Washington, D.C. (May 05, 2022)—With the federal government now facing rising interest rates on its mounting debt, the U.S. Government Accountability Office today issued its sixth annual report on the nation’s fiscal health. The report again warns about the long-term fiscal outlook and calls for a well-crafted plan to help guide difficult decisions on the revenue and spending sides of the federal ledger.
“GAO’s latest report on the nation’s fiscal health paints a sobering picture. Without substantive changes to revenue and spending policy, the federal debt is poised to grow faster than the economy, a trend that is unsustainable,” said Gene L. Dodaro, Comptroller General of the United States and head of the GAO. “More than ever, a carefully considered fiscal plan is needed to support policymakers in making the tough choices that will return us to a more manageable fiscal path,” Dodaro added.
The federal budget deficit was $2.8 trillion in fiscal year 2021, the second largest in history. The sizable deficit resulted largely from federal spending to help the nation recover from the COVID-19 pandemic.
Health care and Social Security spending is projected to represent a growing share of federal spending. Under GAO’s simulation, Social Security, Medicare, and other federal health care spending would account for 85 percent of projected revenue in 2050, up from 63 percent in 2019.
At the same time, revenue will continue to cover less of the projected total spending. From 2000 to 2021, revenue averaged 16.8 percent of gross domestic product (GDP) annually, compared to an annual average of 17.9 percent of GDP between 1980 and 2000.
Projections from the Office of Management and Budget and the Department of the Treasury, the Congressional Budget Office, and GAO all show that current fiscal policy is unsustainable over the long term. At the end of fiscal year 2021, debt held by the public was about 100 percent of GDP, a 33 percent increase from fiscal year 2019. Debt held by the public is projected to reach its historical high of 106 percent of GDP within a decade and will continue to grow to more than 217 percent of GDP—more than twice the size of the economy—by 2050.
In recent years, borrowing costs for the debt were a relatively small share of total federal spending due to historically low interest rates. However, with mounting debt and rising interest rates, GAO projects that net interest spending will grow from about 8 percent of all federal spending in fiscal year 2019 to about 27 percent in fiscal year 2050. That percentage could be even higher if interest rates rise more than expected. Other fiscal risks include potential delays in raising the debt limit and additional spending in response to various fiscal exposures, such as global or regional military conflicts, economic downturns, public health emergencies, and natural disasters.
GAO urges policymakers to create a fiscal plan to guide difficult decisions to help pivot to a sustainable fiscal policy. Such a plan could include well-designed fiscal rules and targets; an assessment of the drivers of the primary deficit—both revenue and spending; and alternative approaches to the debt limit. Action is also need to address the serious financing gaps facing Medicare and Social Security.
For more information, contact Chuck Young, Managing Director of GAO Public Affairs, at firstname.lastname@example.org 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.