Key Issues > America's Fiscal Future > Drivers and Trends

America's Fiscal Future

This big-picture look at the nation’s fiscal condition covers the federal government’s financial statements; the federal debt; federal, state, and local fiscal projections; and budget trends.

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Drivers and Trends


Key Drivers of Growing Federal Debt: The Gap Between Revenue and Spending

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).

Spending and Revenue as a Percentage of GDP
Percentage of GDP
 

Source: GAO.
Notes: Data are from GAO's 2017 alternative simulation, which does not reflect the effects of legislation enacted after September 30, 2017. Read about the assumptions underlying this simulation.
Data: txt | pdf

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 growth are an aging population, expansion of federal programs, 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 at 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 2035, but the program has its own separate revenue stream — which is also projected to be insufficient to cover costs. Read more on our Social Security page.

Categories of Spending over Time
Percentage of GDP
 

Source: GAO.
Note: Data are from GAO's 2017 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 health care costs over the long term). This projection does not reflect the effects of legislation enacted after September 30, 2017. Read about the assumptions underlying this simulation.
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 are responses to natural disasters, pension guarantees, financial crises, and ensuring care for veterans. Some of these fiscal exposures have increased over the past decade due to external events, trends, and the government’s response to them. Increased attention to fiscal exposures will be important both for understanding those risks and enhancing oversight of federal resources.


GAO Contact

Susan Irving

Senior Advisor, Debt & Fiscal Issues

irvings@gao.gov

202-512-6806


State and Local-Level Drivers and Trends

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 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, which includes consumption expenditures such as compensation 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 Other Expenditures of State and Local Governments as a Percentage of GDP

Health and Nonhealth, Noninterest Expenditures of State and Local Governments as a Percentage of Gross Domestic Product (GDP)

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 revenues would remain largely constant as a percentage of GDP. As such, 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 ability to cover its current expenditures out of current receipts.

State and Local Government Receipts as a Percentage of GDP

State and Local Government Receipts as a Percentage of Gross Domestic Product (GDP)

State and Local Government Receipts as a Percentage of Gross Domestic Product (GDP): TXT | PDF

The 2017 State and Local Model Simulations – Data, Methodology, and Equation Updates document provides detailed information on the data and assumptions used in GAO’s simulations.

GAO Contact

Michelle Sager

Director, Strategic Issues

sagerm@gao.gov

202-512-6806