Key Issues > America's Fiscal Future > Fiscal Outlook

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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Fiscal Outlook

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.

Source: GAO and GAO analysis of Congressional Budget Office data
Notes: Data for the simulations are from GAO's 2020 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 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 79 percent of GDP at the end of fiscal year 2019. 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 11 to 14 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.

GAO Contact

Susan Irving

Senior Advisor, Debt & Fiscal Issues


State and Local Fiscal Projections

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 latest report discusses key fiscal challenges state and local governments face moving forward.

View 2019 Report

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 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.

Source: GAO, see GAO-20-269SP
Note: For the definition of operating balance used in this graphic, see the report.
State and Local Government Sector Operating Balance as a Percentage of Gross Domestic Product (GDP), 2009 through 2068: TXT | PDF

The model assumes that the current set of state and local policies and the provision of real government services per capita remain 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, resulting in a declining operating balance.

Our simulations suggest that the sector would need to make policy changes to achieve fiscal balance (a great majority of states and many local governments are required to balance or nearly balance their operating budgets). Our model estimates actions the sector must take today and maintain each year to close the “fiscal gap”—an estimate of revenue increases or expenditure reductions that must be taken each year to achieve fiscal balance. We estimated that closing the fiscal gap would require spending reductions to be taken today and maintained each year equivalent to a 20.7 percent reduction in the sector’s total expenditures (which includes interest payments on debt) or an annual increase of 4.2 percent in the sector’s revenues. To eliminate the fiscal gap, the sector would most likely take actions that include a combination of expenditure reductions and revenue increases.

Source: GAO, see GAO- 20-269SP.
State and Local Expenditures (including Interest on Debt) as a Percentage of Gross Domestic Product (GDP), 2009 through 2068: TXT | PDF

Source: GAO, see GAO-20-269SP.
State and Local Government Revenues as a Percentage of Gross Domestic Product (GDP), 2009 through 2068: TXT | PDF

GAO Contact

Michelle Sager

Director, Strategic Issues