GAO: "Federal Government Is on an Unsustainable Fiscal Path"
The Government Accountability Office (GAO) recently released its long-term budget projections, and, like other forecasts, it projects that debt will grow to unsustainable levels over the long term. GAO projects will exceed the all-time record of 106 percent of Gross Domestic Product (GDP) within 20 years, reach 200 percent in about 50 years, and reach around 250 percent in 75 years. Under an alternative scenario that assumes temporary policies are extended and health care cost control measures are repealed, debt would reach the all-time record in 13 years and grow much more rapidly.
GAO constructs its budget projections largely using existing projections from the Congressional Budget Office (CBO) and the Social Security and Medicare Trustees. GAO projects that debt will exceed the all-time record of 106 percent of GDP in 2038 and reach 200 percent of GDP in the next half-century. The agency states that "this situation—in which debt grows faster than GDP—means the current federal fiscal path is unsustainable."
GAO's projections are actually slightly more optimistic than CBO's, which have debt reaching the all-time record in 2035, largely due to the Trustees having slower Medicare spending growth.
GAO also creates an alternative scenario that assumes temporary tax provisions are extended and uses the Medicare Trustees' alternative Medicare projection that assumes certain cost control measures don't go into effect. In this scenario, debt would grow much faster, reaching the all-time record in 2032, 200 percent of GDP in about 30 years, and roughly 500 percent in 75 years.
For GAO's baseline, it would take immediate spending cuts of 13 percent or revenue increases of 15 percent to stabilize debt at its current level of 78 percent of GDP. In the alternative simulation, the needed changes would be more than twice as large: 27 percent spending cuts or 36 percent revenue increases.
Like other long-term projections, GAO shows the drivers of debt as growing health care and Social Security spending as well as insufficient revenue. It projects health care spending will grow from 5.4 percent of GDP in 2018 to 8.6 percent by 2048 while Social Security spending would increase from 4.9 percent of GDP to 5.9 percent. As a result of growing debt and higher interest rates, interest spending would quadruple as a share of GDP from 1.6 percent in 2018 to 6.7 percent in 2048.
The report also discusses steps lawmakers could take to improve the budget. It discusses alternatives to the debt limit, such as linking debt limit increases to the budget resolution, and ways to reduce improper payments, the tax gap, and overlap and duplication.
GAO's budget outlook, like other forecasts, shows continuously growing debt over the long term that will require a significant correction. Otherwise, the consequences will be significant.