Fiscal Outlook & The Debt
This section will help you understand the federal government’s fiscal condition, including its fiscal health; the federal debt and deficit; the fiscal outlook faced by federal, state, and local governments; and challenges related to Social Security.
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The Nation’s Fiscal Health: Action is Needed to Address the Federal Government’s Fiscal Future
Congress and the new Administration face serious economic, security, and social challenges that will require difficult policy choices in the short term about the level of federal spending and investments as well as ways to obtain needed resources. Decisions to enhance economic growth and address national policies need to be accompanied by a fiscal plan to put the government on a path that is more sustainable over the long term.
This report is intended to illuminate the need for a long-term fiscal plan and answer key questions about:
- Significant changes to the government’s fiscal condition in fiscal year 2016
- Long-term fiscal projections that show the federal government is on an unsustainable path
- Fiscal risks that are placing additional pressure on the federal budget
- Opportunities for executive agencies to contribute to fiscal sustainability
How did the government’s fiscal condition change in fiscal year 2016?
Modest federal revenue growth was outweighed by growth in spending on major social insurance programs, according to the Fiscal Year 2016 Financial Report of the United States Government.
(Note: Numbers shown in red reflect a negative amount (i.e. add to the deficit). Numbers shown in black reflect a positive amount (i.e. reduce the deficit).)
After 6 years of declining deficits, the federal deficit increased by about $148 billion to reach $587 billion in fiscal year 2016.
- The federal government’s receipts increased by $18.0 billion.
- Federal spending increased by $166.5 billion.
Spending increases in 2016 were driven primarily by
- Social Security (the Old-Age and Survivors and Disability Insurance Programs (OASDI)),
- Medicaid, and
- interest on debt held by the public.
The federal debt increased.
Debt increased by $1.4 trillion from fiscal year 2015.
- Intragovernmental debt increased by about $0.4 trillion.
- Debt held by the public increased by a little more than $1.0 trillion.
What do the long-term fiscal projections show about the federal debt?
Absent policy changes, the federal government continues to face an unsustainable long-term fiscal path.
- Debt held by the public rose as a share of gross domestic product (GDP) from 74 percent at the end of fiscal year 2015 to 77 percent at the end of fiscal year 2016. This compares to an average of 44 percent of GDP since 1946.
- Over the long term, the imbalance between spending and revenue that is built into current law and policy is projected to lead to continued growth of the deficit and debt held by the public as a share of GDP.
- The debt-to-GDP ratio is projected to surpass its historical high of 106 percent within 15 to 25 years.
- This situation—in which debt grows faster than GDP—means the current federal fiscal path is unsustainable.
What’s driving budget pressure, and why is early action important?
Growth in deficits and debt is driven by the gap between revenue and spending; both sides of the equation are relevant.
On the spending side, health care spending and net interest continue to grow and absorb more resources. In our alternative simulation,
- federal health care spending on major health care programs increases from $993 billion in fiscal year 2016 to $2 trillion in fiscal year 2045 in 2016 dollars
- net interest increases from $248 billion in fiscal year 2016 to $1.4 trillion in fiscal year 2045 in 2016 dollars
Key factors driving health care growth:
- Aging population
- Expansion of federal programs
- Rising cost of health care
Key factors driving net interest growth:
- Debt growth
- Rising interest rates
To change the long-term fiscal path, policymakers will need to consider policy changes to the entire range of federal activities and spending—entitlement programs, other mandatory spending, discretionary spending, and revenue. The longer action is delayed, the greater and more drastic the changes will have to be. It is important to develop and begin to implement a long-term fiscal plan for returning to a sustainable path.
How can executive agencies contribute to fiscal sustainability?
While long-term changes in spending and revenue require legislation, executive agencies have opportunities to contribute to a sustainable fiscal future.
Reduce Improper Payments
Improper payments—payments that should not have been made or that were made in an incorrect amount could yield significant savings. The improper payments estimate in fiscal year 2016 was over $144 billion. Since fiscal year 2003, cumulative estimates have totaled over $1.2 trillion.
Address the Persistent Tax Gap by Improving Tax Collection Efforts
The tax gap is the difference between taxes owed to the government and total taxes paid on time. The estimated size of the annual gross tax gap is $458 billion.
Ensure that taxpayers do not fail to
(1) accurately report tax liabilities on tax returns (underreport),
(2) pay taxes due from filed returns (underpay), or
(3) file a required tax return altogether or on time (non-file).
Underreporting accounted for 84 percent of the tax gap across tax years 2008-2010.
Address Duplication, Overlap, and Fragmentation and Achieve Potential Cost Savings
We have recommended actions to reduce, eliminate, or better manage duplication, overlap, and fragmentation; achieve cost savings; or enhance revenue.
Actions taken so far by Congress and the executive branch have resulted in roughly $56 billion in financial benefits from fiscal years 2010 through 2015, with at least an additional $69 billion in estimated benefits projected to be accrued through 2025.
Billions of dollars in additional savings are possible by fully implementing our recommended actions.
Improve Information on Programs and Fiscal OperationsIn many cases, agencies can take action to provide decision makers with additional or improved information on the performance and costs of policies or programs. For example, decision-making could be improved by
- strengthened internal controls over financial reporting
- increased attention to tax expenditures and
- effective implementation of the DATA Act.
See the Stats:
Explore our gallery of figures from this report.
Explore our Related Work:
Explore our Related Blog Posts:
- Taking a Long Look at the Federal Budget
- Projecting the Future of Federal Finances: Long-Term Fiscal Simulations
- A Check-Up on the Government’s Fiscal Health
- Fiscal Exposures: 5 Sources of Risk that Drive Future Spending
- State and Local Fiscal Futures
- Podcast on GAO’s State and Local Fiscal Outlook Model Update
With virtually every American either contributing to or receiving Social Security benefits, the program’s financial future is important to many people. Get the facts on Social Security’s financial challenges, options to address them, and tools to evaluate what they mean for the future.