, and public safety. Understanding the current and future fiscal condition of the state and local government sector can help policy makers identify the primary drivers of long-term fiscal challenges.
Our 2019 report discusses the latest challenges state and local governments face moving forward. Please note that the graphics below use data from our 2018 report and will be updated in the next few weeks.
Our simulations of long-term fiscal trends in the state and local government sector have consistently shown that state and local governments face long-term fiscal pressures. Absent any policy changes, the state and local government sector faces a difference between expenditures and receipts in future years. The simulated operating balance measure—an indicator of the sector’s ability to cover its current expenditures out of current receipts—suggests that the sector will continue to face a difference between spending and revenue over the next 50 years.
State and Local Government Sector Operating Balance as a Percentage of Gross Domestic Product (GDP), 2008 through 2067
Source: GAO, see GAO-19-208SP.
Note: For the definition of operating balance used in this graphic, see the report.
State and Local Operating Balance Measure as a Percentage of Gross Domestic Product (GDP): TXT | PDF
The model assumes that the current set of state and local policies and the provision of real government services per capita remain relatively constant. Our simulations also show that both expenditures and revenues would increase as a percentage of GDP. Throughout the simulation period, expenditures would grow at a faster rate than revenues, increasing the difference between them.
Since most state and local governments are required to balance their operating budgets, our simulations suggest that the sector would need to make policy changes to avoid deficits (i.e., negative operating balances) in the future.
Our model estimates actions the sector must take today and maintain each year to close the “fiscal gap”—how much the government’s spending and debt obligations exceed its revenues over a specified period of time. We estimated that closing the fiscal gap would require spending reductions to be taken today and maintained each year equivalent to a 14.7 percent reduction in the state and local government sector’s expenditures. More likely, closing the fiscal gap would involve some combination of both expenditure reductions and revenue increases across a wide range of areas.