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.
Projecting the Future of the Federal Debt
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.
Notes: Data are from GAO's 2017 simulations. Read more about the analyses we did with different assumptions. 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, Survivors, and Disability Insurance trust funds. These projections do not reflect the effects of legislation enacted after September 30, 2017. Read about the assumptions underlying these simulations.
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The Baseline Extended simulation generally assumes current laws continue into the future. For example, tax provisions expire as scheduled.
The alternative simulation changes some of the assumptions to reflect historical trends, rather than current law. For example, 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 76 percent at the end of fiscal year 2017. This compares to an average of 45 percent of GDP since 1946. The debt-to-GDP ratio is projected to surpass its historical high of 106 percent within 14 to 18 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.
Senior Advisor, Debt & Fiscal Issues
State and Local Fiscal Projections
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 and determine how federal grant spending can best address those challenges.
GAO’s 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 gap 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 gap between spending and revenue over the next 46 years.
State and Local Operating Balance Measure as a Percentage of GDP
Note: The simulated operating balance measure is all receipts, excluding funds used for long-term investments, minus current expenditures. For additional detail on our assumptions and methodology, see link to Data, Methodology, and Equation Updates.
The model assumes that the current set of policies in place across state and local government, and the provision of real government services per capita, remains relatively constant. The model does not account for changes to the federal tax code that were enacted in December 2017. GAO’s simulations also show that while the gap narrows and ultimately closes near the end of the simulation period, state and local governments would need to make policy changes to avoid fiscal imbalances before then.
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 negative operating balances (i.e. deficits) 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 3.3 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.
State and Local Government Action Required to Maintain Balance - Expenditure Reductions as a Percentage of Gross Domestic Product (GDP)
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.
Director, Strategic Issues