The Nation's Long-Term Fiscal Outlook April 2007 Update:

The Bottom Line: Federal Fiscal Policy Remains Unsustainable

GAO-07-983R: Published: Jun 4, 2007. Publicly Released: Jun 4, 2007.

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Since 1992, GAO has published long-term fiscal simulations of what might happen to federal deficits and debt levels under varying policy assumptions. GAO developed its long-term model in response to a bipartisan request from Members of Congress who were concerned about the long-term effects of fiscal policy. GAO's simulations were updated with new estimates for Social Security and Medicare spending. GAO also modified its alternative simulation so that Medicare spending follows a more realistic path and revenues return to historical levels. GAO updates its simulations three times a year as new estimates become available from CBO's Budget and Economic Outlook (January), Social Security and Medicare Trustees Reports (spring), and CBO's Budget and Economic Outlook: An Update (late summer). This product responds to congressional interest in receiving updated simulation results.

As in previous updates, GAO's current long-term simulations show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control. For this update we modified the alternative simulation to reflect a return to historical levels of revenue and a more realistic Medicare scenario for physician payments. Although the timing of deficits and the resulting debt build up varies depending on the assumptions used, both simulations show that we are on an unsustainable fiscal path. By definition, what is unsustainable will not be sustained. The question is how and when our current imprudent and unsustainable path will end. At some point, action will be taken to change the Nation's fiscal course. The longer action to deal with the Nation's long-term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing. Acting sooner rather than later will give us more time to phase in gradual changes, while providing more time for those likely to be most affected to make compensatory changes. Simulations are not forecasts or predictions. They are designed to ask the question "what if?" GAO's "what ifs" include that discretionary spending may grow slower (as in Baseline extended) or faster (as in the alternative), and tax cuts may be allowed to expire (as in Baseline extended) or be extended (as in the alternative), but in both cases, the Nation's long-term fiscal future is at risk. Under both sets of expectations about future spending and revenues, the risks posed to the Nation's future financial condition are too high to be acceptable.

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