New Report Urges Swift Development of Long-Term Strategy Once Pandemic Has Passed
Washington, D.C. (March 23, 2021) –The U.S. Government Accountability Office’s (GAO) fifth annual report on the nation’s fiscal health, issued today, offers a sobering assessment of the government’s longer-term fiscal outlook.
“The nation responded with significant resources to address the public health and economic impacts of the COVID-19 virus. But as the public health goals are achieved, and the economy recovers, the government must turn its attention to developing a strategy to deal with our debt and put the government on a long-term sustainable fiscal path,” said Gene L. Dodaro, Comptroller General of the United States and head of the GAO. “The truth is our rate of debt growth can’t be maintained indefinitely. In fiscal year 2020, debt held by the public reached about 100 percent of gross domestic product, up from 79 percent a year earlier. We estimate that left unchecked, the debt will grow to 200 percent of GDP in 2048, well beyond historic levels.”
GAO’s fiscal health report underscores that the growing gap between spending and revenues is built into the current design of our spending and tax laws. On the spending side of the budget, the major driver is health care. Social Security also faces financial challenges.
Persistent low interest rates have reduced the government’s borrowing costs. Compound interest works both ways, however. Due to the size of the federal debt, GAO projects that net interest will become the largest category of federal spending by 2048, growing from about $345 billion or 1.6 percent of gross domestic product (GDP) in 2020, to exceeding $1 trillion in fiscal year 2033, or 3.1 percent of GDP, according to GAO’s projections.
Under our projections, the debt will reach its highest point in history in 2028 and continue to grow faster than GDP thereafter. According to the Congressional Budget Office, rising federal debt increases the likelihood of a fiscal crisis. This could bring a large drop in the value of the dollar or a loss of confidence in the government’s commitment to debt repayment. Rising debt could also make policymakers more reluctant to support the economy during a future downturn or unexpected event, such as global conflicts, natural disasters, or public health emergencies.
In the long term, spending on federal health care programs and Social Security drive most of the increase in federal non-interest spending as a share of GDP. Total health care spending (public and private) in the United States continues to grow faster than the economy and is driven both by an increase in the proportion of the population enrolled in Medicare and by the increase in health care spending per beneficiary. GAO projects federal spending on major health care programs will grow from 5.9 percent of GDP in fiscal year 2020 to 8.0 percent of GDP in fiscal year 2050. Medicare spending is projected to reach $1 trillion per year by fiscal year 2023, while combined federal and state Medicaid spending is projected to reach $1 trillion per year by 2027. The Medicare Hospital Trust fund is projected to be depleted in 2026, paying only 87 cents on the dollar during the next year.
For Social Security, demographic factors, such as longer lifespans, an aging population, and slower labor force growth, are straining Social Security programs and contributing to a gap between program costs and revenues. GAO projects spending on Social Security will grow from 5.2 percent of GDP in fiscal year 2020 to 6.1 percent of GDP in fiscal year 2050. Spending on Social Security already exceeds $1 trillion per year. The combined Social Security Disability Insurance and Old-Age and Survivors Insurance trust funds are projected to be depleted in 2032 with revenues sufficient to support about 75 percent of scheduled benefits in 2033.
Getting the country onto a more sustainable fiscal path will require legislative action. GAO has recommended that Congress establish a long-term plan and has suggested including fiscal rules and targets, such as a debt-to-GDP target, in such a plan. Lawmakers will also need to consider the entire range of federal activities, both revenue (including tax expenditures) and spending (entitlement programs, other mandatory spending, credit programs, and discretionary spending), affecting the debt path.
GAO also proposes a number of immediate steps to help address the situation. These include:
- Narrowing the tax gap. Reducing the difference between taxes owed and those paid could increase tax revenues by billions of dollars annually. The net tax gap is currently estimated to be $381 billion annually.
- Reducing improper payments. Improper payments, which include disbursements that should not have been made or were made for an incorrect amount, are a government-wide problem, totaling an estimated $206 billion in fiscal year 2020.
- Implementing program reforms. Billions of dollars in additional cost savings could be achieved by addressing GAO’s open recommendations. Since fiscal year 2010, actions taken by Congress and executive branch agencies have yielded hundreds of billions of dollars billion in financial benefits.
The federal government’s Consolidated Financial Statement, which includes a GAO audit of the statement, is expected to be issued this coming Thursday, March 25, 2021. For more information, contact Chuck Young, Managing Director of GAO Public Affairs, at email@example.com or 202-512-4800.
The Government Accountability Office, known as the investigative arm of Congress, is an independent, nonpartisan agency that exists to support Congress in meeting its constitutional responsibilities. GAO also works to improve the performance of the federal government and ensure its accountability to the American people. The agency examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO provides Congress with timely information that is objective, fact-based, nonideological, fair, and balanced. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability.