After Pandemic Recovery, Focus Needed on Achieving Long-Term Fiscal Sustainability (GAO-21-275SP)
Summary
GAO's annual report to Congress on the nation's fiscal health, GAO-21-275SP, dated March 2021. It states that Congress and the administration have responded in an unprecedented manner to the COVID-19 pandemic and its severe economic repercussions, and that since March 2020 the pandemic response has cost trillions of federal dollars. GAO says that until the country better contains the virus, the pandemic will likely remain a significant obstacle to more robust economic activity. It urges that after the pandemic recedes and the economy substantially recovers, Congress and the administration quickly pivot to an approach that places the government on a sustainable long-term fiscal path.
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Full text
2021
United States Government Accountability Office
THE
NATION’S
FISCAL
HEALTH
An Annual Report to Congress
After Pandemic Recovery, Focus Needed on
Achieving Long-Term Fiscal Sustainability
MarchMarch
2020 | 2021 | GAO-21-275SP
GAO-20-403SP
March 2021
AnAnnual Report toCongress
Highlights The Nation’s Fiscal Health
Highlights of GAO-21-275SP After Pandemic Recovery, Focus Needed on Achieving Long-
Term Fiscal Sustainability
The Government’s Fiscal Congress and the administration have responded in an unprecedented manner
Condition in 2020 Reflects to address the COVID-19 pandemic and the resulting severe economic
repercussions. Since March 2020, pandemic response has cost trillions of
Response to the Pandemic
federal dollars. Until the country better contains the virus, the pandemic will
The COVID-19 pandemic has
likely remain a significant obstacle to more robust economic activity.
resulted in catastrophic loss of life
and substantial damage to the After the pandemic recedes and the economy substantially recovers, Congress
global economy, stability, and
and the administration should quickly pivot to developing an approach to place
security. This continuing crisis
the government on a sustainable long-term fiscal path. In fiscal year 2020 debt
prompted a major federal
held by the public reached about 100 percent of gross domestic product (GDP),
response. Death tolls remain high
up from about 79 percent of GDP in fiscal year 2019. Absent any action, debt
and many people remain
held by the public is projected to surpass 200 percent of GDP by 2048.
unemployed, including both those
temporarily laid off and those who
History of Publicly Held Federal Debt
have permanently lost their jobs.
Attention Needed to Address the In the long term, spending on federal health care programs and Social Security
Long-Term Unsustainable drive most of the increase in federal non-interest spending as a share of GDP.
Fiscal Path
Under our projections, the debt will Health care. Total health care spending (public and private) in the United States
reach its highest point in history in continues to grow faster than the economy and is driven both by an increase in
2028 and continue to grow faster the proportion of the population enrolled in Medicare and by the increase in
than GDP thereafter. health care spending per beneficiary. GAO projects federal spending on major
health care programs to grow from 5.9 percent of GDP in fiscal year 2020 to 8.0
percent of GDP in fiscal year 2050. Medicare’s Hospital Insurance Trust Fund is
projected to be depleted by 2026 with revenues sufficient to pay only 87 percent
of scheduled benefits in 2027. 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 by 2027.
View GAO-21-275SP. For more
information, contact Susan J. Irving, Social Security. Demographic factors, such as longer lifespans, an aging
(202) 512-6806 or irvings@gao.gov, population, and slower labor force growth, are straining Social Security
Robert F. Dacey at (202) 512-3406 or programs and contributing to a gap between program costs and revenues. GAO
daceyr@gao.gov, and Dawn B.
Simpson, (202) 512-3406 or
projects spending on Social Security will grow from 5.2 percent of GDP in fiscal
simpsond@gao.gov. 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 Old-
Age and Survivors Insurance and Disability Insurance trust funds are projected
to be depleted in 2032 with revenues sufficient to support about 75 percent of
scheduled benefits in 2033.
As shown below, many of these key trust funds are projected to be depleted within
15 years or less.
Key Dates for Major Programs
Absent Changes, Continued The unsustainable fiscal path strains the federal budget and contributes to growing
Spending and Revenue at debt. According to CBO, high and rising federal debt increases the likelihood of a
Unsustainable Levels Will Pose fiscal crisis and could lead to a large drop in the value of the dollar or to a loss of
Serious Challenges in the Future confidence in the government’s ability or commitment to repay its debt in full.
Consequences of rising debt. Rising debt could also cause policymakers to feel
restrained in their capacity to support the economy during a downturn or unexpected
events, such as global military conflicts, natural disasters, or public health
emergencies. After the current pandemic recedes and the economy substantially
recovers, policymakers should turn their attention to swiftly developing a strategy to
change the long-term fiscal path. The sooner actions are taken, the less drastic the
changes will need to be.
Effects of compounding interest. Persistently low interest rates have
resulted in lower spending on net interest. However, due to the substantial
size of the debt, GAO projects net interest will become the largest category
of spending by 2050, growing from 1.6 percent of GDP in 2020 to 8.9
percent of GDP by 2050. The costs of debt vary based on interest rates, and
increased rates can have a compounding effect on the debt. Spending on
net interest was $345 billion in fiscal year 2020 and is projected to exceed
$1 trillion in fiscal year 2033.
Uncertainty about the debt limit. The debt limit is a legal limit on the total amount
of federal debt that can be outstanding at one time. However, it does not restrict
Congress’s ability to pass spending and revenue legislation that affects the level of
debt in the future, nor does it otherwise constrain fiscal policy. In August 2019,
Congress and the President suspended the debt limit through July 2021. Uncertainty
over whether the debt limit will be raised or suspended leads to increased borrowing
costs and disrupts the market for Treasury securities. GAO has suggested
previously that Congress consider alternative approaches to the debt limit as part of
any long-term fiscal plan.
A Fiscal Strategy Will Be Needed to GAO has also suggested that Congress consider establishing a long-term fiscal plan
Address the Unsustainable Fiscal for returning to a sustainable long-term path. In 2020, GAO suggested that as part of
Path this plan, Congress consider including fiscal rules and targets, such as a debt-to-
GDP target. In developing a fiscal plan, policymakers will need to consider the entire
Implementing a long-term fiscal plan at range of federal activities, both revenue (including tax expenditures) and spending
the right time can help ensure that the
(entitlement programs, other mandatory spending, and discretionary spending) that
United States remains in a strong
affect the debt path.
economic position to meet its security
and social needs and to preserve the
flexibility to address future events such Key Considerations for Designing, Implementing, and Enforcing Fiscal Rules and
as public health emergencies. Targets
Key consideration Supporting explanation
Setting clear goals and objectives can anchor a
country’s fiscal policy. Fiscal rules and targets can help
ensure that spending and revenue decisions align with
agreed-upon goals and objectives.
The weight given to tradeoffs among simplicity, flexibility,
and enforceability depends on the goals a country is
trying to achieve with a fiscal rule. In addition, there are
tradeoffs between the types and combinations of rules,
as well as the timeframes over which the rules apply.
The degree to which fiscal rules and targets are binding,
such as being supported through a country’s constitution
or non-binding political agreements, can impact their
permanence, as well as the extent to which ongoing
political commitment is needed to uphold them.
Integrating fiscal rules and targets into budget
discussions can contribute to their ongoing use and
provide for a built-in enforcement mechanism. The
budget process can include reviews of fiscal rules and
targets.
Fiscal rules and targets with limited, well-defined
exemptions, clear escape clauses for events such as
national emergencies, and adjustments for the economic
cycle can help a country address future crises.
Institutions supporting fiscal rules and targets need clear
roles and responsibilities for supporting their
implementation and measuring their effectiveness.
Independently analyzed data and assessments can help
institutions monitor compliance with fiscal rules and
targets.
Having clear, transparent fiscal rules and targets that a
government communicates to the public and that the
public understands can contribute to a culture of fiscal
transparency and promote fiscal sustainability for the
country.
Source: GAO analysis of literature review and interviews. | GAO-21-275SP
Executive Agencies and Congress Narrow the tax gap. Reducing the gap between taxes owed and those paid could
Have Additional Opportunities to increase tax revenues by billions of dollars annually. The average annual net tax
Contribute toward Fiscal Health gap was estimated to be $381 billion for tax years 2011 through 2013.
Address improper payments. Improper payments (i.e. those that should not have
been made or that were made in an incorrect amount) have consistently been a
government-wide issue, totaling an estimated $206 billion for fiscal year 2020. Since
fiscal year 2003, cumulative improper payment estimates have totaled about $1.9
trillion.
Implement program reforms. GAO estimates that billions of dollars in additional
financial benefits could be achieved by addressing high-risk problems, improving
service to the public, and strengthening government performance and accountability.
Since fiscal year 2010, actions taken so far by Congress and executive branch
agencies have resulted in roughly $429 billion financial benefits.
Contents
Letter 1
The Nation’s Fiscal Health: After Pandemic Recovery, Focus
Needed on Achieving Long-Term Fiscal Sustainability 1
The Government’s Fiscal Condition in Fiscal 2020 Reflects
Response to Public Health Emergency and Economic
Repercussions 3
Long-Term Fiscal Projections Show the Federal Government Is on
an Unsustainable Fiscal Path 9
A Fiscal Strategy Is Needed to Address the Long-Term
Unsustainable Fiscal Path 31
Executive Agencies and Congress Have Additional Opportunities
to Contribute toward Fiscal Health 39
Appendix I Objectives, Scope, and Methodology 52
Appendix II GAO Contacts and Staff Acknowledgments 54
Tables
Table 1: Additional Fiscal Exposures Also Put Pressure on the
Federal Budget 28
Table 2: Key Considerations for the Design, Implementation, and
Enforcement of Fiscal Rules and Targets 33
Table 3: Illustrative Examples of Changes Needed to Achieve
Debt-to-Gross Domestic Product Targets 36
Table 4: Programs and Activities with Estimates of Improper
Payments Exceeding $5 Billion in Fiscal Year 2020 40
Figures
Figure 1: Receipts and Outlays for Fiscal Years 2015–2020 4
Figure 2: Intragovernmental Debt and Debt Held by the Public, by
Sector as of September 30, 2020 6
Figure 3: Federal Debt Held by the Public 10
Figure 4: Debt Held by the Public under Projections from GAO
and the Congressional Budget Office (CBO) 11
Figure 5: Growth in Major Areas of Federal Non-Interest Spending 14
Figure 6: Federal Spending on Major Health Care Programs
Grows Faster Than GDP 16
Page i GAO-21-275SP The Nation's Fiscal Health
Figure 7: Daily Average Number of People Turning 65 18
Figure 8: Projected Net Interest and Other Spending as
Percentage of Gross Domestic Product 24
Figure 9: Disaster Resilience Framework Principles 28
Figure 10: Pension Benefit Guaranty Corporation’s Net Financial
Position of the Single-Employer and Multiemployer
Programs Combined, Fiscal Years 2000 to 2020 29
Figure 11: Key Dates for Major Programs 32
Figure 12: The Internal Revenue Service’s Estimate of the
Average Tax Gap for Tax Years 2011–2013 43
Figure 13: Estimated Average Annual Gross Tax Gap by Type of
Noncompliance and Tax, Tax Years 2011-2013 44
Page ii GAO-21-275SP The Nation's Fiscal Health
Abbreviations
Financial Report Financial Report of the United States Government
CARES Act Coronavirus Aid, Relief, and Economic Security Act
CBO Congressional Budget Office
CDC Centers for Disease Control and Prevention
CFO Act Chief Financial Officers Act of 1990
CMS Centers for Medicare & Medicaid Services
COVID-19 Coronavirus Disease 2019
DI Disability Insurance
DOD Department of Defense
Fannie Mae Federal National Mortgage Association
FMAP federal matching assistance percentage
Freddie Mac Federal Home Loan Mortgage Corporation
GDP gross domestic product
Ginnie Mae Government National Mortgage Association
IRS Internal Revenue Service
PBGC Pension Benefit Guaranty Corporation
PIIA Payment Integrity Information Act of 2019
OASI Old-Age and Survivors Insurance
OMB Office of Management and Budget
PPACA Patient Protection and Affordable Care Act
SSA Social Security Administration
Treasury Department of the Treasury
USPS U.S. Postal Service
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Page iii GAO-21-275SP The Nation's Fiscal Health
Letter
441 G St. N.W.
Washington, DC 20548
March 23, 2021
The President
The President of the Senate
The Speaker of the House of Representatives
The Coronavirus Disease 2019 (COVID-19) pandemic has resulted in
The Nation’s Fiscal catastrophic loss of life and substantial damage to the global economy,
Health: After stability, and security. The COVID-19 pandemic prompted a major federal
response to our national public health emergency. Death tolls remain high
Pandemic Recovery, and many people remain unemployed, including both those temporarily
Focus Needed on laid off and those who have permanently lost their jobs. The country
continues to experience serious economic repercussions and turmoil as a
Achieving Long-Term result of the pandemic. Since March 2020, pandemic response has cost
Fiscal Sustainability trillions of federal dollars. Until the country better contains the spread of
the virus, the pandemic will likely remain a significant obstacle to more
robust economic activity.
While responsive to the emergency, the pandemic response caused a
substantial increase in the nation’s debt, further complicating our
government’s fiscal condition and outlook. As a share of gross domestic
product (GDP), debt held by the public increased from about 79 percent
at the end of fiscal year 2019 to about 100 percent at the end of fiscal
year 2020. Absent policy changes, under our projections, it will continue
to grow, surpassing its historical high of 106 percent of GDP in 2028 and
exceeding 200 percent in 2048. In the long term, the fiscal outlook poses
serious economic, security, and social challenges if not addressed.
Once the pandemic recedes and the economy substantially recovers,
Congress and the administration should quickly pivot to developing an
approach to place the government on a sustainable long-term fiscal path.
Such a plan is needed to ensure that the United States remains in a
strong economic position to meet its security and social needs and would
preserve the flexibility to address unforeseen events, such as public
health emergencies. When developing this plan at the appropriate time,
Page 1 GAO-21-275SP The Nation's Fiscal Health
fiscal rules and targets can be used to help frame and control the overall
results of spending and revenue decisions. 1
In this report, we discuss the federal government’s fiscal condition and
how it changed in fiscal year 2020, the federal government’s
unsustainable long-term outlook, and risks to the government’s future
fiscal condition. 2 We also discuss actions Congress and federal agencies
can take to achieve a more sustainable fiscal path, as well as the
potential consequences of not taking action. 3
This annual report illustrates the need for such a long-term fiscal plan by
describing the fiscal condition of the U.S. government as of the end of
fiscal year 2020 and its future fiscal path absent policy changes. This
report updates our March 2020 report, and it draws from our long-term
simulations, simulations developed by the Congressional Budget Office
(CBO), and actual receipts and outlays reported by the Department of the
Treasury (Treasury) and CBO. 4
Every year, the Secretary of the Treasury, in coordination with the
Director of the Office of Management and Budget (OMB), prepares the
U.S. government’s financial statements, which are presented in the
Financial Report of the United States Government (Financial Report). We
are responsible for auditing these statements. 5 The Financial Report
contains information on the federal government’s financial position and
1Since 2017, we have reported that a plan is needed to put the federal government on a
sustainable fiscal path. In September 2020, we raised a matter to Congress suggesting it
establish a long-term fiscal plan that includes fiscal rules and targets. GAO, The Nation’s
Fiscal Health: Effective Use of Fiscal Rules and Targets, GAO-20-561 (Washington, D.C.:
Sept. 23, 2020).
2For the purposes of this report, fiscal condition is a broad concept using both budget and
financial information. The term “fiscal” is part of fiscal policy, which refers to decisions on
taxes and spending that affect the level, composition, and distribution of national income
and output. The budget process is a major vehicle for determining and implementing fiscal
policy.
3For more information on our objectives, scope, and methodology, see appendix I.
4GAO, The Nation’s Fiscal Health: Action Is Needed to Address the Federal Government’s
Fiscal Future, GAO-20-403SP (Washington, D.C.: Mar. 12, 2020).
5GAO, Financial Audit: Fiscal Years 2019 and 2018 Consolidated Financial Statements of
the U.S. Government, GAO-20-315R (Washington, D.C.: Feb. 27, 2020).The consolidated
financial statements of the U.S. government are based on U.S. generally accepted
accounting principles. The fiscal year 2020 consolidated financial statements will not be
released until after our report.
Page 2 GAO-21-275SP The Nation's Fiscal Health
condition, including its costs and revenues. Since the 2020 Financial
Report was not issued at the time of our analysis, we relied on Monthly
Treasury Statements, which summarize the federal government’s
financial activities. 6
The Government’s
Fiscal Condition in
Fiscal 2020 Reflects
Response to Public
Health Emergency
and Economic
Repercussions
Pandemic Response and In fiscal year 2020, the reported federal budget deficit increased for the
Recovery Efforts Led to fifth consecutive year. Driven largely by the federal government’s
response to the COVID-19 pandemic, the federal budget deficit for fiscal
Significant Growth in
year 2020 reached $3.1 trillion—triple the level in fiscal year 2019. This
Spending represents the largest budget deficit as a share of GDP since 1945.
Figure 1 shows increasingly larger deficits from fiscal year 2015 to fiscal
Federal Deficit
year 2020, as the gap between annual outlays and annual receipts has
The federal deficit is the amount by which the
government’s spending exceeds its revenues grown.
for a given period, usually a fiscal year.
Federal Debt
Federal debt is the amount of money that the
federal government owes, either to its
investors (debt held by the public) or to itself
(intragovernmental debt).
Source: GAO. │ GAO-21-275SP
6The Monthly Treasury Statement summarizes the financial activities of the federal
government and off-budget federal entities on a primarily cash basis, which conforms to
the Budget of the U.S. Government.
Page 3 GAO-21-275SP The Nation's Fiscal Health
Figure 1: Receipts and Outlays for Fiscal Years 2015–2020
From fiscal year 2019 to fiscal year 2020, total receipts (revenues) fell by
about 1 percent, and total outlays (spending) increased by about 47
percent. Most of the increase in the deficit occurred in the second half of
fiscal year 2020. At the end of March 2020, the deficit was about $743.4
billion. By the end of the fiscal year, the deficit had increased to $3.1
trillion.
The response to the COVID-19 pandemic accounts for much of the
increase in the deficit. As of January 2021, 7 Congress had appropriated 8
7As of March 2021, six relief laws had been enacted in response to the COVID-19
pandemic: the Coronavirus Preparedness and Response Supplemental Appropriations
Act, 2020, Pub. L. No. 116-123, 134 Stat. 146 (Mar. 6, 2020); Families First Coronavirus
Response Act, Pub. L. No. 116-127, 134 Stat. 178 (Mar .18, 2020); Coronavirus Aid,
Relief, and Economic Security Act, Pub. L. No. 116-136, 134 Stat. 281 (Mar. 27, 2020)
(CARES Act); Paycheck Protection Program and Health Care Enhancement Act, Pub. L.
No. 116-139, 134 Stat. 620 (Apr. 24, 2020); Consolidated Appropriations Act, 2021, Pub.
L. No. 116-260, 134 Stat. 1182 (Dec. 27, 2020), and American Rescue Plan Act of 2021,
Pub. L. No. 117-2, 135 Stat. 4 (Mar. 11, 2021).
8As of January 31, 2021, the most recent date for which government-wide information was
available at the time of our analysis, the federal government had obligated a total of $2.2
trillion and expended $1.9 trillion of the COVID-19 relief funds as reported by federal
agencies to the Department of the Treasury’s (Treasury) Governmentwide Treasury
Account Symbol Adjusted Trial Balance System (GTAS).
Page 4 GAO-21-275SP The Nation's Fiscal Health
about $3.1 trillion to fund response and recovery efforts. 9 This relief
provided direct support to individuals and to enterprises economy-wide, to
include public health systems and private-sector businesses.
In March 2021, Congress passed, and the President signed into law, the
American Rescue Plan Act of 2021. 10 It provides additional relief to
address the continued impact of COVID-19 on the economy, public
health, state, local, and tribal governments, individuals, and businesses.
CBO estimates the budgetary effects of the law to be $1.8 trillion.
In fiscal year 2020, spending also rose for Medicaid by $49 billion (12
percent), partly due to a change in the federal matching rate enacted in
response to the pandemic. Medicare spending rose by $125 billion (19.2
percent), Social Security by $51 billion (4.9 percent), and national
defense by $39 billion (5.6 percent).
Federal Debt Increased in Total federal debt rose to $26.9 trillion at the end of fiscal year 2020, an
Fiscal Year 2020 increase of about $4.2 trillion from fiscal year 2019 (see figure 2). Both
debt held by the public and debt held by government accounts, known as
intragovernmental debt, increased. Debt held by the public increased
from about $16.8 trillion to $21.0 trillion, and intragovernmental debt
increased slightly, but remains around $5.9 trillion.
9The Consolidated Appropriations Act, 2021, expanded several CARES Act programs,
including appropriating additional funds for targeted advances for the Economic Injury
Disaster Loan Program and authorizing additional Paycheck Protection Program loans
and rescinded unobligated funds for certain programs. Pub. L. No. 116-260, 134 Stat.
1182 (2020). The Consolidated Appropriation Act, 2021, led to the rescission of about
$625 billion of unobligated balances for certain programs funded though COVID-19 relief
laws.
10American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135 Stat. 4.
Page 5 GAO-21-275SP The Nation's Fiscal Health
Figure 2: Intragovernmental Debt and Debt Held by the Public, by Sector as of September 30, 2020
As a share of GDP, debt held by the public increased from about 79
percent at the end of fiscal year 2019 to about 100 percent at the end of
fiscal year 2020. 11 Debt held by the public is reported as a liability on the
consolidated financial statements of the U.S. government.
11GAO, Financial Audit: Bureau of the Fiscal Service’s FY 2020 and FY 2019 Schedules of
Federal Debt, GAO-21-124 (Washington, D.C., Nov. 9, 2020). GDP is the value of all
goods and services produced within the borders of a country in a given period. The dollar
value of debt is difficult to interpret absent some sense of the size of the economy
supporting it. Therefore, the ratio of debt to GDP is used to gauge a country’s
government’s ability to pay its debt. Other factors being equal, increasing GDP lowers the
debt-to-GDP ratio while decreasing GDP raises this ratio.
Page 6 GAO-21-275SP The Nation's Fiscal Health
Intragovernmental debt is debt owed by the U.S. Treasury to another part
of the government. Since it is an asset to those other federal government
accounts but a liability to Treasury, they offset each other in the
consolidated financial statements. Debt held by the public is a claim on
today’s economy whereas debt held by government accounts is a claim
on the future. However, when securities from intragovernmental debt are
redeemed, these redemptions usually are financed by borrowing from the
public (i.e., investors purchasing Treasury securities). At that point, the
amount of redeemed intragovernmental debt is replaced by debt held by
the public.
The Federal Reserve is the largest individual domestic investor; as of
September 2020 it held more than $4.4 trillion in Treasury securities—or
21 percent of all debt held by the public. International investors—including
both private investors and foreign official institutions, such as central
banks and government-owned investment funds—held more than $7.0
trillion, or about 34 percent, of debt held by the public as of September
2020. 12
To achieve its goal of financing the government’s borrowing needs at the
lowest cost over time, Treasury must maintain strong demand from a
diverse group of domestic and international investors. From March to
September 2020, as Treasury rapidly increased borrowing to respond to
the COVID-19 pandemic, the Treasury securities holdings of domestic
investors—which includes a variety of private investors (e.g., individuals,
mutual funds, banks, and pension funds), and state and local
governments—increased by more than $1.7 trillion; a 22 percent
increase. In March 2020, the Treasury market experienced an episode of
market volatility related to the COVID-19 pandemic that briefly increased
interest rates on Treasury securities and prompted the Federal Reserve
12These figures are based on the value of Treasury securities held by different sectors
from the “Financial Accounts of the United States” produced by the Federal Reserve.
Page 7 GAO-21-275SP The Nation's Fiscal Health
to take a number of actions to help support market functioning—including
rapidly purchasing $1.8 trillion in Treasury securities from investors. 13
Since the outbreak of the COVID-19 pandemic, the major credit rating
agencies have maintained their rating of U.S. debt at AAA or, in the case
of Standard & Poor’s, AA+. 14 The agencies note the continued strength
and resilience of the U.S. economy and institutions. However, as of July
2020, the credit rating agency Fitch—while retaining its AAA rating of US
debt—labeled the U.S. outlook negative to reflect the ongoing
deterioration in U.S. public finances and the absence of a credible fiscal
plan. 15
Moody’s U.S. outlook remains stable, but the rating agency noted in June
2020 that despite low interest rates, it expects U.S. debt affordability to
deteriorate over the longer term driven mainly by lower government
revenues, higher average levels of unemployment, and higher debt
accumulation. 16 A failure to address the nation’s unsustainable fiscal path
over the long term could make it difficult to maintain the federal
government’s credit ratings and attract investors without Treasury paying
higher interest rates. 17
13The Federal Reserve conducts monetary policy to promote maximum employment,
stable prices, and moderate long-term interest rates. As part of this role, the Federal Open
Market Committee is responsible for directing open market operations—the purchase and
sale of securities in the open market by a central bank—to influence the total amount of
money and credit available in the economy. We have ongoing work pursuant to statutory
authority provided in the CARES Act to examine the actions Treasury has taken to finance
the federal government’s response to the COVID-19 pandemic and changes to the cost
and liquidity of Treasury securities during that time.
14In August 2011, Standard & Poor’s lowered its long-term sovereign credit rating on the
United States from AAA to AA+, citing the United States’ rising public debt burden and
greater policymaking uncertainty.
15See Fitch Ratings, Fitch Revises United States’ Outlook to Negative; Affirms at ‘AAA’,
(New York: July 31, 2020). A stable outlook indicates a low likelihood of a rating change
over the medium term. A negative, positive, or developing outlook indicates a higher
likelihood of a rating change over the medium term.
16See Moody’s Investors Service, Rating Action: Moody’s affirms United States’ AAA
rating; maintains stable outlook, (New York: June 19, 2020).
17For more information, see GAO, Federal Debt Management: Treasury Should
Strengthen Policies for Market Outreach and Analysis to Maintain Broad-Based Demand
for Securities, GAO-20-131 (Washington, D.C.: Dec. 5, 2019). In this report, we identified
potential risks to investor demand for Treasury securities, including rising debt levels.
Page 8 GAO-21-275SP The Nation's Fiscal Health
International organizations recommend reporting on the long-term
Long-Term Fiscal sustainability of the government’s fiscal policy because neither accrual-
Projections Show the based financial statements nor largely cash-based budgets provide a full
picture of the government’s fiscal outlook. 18 Even prior to the COVID-19
Federal Government pandemic and resulting economic turmoil, long-term fiscal projections by
Is on an GAO, by CBO, 19 and in the 2019 Financial Report 20 showed that, absent
policy changes, the long-term path of the debt was unsustainable. 21
Unsustainable Fiscal
Path As figure 3 shows, for most of the nation’s history, the debt-to-GDP ratio
has increased during wartime and recessions and decreased during
When Will Debt Surpass Its Historical peacetime and economic expansions. Publicly held debt as a share of
High?
GDP peaked at 106 percent just after World War II (in 1946) but then fell
The timing and pace of debt-to-GDP growth
depend on the underlying assumptions made rapidly. However, U.S. debt held by the public as a share of GDP grew
in fiscal projections and simulations. during three of the four most recent economic expansions. The federal
Both GAO and CBO projections show that, government has run a deficit and added to its debt in every fiscal year
absent a change in policy, the debt-to-GDP
ratio would reach its highest value in history since 2002. Persistent and growing deficits have caused debt held by the
within the next 7 to 10 years. public to grow faster than GDP, and the ratio of debt to GDP has
Source: GAO and CBO. │ GAO-21-275SP
increased from about 32 percent at the end of fiscal year 2001 to about
100 percent at the end of fiscal year 2020.
18See International Public Sector Accounting Standards Board, Recommended Practice
Guideline 1: Reporting on the Long-Term Sustainability of an Entity’s Finances (July
2013). The International Monetary Fund also includes fiscal sustainability as one of the
principles in its “Fiscal Transparency Code,” an international standard for disclosure of
information about public finances. In September 2009, the Federal Accounting Standards
Advisory Board issued an accounting standard that requires the consolidated financial
statements of the U.S. Government to include Fiscal Sustainability Reporting. Fiscal
Sustainability Reporting includes a Statement of Long-Term Fiscal Projections, reporting
the fiscal gap, and additional required disclosures.
19For the purposes of this report, whenever we refer to CBO’s “long-term projections” or
CBO’s “long-term budget outlook” we are referring to CBO, The 2021 Long-Term Budget
Outlook (Washington, D.C.: March 2021).
20Fiscal Year 2019 Financial Report of the United States Government. As of the time of
this report writing, the Fiscal Year 2020 Financial Report of the United States Government
had not been issued.
21GAO and CBO’s projections do not take into account the American Rescue Plan Act of
2021, Pub. L. No. 117-2, 135 Stat. 4.
Page 9 GAO-21-275SP The Nation's Fiscal Health
Figure 3: Federal Debt Held by the Public
Looking forward, all the projections and simulations discussed in this
report show that debt held by the public continues to grow substantially as
a share of GDP (see figure 4). Moreover, these projections and
simulations show that publicly held debt will reach a historical high within
7 to 10 years. Although not identical, both CBO’s simulation and GAO’s
baseline simulation generally assume current law (e.g., that tax
provisions, such as temporarily reduced income tax rates, expire as
scheduled). 22 GAO’s alternative simulation generally reflects historical
22Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, 131 Stat. 2054 (Dec. 22, 2017).
Page 10 GAO-21-275SP The Nation's Fiscal Health
policy experiences in assuming some variation from current law, such as
the extension of tax provisions scheduled to expire.
Figure 4: Debt Held by the Public under Projections from GAO and the
Congressional Budget Office (CBO)
Note: GAO’s baseline simulation and CBO’s March 2021 long-term extended baseline projection
begin by using CBO estimates and generally assume current law continues into the future. GAO’s
baseline simulation assumes that revenue remains a constant share of gross domestic product
(GDP). GAO’s alternative simulation generally reflects historical trends, such as the extension of tax
provisions scheduled to expire. Each simulation has its own GDP projections, which affect the
projected debt-to-GDP ratios. See appendix I for additional discussion on the assumptions made in
GAO’s model. CBO’s long-term budget projections extend 30 years to 2051 while GAO’s extend 75
years.
All projections involve some degree of uncertainty. Future policy
decisions about federal spending, revenues, the federal role in the
delivery of health care, and other areas would change the projections.
The projected debt-to-GDP ratio is sensitive to assumptions about
Page 11 GAO-21-275SP The Nation's Fiscal Health
projected health care costs, interest rates, spending, revenues, and
economic growth. 23 The projections do not fully account for fiscal risks or
exposures discussed later in this report, such as natural disasters or
public health emergencies.
Both the current fiscal condition and the long-term projections of fiscal
sustainability are driven by the economy and by laws passed by
Congress and signed into law by the President. CBO’s March 2021 long-
term budget outlook projects that debt as a share of GDP in 2049 will be
45 percentage points higher than projected in 2019. 24 CBO attributes this
difference primarily to the effects of the pandemic and actions taken to
respond to it—including the impact on economic activity. CBO projects
deficits to remain large by historical standards even after the effects of the
COVID-19 pandemic fade. Similarly, GAO’s alternative simulation shows
deficits rising from about 7 percent of GDP to 15 percent between 2030
and 2050.
According to CBO, high and rising federal debt increases the likelihood of
a fiscal crisis. CBO identified concerns that the government’s fiscal
position could lead to a large drop in the value of the dollar, or a loss of
confidence in the government’s ability or commitment to repay its debt in
full. CBO has also reported that rising debt could cause policymakers to
feel restrained in their capacity to support the economy during a downturn
or unexpected event. The unsustainable fiscal path is straining the federal
budget and contributing to growing debt. The longer that action to
address this issue is delayed, increasingly drastic changes will be
needed.
States and Localities Face State and local government fiscal conditions deteriorated significantly in
Similar Challenges the spring of 2020 as the national economy weakened and most states
delayed income tax filing deadlines. Since this initial shock, total state and
local government tax revenues and access to credit via municipal bond
markets have significantly improved. In the aggregate, state and local
government expenditures remained steady during the pandemic while
23To illustrate this uncertainty, GAO produces sensitivity analyses that show the effects on
its simulations if selected variables are higher or lower than projected. See
https://files.gao.gov/multimedia/gao-21-211/interactive/index.html.
24In 2019, CBO’s long-term budget outlook projection of debt-to-GDP for 2049 was 144
percent; whereas, in 2021 the same projection for the year 2049 is 189 percent.
Page 12 GAO-21-275SP The Nation's Fiscal Health
state and local government employment is substantially lower than before
the pandemic.
In addition, as the number of continuing unemployment claims remains
historically high, more states face increased financial strain, and some
have sought loans from the federal government to pay unemployment
insurance benefits. 25 As of March 12, 2021, about a year since the March
2020 spike in UI claims, 20 states and territories held federal loans
totaling about $52.1 billion.
Changes in state and local government workforces suggest continued
weakness in these governments’ finances. We reported in January 2021
that employment by state and local governments increased slightly in
November 2020 and fell in December 2020, falling in three out of the last
four months of calendar year 2020. 26 According to Moody’s Analytics,
state and local governments have used cost-cutting measures, including
reducing their workforce by roughly 1.3 million public sector workers since
the start of the pandemic, leading to the smallest state and local
government workforce since 2001.
A number of states also tapped their reserve funds to balance budgets for
fiscal year 2020. Four COVID-19 relief laws provided an estimated $335
billion in funds to agencies for assisting U.S. states, localities, territories,
and tribes, including the Coronavirus Relief Fund, which provided $150
billion in direct assistance to help offset costs of their response to the
COVID-19 pandemic. 27 However, most of those funds are for costs
25While the CARES Act unemployment insurance programs are federally funded, regular
unemployment insurance is primarily funded through state and federal taxes on
employers. When a state exhausts the funds available for regular unemployment
insurance benefits, it may borrow from the federal government. According to Department
of Labor data, even before the pandemic, many states were not taking in enough
unemployment insurance tax revenue to satisfy the solvency standard specified in the
department’s regulations providing for interest-free loans to states. See 20 C.F.R. §
606.32.
26GAO, COVID-19: Critical Vaccine Distribution, Supply Chain, Program Integrity, and
Other Challenges Require Focused Federal Attention, GAO-21-265 (Washington, D.C.:
Jan 28, 2021).
27Pub. L. No. 116-136, § 5001, 134 Stat. at 501, codified at 42 U.S.C. § 801. Four COVID-
19 relief laws are the Coronavirus Preparedness and Response Supplemental
Appropriations Act, 2020, Pub. L. No. 116-123, 134 Stat. 146; Families First Coronavirus
Response Act, Pub. L. No. 116-127, 134 Stat. 178; CARES Act, Pub. L. No. 116-136, 134
Stat. 281; and Paycheck Protection Program and Health Care Enhancement Act, Pub. L.
No. 116-139, 134 Stat. 620.
Page 13 GAO-21-275SP The Nation's Fiscal Health
directly related to the pandemic and cannot be used for stabilizing states’
and localities’ budgets.
Health Care and Social Despite the elevated levels of spending attributed to federal COVID-19
Security Spending Remain response in 2020, as figure 5 shows, most of the increase in federal non-
interest spending as a share of GDP over the long term is driven by
Key Drivers of Federal
spending on federal health care programs and Social Security.
Non-Interest Spending in
the Long Term
Figure 5: Growth in Major Areas of Federal Non-Interest Spending
Notes: GAO’s alternative simulation holds discretionary spending and other mandatory spending
constant as a share of gross domestic product in the long term. Health care spending on major
federal health care programs consists of Medicare, Medicaid, the Children’s Health Insurance
Program, and federal subsidies for health insurance purchased through the exchanges established by
Page 14 GAO-21-275SP The Nation's Fiscal Health
the Patient Protection and Affordable Care Act and related spending. Pub. L. No. 111-148, 124 Stat.
119 (Mar. 23, 2010).
GAO’s simulations project that in the coming years health care spending
and Social Security spending will continue to increase as a share of GDP.
In GAO’s alternative simulation, federal spending on major health care
programs grows from 5.9 percent of GDP in fiscal year 2020 to 8.0
percent of GDP in fiscal year 2050. In the same simulation, spending on
Social Security increases from 5.2 percent of GDP in fiscal year 2020 to
6.1 percent of GDP in fiscal year 2050.
Health Care Spending Total health care spending (public and private) in the United States
Continues to Grow Faster continues to grow faster than the economy. Federal spending for major
Than the Economy health care programs accounts for more than a quarter of total health
care spending. Figure 6 shows the widening gap between the growth in
GDP and spending for major federal health programs. Federal health care
programs include Medicare, Medicaid, and the Children’s Health
Insurance Program, along with federal subsidies for health insurance
purchased through the exchanges established by the Patient Protection
and Affordable Care Act (PPACA) and related spending. 28
28Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and
Education Reconciliation Act of 2010; Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30,
2010). In this report, references to PPACA include any amendments made by the Health
Care and Education Reconciliation Act of 2010.
Page 15 GAO-21-275SP The Nation's Fiscal Health
Figure 6: Federal Spending on Major Health Care Programs Grows Faster Than GDP
Note: Cumulative growth in both gross domestic product (GDP) and federal spending on major health
care programs has been adjusted for inflation. GDP is the value of all goods and services produced in
a country in a given year. Major federal health care programs consist of Medicare, Medicaid, the
Children’s Health Insurance Program, and federal subsidies for health insurance purchased through
the exchanges established by the Patient Protection and Affordable Care Act and related spending.
CBO notes that growth in Medicare and Medicaid spending were key
contributors to the increase in federal spending in 2020, particularly given
the effects of COVID-19 relief laws, such as the CARES Act, on the
budget. Specifically:
• Medicare. CBO reported that Medicare spending net of offsetting
receipts rose by 19 percent in 2020, from $648 billion in 2019 to $773
billion in 2020, largely as a result of payments made to providers in
Page 16 GAO-21-275SP The Nation's Fiscal Health
2020 in advance of expected health care claims. 29 CBO expects that
these payments will be recouped from future claims.
• Medicaid. CBO reported that Medicaid spending rose by 12 percent
in 2020, from $409 billion in 2019 to $458 billion in 2020, largely
because of laws enacted in response to the COVID-19 pandemic.
CBO reported that the most significant provision made in response to
the pandemic was an increase in the federal matching assistance
percentage (FMAP) for Medicaid by 6.2 percentage points for the
duration of the coronavirus public health emergency. 30
In the long term, projected growth in federal spending on health care is
driven by an increase in the proportion of the population enrolled in
Medicare and an increase in health care spending per beneficiary.
• Aging population. CBO’s long-term budget outlook noted that over
the 2019 to 2051 period the aging population accounts for about one-
third of the projected growth in spending for major health care
programs as a share of GDP. 31 CBO projected that, by 2051, 22
percent of the population will be age 65 or older, compared to 17
percent in 2021. Both lower fertility rates and increases in life
expectancy drive this demographic trend, increasing the population of
Medicare beneficiaries relative to working adults. The relatively large
baby boom generation, which began turning 65 in 2011, accelerates
this trend (see figure 7). Both enrollment in and spending on Medicare
are expected to increase as the number and proportion of people over
age 65 increases.
29Section 3719 of the CARES Act authorized the expansion of the Accelerated and
Advance Payment Programs, which are typically used to make available emergency
funding and address cash flow issues for providers and suppliers when there is disruption
in claims submission or claims processing, including during a public health emergency or
presidentially declared disaster. Under the expanded programs, active Medicare providers
and suppliers could apply for loans of up to 100 or 125 percent of the payments they
received for a prior 3-month or 6-month period, depending on the type of provider or
supplier. Pub. L. No. 116-136, § 3719, 134 Stat. at 426, codified at 42 U.S.C. § 1395g(f).
30FMAP is the share of Medicaid costs paid by the federal government and is based on a
statutory formula. The Families First Coronavirus Response Act provides a temporary
increase in the FMAP for all qualifying states and territories. The same law required that,
in order to receive the additional FMAP funds, states must maintain coverage for all
Medicaid enrollees during the public health emergency regardless of any changes in their
income or circumstances that would otherwise have caused them to become ineligible for
the program. Pub. L. No. 116-127, § 6008, 134 Stat. at 208.
31Fiscal Year 2051 is the last year of CBO’s long-term budget projection.
Page 17 GAO-21-275SP The Nation's Fiscal Health
Figure 7: Daily Average Number of People Turning 65
Note: Census data estimates of population are as of July 1 in each year.
• Per beneficiary spending. Historically, the amount of money spent
on health care per person has risen faster than per capita economic
output, and this rate of spending is expected to continue. CBO’s long-
term budget outlook projected that the growth in health care spending
per person will account for about two-thirds of the increase in
spending for the major health care programs as a share of GDP
between 2019 and 2051. During the past several years, both CBO
and the Medicare Trustees project that spending per enrollee in
federal health care programs will grow more rapidly over the coming
decade, compared to historical trends. A number of factors can affect
per beneficiary spending, including the emergence of new medical
procedures and treatments.
Increased health care spending for major federal health care programs,
especially Medicare, will continue to place a strain on the federal budget
in both the near and the long term. Illustrative examples of projected
growth in federal health care spending include:
• Medicare. CBO projected Medicare spending will total $1 trillion by
2023, and both CBO and the Medicare Trustees project that the
Medicare Part A (Hospital Insurance) trust fund will be depleted within
Page 18 GAO-21-275SP The Nation's Fiscal Health
the decade. 32 In February 2021, CBO projected that Medicare’s
Hospital Insurance Trust Fund will be depleted by 2026 with revenues
sufficient to pay 87 percent of hospital-related Medicare spending in
2027. 33
• Medicaid. The Centers for Medicare and Medicaid Services (CMS)
Office of the Actuary projected that combined federal and state
Medicaid spending will total $1 trillion by 2027 (3.3 percent of GDP),
of which $625 billion will be federal spending. 34 In 2020, CBO
projected that changes to Medicaid in response to the pandemic will
increase outlays by $132 billion from 2021 through 2030, largely due
to the increase in the rate of federal matching.
• Federal subsidies for health insurance. In September 2020, CBO
projected that costs for people receiving federal subsidies for health
insurance purchased through the exchanges and related spending
under the provisions of PPACA will rise from $54 billion in 2020 to $73
billion by 2030.
The COVID-19 pandemic is likely to have a continued effect on health
care spending in the long term. In its long-term budget outlook, CBO
noted that the COVID-19 pandemic increases the degree of uncertainty in
projected health care spending, given how the pandemic will shift the
demand for and supply of health care services. Illustrative examples of
factors that could increase total health care spending in the long term as
a result of the COVID-19 pandemic include:
• Delayed medical care. In September 2020, the Centers for Disease
Control and Prevention (CDC) reported that by June 30, 2020,
concerns about COVID-19 had led an estimated 41 percent of U.S.
adults to delay or avoid medical care, including urgent or emergency
32The Trustees projections are from The 2020 Annual Report of the Boards of Trustees of
the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds. While the Trustees report came out in April 2020, it did not include estimates of the
effect of the COVID-19 pandemic on the trust funds’ finances.
33CBO, The Budget and Economic Outlook: 2021 to 2031 (Washington, D.C.: February
2021).
34The Department of Health and Human Services, CMS, Office of the Actuary, 2018
Actuarial Report on the Financial Outlook for Medicaid, (Baltimore, M.D.: 2020). In this
report, the CMS Chief Actuary stated that projections of health care costs are inherently
uncertain. In particular, Medicaid projections are uncertain because enrollment and costs
are very sensitive to economic conditions.
Page 19 GAO-21-275SP The Nation's Fiscal Health
care (12 percent) and routine care (32 percent). 35 Also in September,
CMS reported that there was a significant decline in critical primary
and time-sensitive preventive services for children between March
and May 2020. 36 CBO noted that future health care spending could
increase if people reschedule services that they deferred because of
the pandemic.
• Long-term health effects of COVID-19. Preliminary research
suggests that individuals who have had COVID-19, including those
who have been hospitalized, may suffer long-term adverse health
outcomes, such as heart, brain, or lung abnormalities. 37 Caring for
such long-term effects could increase total health care spending.
• Behavioral health conditions. According to CDC in June 2020, U.S.
adults reported elevated rates of mental health conditions and
substance use associated with COVID-19 and recommended
mitigation activities, such as physical distancing and stay-at-home
orders. 38 Treating and preventing behavioral health conditions could
also increase total health care spending.
• Increases in telehealth. According to CDC, during the first quarter of
2020, the number of telehealth visits increased by 50 percent,
compared to the same period in 2019, marking shifts in medical
practice patterns that have implications for longer-term population
health. 39 Total health care spending may increase to the extent that
telehealth services are additive instead of substituting for in-person
services.
• COVID-19 vaccine and therapeutics. As of March 1, 2021, FEMA
has provided more than $4 billion to 38 states, Washington D.C., four
tribes, and five territories for expenses related to COVID-19
35CDC, Morbidity and Mortality Weekly Report, Vol. 69, No. 36 (Sept. 11, 2020).
36CMS, Service use among Medicaid & CHIP beneficiaries age 18 and under during
COVID-19: Preliminary Medicaid & CHIP Data Snapshot (Sept. 23, 2020).
37For example, see V. O. Puntmann et al., “Outcomes of Cardiovascular Magnetic
Resonance Imaging in Patients Recently Recovered From Coronavirus Disease 2019
(COVID-19),” JAMA Cardiology (2020); L. Mao et al., “Neurologic Manifestations of
Hospitalized Patients with Coronavirus Disease 2019 in Wuhan, China,” JAMA Neurology
(2020); and Y. Zhao et al., “Follow-up Study of the Pulmonary Function and Related
Physiological Characteristics of COVID-19 Survivors Three Months after Recovery,”
EClinicalMedicine (2020).
38CDC, Morbidity and Mortality Weekly Report, Vol. 69, No. 32 (Aug. 14, 2020).
39CDC, Morbidity and Mortality Weekly Report, Vol. 69, No. 43 (Oct. 30, 2020).
Page 20 GAO-21-275SP The Nation's Fiscal Health
vaccinations. Costs for COVID-19 vaccines and therapeutics will likely
continue to affect total health care spending in future years.
Social Security Poses Social Security has remained the bedrock of retirement security—insuring
Significant Financial workers against the loss of income because of retirement, death, or
Challenges disability. Social Security provides benefits to about 64 million older
Americans, survivors, dependents, and individuals with disabilities, as
well as their families. It has helped reduce poverty among its
beneficiaries, many of whom rely on it for the majority of their income. 40
According to Treasury’s Final Monthly Treasury Statement, which covers
all of fiscal year 2020, Social Security paid about $1.1 trillion in Old-Age
and Survivors Insurance (OASI) and Disability Insurance (DI) program
benefits in fiscal year 2020. Looking forward, demographic factors such
as an aging population and slower labor force growth are straining Social
Security programs and contributing to a gap between program costs and
revenues.
For many years, Social Security’s revenues exceeded program costs and
the programs built up reserves in its two trust funds: one for the OASI
program and one for the DI program. By law, the Social Security trust
funds must invest in interest-bearing federal government securities. 41 The
trust funds invested past excess revenues in these federal government
securities, helping to finance other federal programs and reducing the
amount that had to be borrowed from the public.
Starting in 2005 for the DI Trust Fund and in 2010 for the OASI Trust
Fund, this situation reversed: Social Security began paying out more in
benefits than it received in non-interest revenue. 42 Absent any changes,
both trust funds are projected to deplete their assets and have insufficient
income to pay benefits in full on a timely basis. In March 2021, CBO
40GAO, The Nation’s Retirement System: A Comprehensive Re-evaluation Is Needed to
Better Promote Future Retirement Security, GAO-18-111SP (Washington, D.C.: Oct. 18,
2017).
41The Social Security Act requires that trust fund assets be invested in interest-bearing
obligations of the United States or in obligations guaranteed as to both principal and
interest by the United States. We are using the term “federal government securities” to
refer to these obligations. 42 U.S.C. § 401(d).
42According to the Social Security Trustees, in 2016, 2017, and 2018 non-interest income
and total income for the DI Trust Fund exceeded benefit payments due primarily to the
temporary reallocation of the payroll tax rate from OASI to DI for years 2016 through 2018.
This temporary reallocation was authorized in the Bipartisan Budget Act of 2015, Pub. L.
No. 114-74, title VIII, subtit. C, § 833, 129 Stat. 584, 613-14 (Nov. 2, 2015).
Page 21 GAO-21-275SP The Nation's Fiscal Health
projected that the OASI trust fund will be depleted in calendar year 2032
and the DI trust fund in calendar year 2035. 43 If the two funds were
combined, the trust would be depleted in 2032. 44
When the trust funds deplete their assets, they will still receive income
from payroll taxes from current workers and employers as well as from
income taxes paid on Social Security benefits, but this income will not be
enough to support scheduled benefits in full under current law. CBO
estimated that the combined OASI and DI trust fund revenue would
support about 75 percent of scheduled benefits in calendar year 2033, the
year after their balances are projected to be depleted if combined.
Achieving long-term financial stability for the trust funds would require that
Social Security get additional income (increase revenue), reduce costs
(decrease benefits), or undertake some combination of the two. Earlier
action would allow any adjustments to be smaller and spread across
more generations of participants. It would also allow for phasing in
changes so that affected individuals could have more time to adjust their
retirement planning.
43CBO, The 2021 Long-Term Budget Outlook (Washington, D.C.: March 2021).
44The April 2020 Trustees Report did not include estimates of the effect of the COVID-19
pandemic on the trust funds’ finances. In November 2020, SSA published an updated
actuarial valuation by its Office of the Chief Actuary that, starting with the intermediate
assumptions of the 2020 Trustees Report, incorporates the impact of the pandemic and
recession. This updated analysis projects the hypothetical combined Old-Age, Survivors,
and Disability Insurance trust funds becoming depleted in 2034 (versus 2035 in the 2020
Trustees Report).
Page 22 GAO-21-275SP The Nation's Fiscal Health
Interest Rates are Persistently low interest rates have resulted in lower interest costs for the
Historically Low, but government in recent years, and in fiscal year 2020, the average interest
rate on debt held by the public fell from 2.4 percent to 2.1 percent. As a
Projections Show Growing
result, spending on net interest decreased from $375 billion in fiscal year
Debt Will Lead to Higher 2019 to $345 billion in fiscal year 2020 despite the increase in total debt.
Net Interest Costs in the However, GAO’s alternative simulation estimates spending on net interest
Long Term will grow to be the largest category of spending in the long term and
exceed $1 trillion annually starting in fiscal year 2033. 45 According to
Net Interest CBO’s long-term projections, net interest spending more than triples
Net interest primarily encompasses the cost to relative to the size of the economy between 2031 and 2051, accounting
the government of financing debt held by the for most of the growth in total deficits. 46
public, net of certain income recognized from
loans and other sources. The level of net
interest related to the debt is a function of the As figure 8 shows, GAO’s alternative simulation projects net interest
amount of debt financed and the interest rate
at which it is financed. Growth in net interest growing from 1.6 percent of GDP in 2020 to 8.9 percent of GDP by 2050.
is a function of the increases in debt or
interest rates.
Source: GAO. │ GAO-21-275SP
The Compounding Effect of Interest Rates
For any given level of debt, a change in
interest rates changes the cost of interest.
Interest rates also have a compounding effect
on the debt when the federal government
borrows to make interest payments.
For example, under GAO’s alternative
simulation, a 1 percentage point increase in
overall interest rates throughout the projection
period would increase the debt held by the
public by $2.3 trillion by 2030. CBO
anticipates that interest rates will rise over the
long term.
Source: GAO and CBO. │ GAO-21-275SP
45CBO’s March 2021 long-term outlook report projected net interest growing as a
percentage of total spending. However, since CBO’s March 2021 extended baseline
projections only go out to 2051, spending on net interest does not quite overtake spending
on major health care programs (spending for Medicare, Medicaid, the Children’s Health
Insurance Program, and outlays to subsidize health insurance purchased through the
exchanges established under PPACA and related spending) in the projection period.
46CBO’s February 2021 Budget and Economic Outlook projected that average interest
rates on debt held by the public will fall from 2.0 percent in 2020 to 1.3 percent in 2025.
However, CBO projected that average interest rates will subsequently increase to 2.2
percent in 2030.
Page 23 GAO-21-275SP The Nation's Fiscal Health
Figure 8: Projected Net Interest and Other Spending as Percentage of Gross
Domestic Product
Note: Elevated levels of “All other” spending in fiscal year 2020 are attributed to federal COVID-19
pandemic relief.
Public Health The federal government faces a number of fiscal exposures that are not
Emergencies and Natural accounted for in the budget and present a risk to the government’s future
fiscal condition. Fiscal exposures are responsibilities, programs, and
Disasters Altered the
activities that may legally commit the federal government to future
Fiscal Outlook in Fiscal spending or create expectations for future spending based on current
Year 2020 and Highlighted policy, past practices, or other factors. 47
the Risk Posed by Fiscal
Exposures The projections in this report show future spending levels based on
current spending, including those related to some of the fiscal risks
identified in this section, but they do not account for unforeseen future
increases in spending associated with these risks. A more complete
understanding of fiscal risks can help policymakers anticipate changes in
47See our infographic on federal fiscal risks at https://www.gao.gov/infographic/federal-
fiscal-risks.
Page 24 GAO-21-275SP The Nation's Fiscal Health
future spending and can enhance oversight of federal resources. In
particular, events in 2020 have highlighted the immense challenges to our
fiscal outlook that two large-scale fiscal risks can cause:
Public health emergencies. As the COVID-19 pandemic illustrates,
public health emergencies are among the large-scale fiscal exposures
that can cost trillions of dollars to mitigate. As of January 2021, five relief
laws appropriated about $3.1 trillion across the government to fund
response and recovery efforts, as well as to mitigate public health,
economic, and homeland security effects. 48
Repeatedly in 2020 and in January 2021, we identified challenges related
to the federal response to the COVID-19 pandemic and made a number
of recommendations to help address these challenges. 49 We also
identified legislative actions Congress could take in a number of areas to
improve the public health response.
Climate change and natural disasters. Calendar year 2020 was the
sixth consecutive year in which the U.S. experienced 10 or more weather
and climate disaster events each costing more than $1 billion in overall
damages. Over the past decade, the cost of such disasters in the United
States averaged $80.7 billion each year. 50 Major sources of fiscal
exposures related to climate change and natural disasters include: 51
48COVID-19 relief laws enacted as of March 2021 include the Coronavirus Preparedness
and Response Supplemental Appropriations Act, 2020, Pub. L. No. 116-123, 134 Stat. at
146; Families First Coronavirus Response Act, Pub. L. No. 116-127, 134 Stat. at 178;
CARES Act, Pub. L. No. 116-136, 134 Stat. at 281; and Paycheck Protection Program and
Health Care Enhancement Act, Pub. L. No. 116-139, 134 Stat. at 620at 620; Consolidated
Appropriation Act, 2021, Pub. L. N. 116-260, 134 Stat. at 1182; American Rescue Plan
Act of 2021, Pub. L. No. 117-2, 135 Stat. 4.
49GAO, COVID-19: Opportunities to Improve Federal Response and Recovery Efforts,
GAO-20-625 (Washington, D.C.: Jun. 25, 2020); GAO-20-701; COVID-19: Brief Update on
Initial Federal Response to the Pandemic, GAO-20-708 (Washington, D.C.: Aug. 31,
2020); COVID-19: Urgent Actions Needed to Better Ensure Effective Federal Response,
GAO-21-191 (Washington, D.C.: Nov. 30, 2020); and COVID-19: Critical Vaccine
Distribution, Supply Chain, Program Integrity, and Other Challenges Require Focused
Federal Attention, GAO-21-265 (Washington, D.C.: Jan. 28, 2021).
50National Oceanic and Atmospheric Administration, Billion-Dollar Weather and Climate
Disasters, https://www.ncdc.noaa.gov/billions/time-series.
51GAO, Climate Change: Potential Costs and Opportunities to Reduce Federal Fiscal
Exposure, GAO-20-338T (Washington, D.C.: Dec. 19, 2019).
Page 25 GAO-21-275SP The Nation's Fiscal Health
• Disaster aid. The rising number of natural disasters and increasing
reliance on federal assistance is a key source of federal fiscal
exposure. Since 2005, federal funding for disaster assistance has
totaled at least $524 billion, which consists of obligations for disaster
assistance from 2005 through 2014 totaling about $278 billion 52 and
select appropriations for disaster assistance from 2015 to 2020
totaling $246 billion. 53 Disaster costs are projected to increase as
certain extreme weather events become more frequent and intense
due to climate change, as observed and projected by the U.S. Global
Change Research Program and the National Academies of Sciences,
Engineering, and Medicine.
• Federal insurance for property and crops. The National Flood
Insurance Program and the Federal Crop Insurance Corporation are
sources of federal fiscal exposure due in part to the vulnerability of
insured property and crops to climate change. CBO estimated in
March 2020 that federal crop insurance would cost the federal
government an average of about $8 billion annually from 2020
through 2030. The U.S. Department of Agriculture estimated in 2019
that climate change could increase the cost of the crop insurance
program by an average range of 3.5 to 22 percent, depending upon
assumptions about the severity of climate change, among other
factors. The programs are not designed to generate sufficient funds to
cover all losses and expenses and need to borrow or receive federal
appropriations to operate. For example, as of December 2020 the
National Flood Insurance Program was about $20.5 billion in debt to
the U.S. Treasury.
• Operation and management of federal property and lands. The
federal government owns and operates hundreds of thousands of
facilities and manages millions of acres of land that might be
vulnerable to changing climate. For example, in September 2018
Hurricane Florence damaged Camp Lejeune and other Marine Corps
facilities in North Carolina, resulting in a preliminary Marine Corps
repair estimate of $3.6 billion. One month later, Hurricane Michael
52See GAO, Federal Disaster Assistance: Federal Departments and Agencies Obligated at
Least $277.6 Billion during Fiscal Years 2005 through 2014, GAO-16-797 (Washington,
D.C.: Sept. 22, 2016).
53This total also includes $188 billion in select supplemental appropriations to federal
agencies for disaster assistance and approximately $58 billion in annual appropriations to
the Disaster Relief Fund for fiscal years 2015 through 2020. It does not include other
annual appropriations to federal agencies for disaster assistance.
Page 26 GAO-21-275SP The Nation's Fiscal Health
devastated Tyndall Air Force Base in Florida, resulting in a preliminary
Air Force repair estimate of $3 billion.
Limiting the federal government’s fiscal exposures to climate change has
been on GAO’s High-Risk List since 2013, in part because of concerns
about the increasing costs of disaster response and recovery efforts. 54
Over the years, we have made a total of 75 recommendations and
suggested five matters for congressional consideration related to limiting
the federal government’s fiscal exposure to climate change, and 15
recommendations and three suggested matters for congressional
consideration have been made since June 2019. 55 For example, in
December 2019, we described key government-wide efforts that could
help manage this risk, including developing a national strategic plan. 56
However, the federal government has not undertaken strategic efforts to
manage climate risks that could reduce the need for far more costly steps
in the decades to come.
In October 2019, we created the Disaster Resilience Framework to
support analysis of federal opportunities to facilitate and promote
resilience to natural hazards. This Framework provides a set of high-level
principles to help federal agencies and policymakers consider actions to
reduce disaster risk (see figure 9).
54OMB has reported federal climate change funding in three main categories since 1993—
clean energy technology to reduce emissions; science to better understand climate
change; and international assistance for adaptation, clean energy, and sustainable
landscapes. Most federal funding since 1993 has been dedicated to technology efforts.
See GAO, Climate Change: Analysis of Reported Federal Funding, GAO-18-223
(Washington, D.C.: Apr. 30, 2018).
55GAO, High-Risk Series: Dedicated Leadership Needed to Address Limited Progress in
Most High-Risk Areas, GAO-21-119SP (Washington, D.C.: Mar. 2, 2021).
56GAO-20-338T and GAO, High-Risk Series: Substantial Efforts Needed to Achieve
Greater Progress on High-Risk Areas, GAO-19-157SP (Washington, D.C.: Mar. 6, 2019).
Page 27 GAO-21-275SP The Nation's Fiscal Health
Figure 9: Disaster Resilience Framework Principles
Additional Fiscal Additional fiscal exposures not fully accounted for in the budget or the
Exposures Also Put projections discussed in this report could significantly affect the federal
government’s fiscal outlook in the future. In table 1 below, we provide
Pressure on the Federal
details about these fiscal exposures along with links to our prior work.
Budget
Table 1: Additional Fiscal Exposures Also Put Pressure on the Federal Budget
Pension Benefit Guaranty Liabilities exceeded assets by GAO-18-106, Central States
Corporation (PBGC) more than $48 billion at the end of Pension Fund: Investment Policy
fiscal year 2020. Decisions and Challenges Facing
PBGC insures benefits, up to the Plan
statutory limits, in private-sector
defined benefit pension plans.
PBGC’s multiemployer program, which covered about 1,400 plans in fiscal year 2020, reported a deficit of
about $64 billion at the end of fiscal year 2020, an improvement of about $1.4 billion since 2019 (see figure
10). According to PBGC, this improvement is due primarily to federal funding provided for the United Mine
Workers Plan.
In March 2021, the American Rescue Plan Act included financial assistance to certain financially troubled
multiemployer defined benefit pension plans. 57 The fiscal risks to the multi-employer program are less
imminent as a result of the American Rescue Plan Act. CBO estimates that the financial assistance will
total $86 billion over the next 10 years, and that the assistance would result in PBGC’s multiemployer
program remaining solvent through the mid-2040s compared to 2027 prior to the Act. CBO’s estimates
were based on an average of 500 simulations that they ran, indicative of the uncertainty inherent in
estimating the financial outlook for these pension programs.
57Pub. L. No. 117-2, § 9704, 135 Stat. at 190.
Page 28 GAO-21-275SP The Nation's Fiscal Health
Figure 10: Pension Benefit Guaranty Corporation’s Net Financial Position of the Single-Employer
and Multiemployer Programs Combined, Fiscal Years 2000 to 2020
PBGC estimated that its exposure to potential additional future losses for underfunded plans in both the
single and multiemployer programs was nearly $186 billion, of which the single-employer program
accounts for $176 billion of this amount. Although the single-employer program is currently in surplus, its
financial position is highly sensitive to prevailing economic conditions and past experience with large
claims shows that its condition can change quickly.
Page 29 GAO-21-275SP The Nation's Fiscal Health
• Net losses for 14 consecutive GAO-20-385, US Postal
U.S. Postal Service (USPS) years total $87 billion through Service: Congressional Action
The USPS cannot fund its fiscal year 2020. Is Essential to Enable a
current level of services and • USPS has missed $63 billion in Sustainable Business Model
financial obligations from its required funding payments for
current level of revenues. postal retiree health and pension
benefits through fiscal year
2020. USPS has stated that it
missed these payments to
minimize the risk of running out
of cash.
• Growing unfunded liabilities and
debt total over $188 billion at the
end of fiscal year 2020.
We have made multiple suggestions for Congress to consider, such as reassessing and determining (1)
the level of universal postal service the nation requires, (2) the extent to which USPS should be financially
self-sustaining, and (3) what changes to law would be appropriate to enable USPS to meet this goal.
• The federal government has GAO-20-625, COVID-19:
Housing finance invested about $109 billion in Opportunities to Improve
Federal support for housing Fannie Mae and Freddie Mac, Federal Response and
finance expanded during the which is net of about $118 Recovery Efforts
2007–2009 financial crisis and billion in valuation losses, as of
remains large. the end of fiscal year 2020.
In 2008, the federal government placed Fannie Mae and Freddie Mac under conservatorships due to
concern that their deteriorating financial condition threatened economic stability.a Under their
conservatorship agreements, the enterprises had received $191.4 billion in capital support from the U.S.
Treasury and paid $301.1 billion in dividends to the U.S. Treasury as of the end of fiscal year 2020.
Pandemic-related mortgage losses and the cost of implementing borrower and renter protections in the
CARES Act (e.g., mortgage forbearances) could slow Fannie Mae and Freddie Mac’s progress in building
capital reserves and increase the probability they will need to draw on remaining U.S. Treasury
commitments.
Additionally, their ultimate role could affect the financial condition of other federal housing finance entities,
including the Federal Housing Administration (FHA), which in the past expanded its lending role in
distressed housing and mortgage markets. For example, as of the end of fiscal year 2020, the FHA has an
insured portfolio of single-family mortgages that exceeds $1.2 trillion and the Government National
Mortgage Association (Ginnie Mae) guaranteed the performance of about $2 trillion in securities backed by
mortgages with Federal Housing Administration and other federal agency support.
Growth in Ginnie Mae’s guaranteed portfolio and a shift toward nonbank securities issuers have increased
the agency’s potential exposure to loss. Since January 2019, we have suggested that Congress consider
legislation for the future federal role in housing finance that addresses the structure of Fannie Mae and
Freddie Mac; establishes clear, specific, and prioritized goals; and considers all relevant federal entities,
such as the FHA and Ginnie Mae.
Page 30 GAO-21-275SP The Nation's Fiscal Health
• The DOD does not normally GAO-19-211, Overseas
Military Conflicts budget for contingency Contingency Operations:
Spending on future military operations, which are small, Alternatives Identified to the
conflicts is difficult to budget for medium, or large-scale Approach to Fund War- Related
and can result in unexpected campaign level military Activities
increases in DOD spending over operations, including but not GAO-17-68, Overseas
time. limited to support for Contingency Operations: OMB
peacekeeping operations, and DOD Should Revise the
foreign disaster relief efforts, Criteria for Determining Eligible
noncombatant evacuation Costs and Identify the Costs
operations, and international Likely to Endure Long Term
disaster relief efforts.
• According to DOD, about $2
trillion was appropriated
between fiscal years 2001 and
2020, primarily for contingency
operations in Iraq and
Afghanistan.
• Military conflicts can also result
in enduring costs after those
conflicts end (costs that continue
after contingency operations
end). DOD estimates of enduring
costs have ranged from $46
billion to $53 billion annually.
• Future military conflicts could
pose similar fiscal risks, leading
to unexpected increases in DOD
spending over time.
Source: GAO. | GAO-21-275SP
a
12 U.S.C. § 4617(a)(2), as amended by the Housing and Economic Recovery Act of 2008, Pub. L.
No. 110-289, § 1145, 122 Stat. 2654, 2734 (July 30, 2008).
Congress and the administration have responded in an unprecedented
A Fiscal Strategy Is manner to the COVID-19 pandemic and the resulting severe economic
Needed to Address repercussions. The fiscal response and the economic downturn
generated a substantial increase in federal debt. Once the pandemic
the Long-Term recedes and the economy substantially recovers, Congress and the
Unsustainable Fiscal administration should quickly pivot to developing an approach to place the
federal government on a sustainable long-term fiscal path.
Path
Since 2017, we have stated that a plan is needed to ensure that the
United States remains in a strong economic position to meet its social
and security needs, as well as to preserve flexibility to address
unforeseen events like public health emergencies. For example, changes
to spending, revenue, or both are needed to sustain some key programs,
such as Medicare and Social Security. As previously discussed, trust
Page 31 GAO-21-275SP The Nation's Fiscal Health
funds for these programs are projected to be depleted within 15 years or
less, as shown in figure 11. 58
Figure 11: Key Dates for Major Programs
In developing a fiscal plan at the appropriate time, policymakers will need
to consider the entire range of federal activities, both revenue (including
tax expenditures) and spending (entitlement programs, other mandatory
spending, and discretionary spending) that affect the debt. 59
58Depletion of the balances in the trust funds does not mean that the services they support
would cease to operate. Each of the trust funds identified in figure 11 would continue to
function but would be limited to only funds incoming from revenues.
59Tax expenditures, as defined by law, are provisions of the federal tax code that reduce
taxpayers’ tax liability and therefore the amount of tax revenue paid to the federal
government. Examples include tax credits, deductions, exclusions, exemptions, deferrals,
and preferential tax rates. 2 U.S.C. § 622(3).
Page 32 GAO-21-275SP The Nation's Fiscal Health
Fiscal Rules and Targets Congress’s efforts to improve the federal government’s long-term fiscal
Can Provide Critical path could benefit from well-designed fiscal rules and targets. 60 According
Enforceability and to the International Monetary Fund and the Organization for Economic
Co-operation and Development, fiscal rules have the potential to
Flexibility, but Experience contribute to fiscal sustainability. Additionally, fiscal rules and targets can
Highlights the Importance help manage debt by controlling factors like spending and revenue as
of Careful Design part of a long-term fiscal plan. A variety of rules and targets exist, each
with its own advantages and drawbacks, and governments can use a
combination of rules to help address the deficiencies of any one particular
rule. In general, observers and budget experts have noted that success
depends on effective enforcement of fiscal rules and sustained
commitment by both policymakers and the public.
To help Congress in designing any rules and targets, in September 2020
we identified seven key considerations based on a literature review and
interviews with experts on fiscal policy and fiscal rules (see table 2). 61
Table 2: Key Considerations for the Design, Implementation, and Enforcement of Fiscal Rules and Targets
Key consideration Supporting explanation
Setting clear goals and objectives can anchor a country’s fiscal policy.
Fiscal rules and targets can help ensure that spending and revenue
decisions align with agreed-upon goals and objectives.
The weight given to tradeoffs among simplicity, flexibility, and enforceability
depends on the goals a country is trying to achieve with a fiscal rule. In
addition, there are tradeoffs between the types and combinations of rules,
as well as the time frames over which the rules apply.
The degree to which fiscal rules and targets are binding, such as being
supported through a country’s constitution or non-binding political
agreements, can impact their permanence, as well as the extent to which
ongoing political commitment is needed to uphold them.
60GAO-20-561.
61For more information on these key considerations, including examples from Australia,
Germany, and the Netherlands, see GAO-20-561.
Page 33 GAO-21-275SP The Nation's Fiscal Health
Key consideration Supporting explanation
Integrating fiscal rules and targets into budget discussions can contribute to
their ongoing use and provide for a built-in enforcement mechanism. The
budget process can include reviews of fiscal rules and targets.
Fiscal rules and targets with limited, well-defined exemptions, clear escape
clauses for events such as national emergencies, and adjustments for the
economic cycle can help a country address future crises.
Institutions supporting fiscal rules and targets need clear roles and
responsibilities for supporting their implementation and measuring their
effectiveness. Independently analyzed data and assessments can help
institutions monitor compliance with fiscal rules and targets.
Having clear, transparent fiscal rules and targets that a government
communicates to the public and that the public understands can contribute
to a culture of fiscal transparency and promote fiscal sustainability for the
country.
Source: GAO analysis of literature review and interviews. | GAO-21-275SP
We have previously reported on the federal government’s experience with
fiscal rules and lessons learned for their successful design. 62 This
experience shows that fiscal rules are better at enforcing past decisions
than at forcing new ones. No process will force Congress and the
President to make the difficult choices necessary to move toward a
fiscally sustainable path. However, plans and processes can help surface
the important tradeoffs. Having a long-term plan with clear goals and
objectives, and strategies for achieving them, would provide transparency
over the fiscal impacts of budget decisions for the year and over the long
term.
We previously suggested that Congress consider establishing a long-term
fiscal plan that includes fiscal rules and targets, such as a debt-to-GDP
target. 63 Once the economy recovers from the effects of the COVID-19
62For example, GAO-20-561 and GAO-20-403SP.
63For more information, see GAO-20-561.
Page 34 GAO-21-275SP The Nation's Fiscal Health
pandemic, Congress should consider its medium- and long-term fiscal
goals and align those goals with annual budgets to form a consistent
strategy. Additional mechanisms like escape clauses can provide critical
fiscal flexibility to respond to unforeseen events like natural disasters or
public health emergencies.
One way to quantify the policy changes required to meet any given goal is
to calculate the fiscal gap, which measures the changes in spending or
revenue needed to reach a given debt-to-GDP level over a given time
period. The magnitude of the required change will vary with the goal
selected and with the time horizon chosen. For the purposes of this
report, we show the fiscal gap measures of the policy change needed to
reach a given debt-to-GDP fiscal target from the start to the end of 30
years.
To close the gap, policymakers would need to reduce program spending,
increase revenue, or, more likely, do both. For example, if policymakers
choose to achieve a debt-to-GDP target of 100 percent over a 30-year
period (fiscal years 2020-2049), which is the level the federal government
reached at the end of fiscal year 2020, they would need to make a
combination of program spending cuts and revenue increases totaling
about $37 trillion—in fiscal year 2020 dollars—over this period. This could
be achieved by immediately and permanently cutting program spending
by 20 percent annually or by increasing revenue by 27 percent annually.
Table 3 illustrates the amount of change needed varies depending on the
debt-to-GDP target that policymakers choose. 64
64GAO, The Nation’s Fiscal Health: Information on the Spending and Revenue
Implications of Potential Debt Targets, GAO-21-211 (Washington, D.C.: Dec. 15, 2020).
Page 35 GAO-21-275SP The Nation's Fiscal Health
Table 3: Illustrative Examples of Changes Needed to Achieve Debt-to-Gross Domestic Product Targets
The table shows the magnitude of actions needed to achieve certain levels of debt held by the public as a percentage of gross
domestic product (GDP) over a 30-year period (fiscal years 2020-2049). While we simulate the percentage of changes to spending and
revenue alone, a combination of both spending and revenue changes would most likely be needed to achieve a chosen fiscal path.
Debt target, percent of Spending and revenue: Program spending alone: annual Revenue alone: annual
GDP (end of 30 years) total change over 30 yearsa projected decrease needed b,c projected increase neededc
Percent Dollars, in trillions Percent Percent
140 25.4 13.8 18.5
120 31.2 16.9 22.8
100 37.0 20.0 27.0
80 42.8 23.1 31.2
60 48.5 26.3 35.4
0d 65.9 35.7 48.1
Source: GAO’s alternative simulation. | GAO-21-275SP
Note: Our long-term simulations of federal revenue and spending include two scenarios: the baseline
extended simulation and the alternative simulation. We are using the alternative simulation for this
analysis. The alternative simulation generally reflects historical trends, such as the extension of tax
provisions scheduled to expire. It does not account for potential macroeconomic effects of fiscal
policy changes over time.
a
Represents the spending and revenue changes combined that are needed to meet the specified
debt-to-GDP target at the end of 30 years in fiscal year 2020 dollars.
b
Program spending consists of all spending except interest payments on debt held by the public.
c
Represents the immediate and permanent change needed to meet the specified debt-to-GDP target
at the end of 30 years.
d
A 0 percent debt-to-GDP ratio means that debt held by the public is paid off entirely at the end of the
30-year period.
An Alternative Approach to We reported previously that Congress should consider alternative
the Debt Limit Is Needed approaches to the debt limit as part of any long-term fiscal plan. 65 The
debt limit is a legal limit on the total amount of federal debt that can be
outstanding at one time, but it does not restrict Congress’s ability to pass
spending and revenue legislation that affects the level of debt in the
future, nor does it otherwise constrain fiscal policy. As currently
structured, the debt limit is not a fiscal rule; it is a limit only on Treasury’s
authority to borrow in order to finance the decisions already enacted by
65GAO-20-403SP.
Page 36 GAO-21-275SP The Nation's Fiscal Health
Congress and the President. 66 In August 2019, Congress and the
President suspended the debt limit through July 2021, at which time it will
need to be either suspended again or raised.
By limiting the Treasury’s borrowing ability without restraining spending
and revenue decisions, the debt limit as currently designed does not limit
debt, but it does threaten investors’ confidence that U.S. Treasury
securities backed by the full faith and credit of the United States will be
honored.
The combination of the liquidity, depth, and safety of the U.S. Treasury
market is unmatched in global markets. These characteristics make
Treasury securities a unique and critical asset for a broad range of
investors. Many investors accept low yields on Treasury securities
because they are considered one of the safest assets in the world. This
enables Treasury to keep borrowing costs low. Uncertainty over whether
the debt limit will be raised or suspended leads to increased borrowing
costs and disrupts the market for Treasury securities.
We have suggested that Congress consider alternative approaches to the
current debt limit to avoid seriously disrupting the Treasury market and
increasing borrowing costs and to improve federal debt management. 67
In July 2015, through a forum with experts in the field, we identified three
options that would enable Congress to delegate its borrowing authority,
avoid impasses on the debt limit, and minimize disruptions to the
Treasury securities market:
• Link action on the debt limit to the budget resolution.
66The debt limit is codified at 31 U.S.C. § 3101(b), as amended, and applies to federal
debt issued pursuant to authority under 31 U.S.C. chapter 31. A very small amount of total
federal debt is not subject to the debt limit. This amount primarily comprises unamortized
discounts on Treasury bills and Zero Coupon Treasury bonds; debt securities issued by
agencies other than Treasury, such as the Tennessee Valley Authority; and debt
securities issued by the Federal Financing Bank. The Bipartisan Budget Act of 2019
temporarily suspended the debt limit through July 31, 2021. Pub. L. No. 116-37, § 301,
133 Stat. 1049, 1057 (Aug. 2, 2019), reprinted in 31 U.S.C. § 3101 note.
67GAO, Debt Limit: Market Response to Recent Impasses Underscores Need to Consider
Alternative Approaches, GAO-15-476 (Washington, D.C.: July 9, 2015). We most recently
reiterated the importance of considering alternative approaches to the debt limit. We most
recently reiterated the importance of considering alternative approaches to the debt limit in
GAO-20-403SP and GAO-20-131.
Page 37 GAO-21-275SP The Nation's Fiscal Health
• Provide the administration with the authority to propose a change in
the debt limit that would take effect absent enactment of a joint
resolution of disapproval within a specified time frame.
• Delegate broad authority to the administration to borrow as necessary
to fund enacted laws. 68
Each of these options has strengths and weaknesses but would maintain
congressional control and oversight of federal borrowing and better align
decisions about the level of debt with decisions on spending and revenue.
We did not endorse a specific option, but we suggested Congress
consider such approaches.
During the 116th Congress, Congress considered legislation that, if
enacted, could have helped avoid impasses on the debt limit. For
example, Senate Bill 2765, bipartisan legislation that included a provision
that would have automatically adjusted the debt limit to conform to levels
established in the budget resolution. 69 Other legislation was introduced
that, if enacted, could have helped avoid impasses on the debt limit, but
none of these bills was voted out of committee. For example, Senate Bill
444 would have allowed the President to increase the statutory debt limit
unless a joint resolution of disapproval was passed by Congress, 70 and
Senate Bill 623 would have allowed Treasury to issue debt in excess of
the debt limit under certain circumstances if it notified Congress. 71
68More detail about these ideas and a discussion of the advantages and challenges to
each may be found in GAO-15-476.
69Bipartisan Congressional Budget Reform Act, S. 2765, title II, § 202(e)(5), 116th Cong.
(2019).
70Protect our Citizens from Reckless Extortion of our Debt and Irresponsible Tactics Act of
2019, S. 444, 116th Cong. (2019).
71Default Prevention Act, S. 623, 116th Cong. (2019). This bill was reintroduced in the
current Congress on January 28, 2021. See Default Prevention Act, S. 100, 117th Cong.
(2021).
Page 38 GAO-21-275SP The Nation's Fiscal Health
Putting the federal government on a sustainable long-term fiscal path will
Executive Agencies require difficult decisions on both the spending and revenue side of the
and Congress Have budget. The necessary changes in spending and revenue require
legislation, but in our prior work we have identified numerous actions
Additional executive agencies could take to contribute toward a sustainable fiscal
Opportunities to future, including addressing high-risk problems, improving service to the
public, and strengthening government performance and accountability.
Contribute toward Certain other congressional actions can support agencies’ efforts.
Fiscal Health Although executive agency actions alone cannot put the U.S. government
on a sustainable fiscal path, it is important for agencies to act as stewards
of federal resources and for Congress to support this stewardship.
Reduce Improper Improper payments—payments that should not have been made or that
Payments: Agencies Need were made in an incorrect amount—have consistently been a
government-wide issue. 72 Since fiscal year 2003—when certain agencies
to Curtail Billions in
were required by statute to begin reporting estimated improper payments
Improper Payments for certain programs and activities—cumulative improper payment
estimates have totaled about $1.9 trillion. 73
According to OMB’s paymentaccuracy.gov data, agencies reported total
improper payment estimates of about $206 billion for fiscal year 2020,
compared to about $175 billion for fiscal year 2019. 74 The Medicaid
program alone reported an increase of estimated improper payments of
72Under the Payment Integrity Information Act of 2019 (PIIA), Pub. L. No. 116-117, 134
Stat. 113 (Mar. 2, 2020), an improper payment is statutorily defined as any payment that
should not have been made or that was made in an incorrect amount (including
overpayments and underpayments) under statutory, contractual, administrative, or other
legally applicable requirements. It includes any payment to an ineligible recipient, any
payment for an ineligible good or service, any duplicate payment, any payment for a good
or service not received (except for such payments where authorized by law), and any
payment that does not account for credit for applicable discounts. See 31 U.S.C. §
3351(4). PIIA also provides that when an executive agency’s review is unable to discern
whether a payment was proper as a result of insufficient or lack of documentation, this
payment must also be included in the improper payment estimate. 31 U.S.C. § 3352(c)(2).
We have reported improper payments as a material deficiency or material weakness in
internal control in our audit reports on the U.S. government’s consolidated financial
statements since fiscal year 1997.
73Not all agencies are subject to PIIA’s improper payment estimation and reporting
requirements; the law only applies to executive agencies, i.e., departments, agencies, or
instrumentalities in the executive branch of the U.S. government. See 31 U.S.C. § 102.
Prior-year improper payment estimates have not been adjusted for inflation.
74An official U.S. government website managed by OMB, www.PaymentAccuracy.gov
contains information about current and historical rates and estimated amounts of improper
payments.
Page 39 GAO-21-275SP The Nation's Fiscal Health
more than $29 billion. Table 4 below shows programs that reported
improper payment estimates greater than $5 billion in fiscal year 2020.
Table 4: Programs and Activities with Estimates of Improper Payments Exceeding $5 Billion in Fiscal Year 2020
Fiscal Year 2020 Estimated
Agency Program or Activity Improper Payments (billions)
Department of Health and Human Services Medicaid $86.5
Department of Health and Human Services Medicare Fee-for-Service $25.7
Department of Health and Human Services Medicare Part C $16.3
Department of the Treasury Earned Income Tax Credit $16.0
Department of Labor Unemployment Insurance $8.0
Department of Veterans Affairs Community Care $7.5
Social Security Administration Supplemental Security Income $5.3
Source: Office of Management and Budget’s Paymentaccuracy.gov. | GAO-21-275SP
Across the federal government, 98 programs or activities across 21
agencies reported improper payment estimates. Of those 98, 24
programs or activities reported improper payment rates estimated at 10
percent or greater. In addition, 17 programs or activities across seven
agencies reported improper payment estimates greater than $1 billion. 75
As we have previously reported, 76 the federal government’s ability to
understand the magnitude of the improper payments is hindered by
incomplete, unreliable, or understated estimates; risk assessments that
may not accurately assess the risk of improper payment; and
75In addition to the seven programs and activities listed above that reported over $5 billion
in improper payment estimates in fiscal year 2020, an additional 10 programs and
activities reported improper payment estimates greater than $1 billion: (1) Department of
Health and Human Services’ Children’s Health Insurance Program; (2) Treasury’s
Additional Child Tax Credit; (3) Treasury’s American Opportunity Tax Credit; (4) DOD’s
Civilian Pay; (5) DOD’s Military Pay – Army; (6) DOD’s Military Pay – Air Force; (7)
Department of Agriculture’s Supplemental Nutrition Assistance Program; (8) Department
of Agriculture’s National School Lunch Program; (9) Department of Veterans Affairs’
Purchased Long-Term Services and Support; and (10) Social Security Administration’s
Old-Age, Survivors, and Disability Insurance.
76GAO-20-403SP.
Page 40 GAO-21-275SP The Nation's Fiscal Health
noncompliance with criteria listed in the Improper Payments Elimination
and Recovery Act of 2010. 77
In addition, for fiscal year 2019, estimates of improper payments were not
reported for some federal programs and activities, including the Premium
Tax Credit (i.e., subsidies for health insurance purchased through the
exchanges) and Temporary Assistance for Needy Families. For example,
the $206 billion of reported improper payment estimates generally do not
include the $1.6 trillion in fiscal year 2020 expenditures to fund response
and recovery efforts for the COVID-19 pandemic. In fact, for Department
of Labor’s three new unemployment insurance programs created under
the COVID-19 laws there are no plans to begin reporting improper
payment estimates until fiscal year 2022, if at all. 78
In our prior work, we have identified a number of strategies and specific
actions agencies can take to reduce improper payments, which could
yield significant savings and help ensure that taxpayer funds are
adequately safeguarded. For example:
• Improvements to agency estimates. In May 2018, we
recommended OMB develop guidance to help ensure agencies’
estimating processes for identifying improper payments reflect key
risks, for example, whether a payee is ineligible for a payment. 79 As of
December 2020, OMB has not implemented this recommendation.
• Amendments to the Social Security Act. We have suggested that
Congress consider amending the Social Security Act explicitly to allow
the Social Security Administration (SSA) to share its full death data
77The Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111-204, §
3, 124 Stat. 2224, 2232 (July 22, 2010), regarding executive agencies’ compliance with
improper payments criteria, was effective for fiscal year 2019 and prior years until it was
repealed by PIIA. PIIA enacted similar compliance provisions. See 31 U.S.C. §§ 3351(2),
3353.
78The COVID-19 relief laws created three new, federally funded unemployment insurance
programs within the Department of Labor: the Pandemic Unemployment Assistance, the
Federal Pandemic Unemployment Compensation, and the Pandemic Emergency
Unemployment Compensation programs. These new programs were appropriated about
$144 billion by these COVID-19 relief laws in fiscal year 2020.
79GAO, Improper Payments: Actions and Guidance Could Help Address Issues and
Inconsistencies in Estimation Processes, GAO-18-377 (Washington, D.C.: May 31, 2018).
Page 41 GAO-21-275SP The Nation's Fiscal Health
with Treasury’s Do Not Pay working system for data matching. 80 In
June 2020, GAO further emphasized this as part of our ongoing work
and oversight on the federal response to the COVID-19 pandemic.
The CARES Act included direct payments for eligible individuals to
address pandemic-related financial stress. More than 160 million of
these payments, known as Economic Impact Payments, were
disbursed as of May 31, 2020. The Internal Revenue Service (IRS)
did have access to SSA’s full death data but it did not use the death
records to stop payments to deceased individuals for the first three
batches of payments. As a result, IRS sent $1.4 billion in payments to
decedents. This outcome illustrates the importance of agencies
having access to and using SSA’s full death data to prevent and
reduce improper payments. In December 2020, Congress passed and
the President signed into law the Consolidated Appropriations Act,
2021, which requires SSA, to the extent feasible, to share its full death
data with Treasury’s Do Not Pay working system for a 3-year period,
effective in December 2023. 81 Sharing this data will allow agencies to
enhance their efforts to identify and prevent improper payments to
deceased individuals.
Address the Persistent Tax The tax gap is the difference between the amount of tax that taxpayers
Gap: Opportunities on owe and the amount they actually pay voluntarily and on time (see figure
12). Given the size of the tax gap, even modest reductions would yield
Multiple Fronts
significant financial benefits and help improve the government’s fiscal
condition.
80GAO, Improper Payments: Strategy and Additional Actions Needed to Help Ensure
Agencies Use the Do Not Pay Working System as Intended, GAO-17-15 (Washington,
D.C.: Oct. 14, 2016), and GAO-20-625.
81Pub. L. No. 116-260, 134 Stat. at 3201.
Page 42 GAO-21-275SP The Nation's Fiscal Health
Figure 12: The Internal Revenue Service’s Estimate of the Average Tax Gap for Tax
Years 2011–2013
Note: IRS released its most recent tax gap estimate in September 2019 for tax years 2011 to 2013.
The tax gap arises when taxpayers, whether intentionally or inadvertently,
fail to (1) accurately report tax liabilities on tax returns (underreporting),
(2) pay taxes due from filed returns (underpayment), or (3) file a required
tax return altogether or on time (nonfiling). As figure 13 shows,
underreporting accounted for 80 percent of the tax gap across tax years
2011 to 2013.
Page 43 GAO-21-275SP The Nation's Fiscal Health
Figure 13: Estimated Average Annual Gross Tax Gap by Type of Noncompliance
and Tax, Tax Years 2011-2013
Note: Data may not sum to totals because of rounding. Individual income tax includes individual
business income tax. Estate tax underreporting is not shown in this graphic because it represents
less than one-half percent of total underreporting. Excise tax is not shown in this graphic because the
IRS does not have excise tax underreporting or nonfiling estimates, and its estimate for excise tax
underpayment represents less than one-half percent of total underpayment. In addition, IRS does not
have a corporation income tax estimate for nonfiling.
This persistent issue has been on our High-Risk List since its inception in
1990. 82 Among the key factors contributing to the tax gap are limited third-
party reporting, challenges with customer service, and tax code
complexity. Third-party reporting occurs when a taxpayer’s income is
reported to them and the IRS by an employer or other third party. The
extent to which individual taxpayers accurately report their income
correlates with the extent of such third-party reporting. Taxpayers tend to
misreport their income significantly when there is little or no information
reporting (e.g., self-employed or business income).
82For more information on addressing the tax gap, see GAO-19-157SP.
Page 44 GAO-21-275SP The Nation's Fiscal Health
Reducing the tax gap requires action on multiple fronts. Our work has
identified a number of strategies and specific actions IRS and Congress
can take to reduce the tax gap. We recommended that IRS develop and
document a strategy that outlines how IRS will use data to update
compliance strategies. 83 We have also previously made
recommendations to IRS aimed at enhancing taxpayer services and
determining resource allocation strategies for its enforcement efforts,
among others. 84 IRS has not yet fully implemented many of these
recommendations. We have also previously suggested targeted
legislative actions such as:
• expanding third-party information reporting. For example, reporting
could be required for certain payments that rental real estate owners
make to service providers, such as contractors who perform repairs
on their rental properties, and for payments that businesses make to
corporations for services;
• providing IRS with authority—with appropriate safeguards—to correct
math errors and to correct errors in cases where information provided
by the taxpayer does not match information in government databases;
and
83See GAO, Tax Gap: Multiple Strategies Are Needed to Reduce Noncompliance,
GAO-19-558T (Washington, D.C.: May 9, 2019) and Tax Gap: IRS Needs Specific Goals
and Strategies for Improving Compliance, GAO-18-39 (Washington, D.C.: Oct. 31, 2017).
Likewise, we recommended that IRS develop and document plans to use employment tax
compliance data to estimate the current state of the employment tax portion of the tax
gap. See GAO, Employment Taxes: Timely Use of National Research Program Results
Would Help IRS Improve Compliance and Tax Gap Estimates, GAO-17-371 (Washington,
D.C.: Apr. 18, 2017).
84See GAO, Tax Administration: Taxpayer Input Could Strengthen IRS’s Online Services,
GAO-20-71 (Washington, D.C.: Dec. 19, 2019); Tax-Law Enforcement: IRS Could Better
Leverage Existing Data to Identify Abusive Schemes Involving Tax-Exempt Entities,
GAO-19-491 (Washington, D.C.: Sept. 5, 2019); Tax Fraud and Noncompliance: IRS
Could Further Leverage the Return Review Program to Strengthen Tax Enforcement,
GAO-18-544 (Washington, D.C.: July 24, 2018); 2016 Filing Season: IRS Improved
Telephone Service but Needs to Better Assist Identity Theft Victims and Prevent Release
of Fraudulent Refunds, GAO-17-186 (Washington, D.C.: Jan. 31, 2017); 2012 Tax Filing:
IRS Faces Challenges Providing Service to Taxpayers and Could Collect Balances Due
More Effectively, GAO-13-156 (Washington, D.C.: Dec. 18, 2012); and Tax Gap: IRS
Could Significantly Increase Revenues by Better Targeting Enforcement Resources,
GAO-13-151 (Washington, D.C.: Dec. 5, 2012).
Page 45 GAO-21-275SP The Nation's Fiscal Health
• establishing requirements for paid tax return preparers to help
improve the accuracy of the tax returns they prepare. 85
Agencies Could Aid Fiscal As we reported in August 2020, the federal government has made
Decision Making by significant strides in improving financial management since enacting the
Chief Financial Officers Act of 1990 (CFO Act). 86 There has been
Providing Improved
substantial progress in areas such as improved internal controls, reliable
Information on Programs agency financial statements, and establishment of chief financial officer
and Fiscal Operations leadership positions. Nevertheless, there is more to be done to fully
achieve the CFO Act’s vision—for example, agency performance and
cost information should be better linked to help policymakers and
managers make fully informed decisions. Policy decisions would also
benefit from increased attention and information on tax expenditures and
improved reliability of financial information.
Increased attention to tax expenditures. Tax expenditures are
provisions of the tax code that reduce taxpayers’ tax liability and therefore
the amount of tax revenue paid to the government. Examples include tax
credits, deductions, exclusions, exemptions, deferrals, and preferential
tax rates. Tax expenditures seek to advance goals that may be similar to
the goals of mandatory or discretionary spending programs. In fiscal year
2019, tax expenditures reduced income tax revenues by approximately
$1.32 trillion based on our calculation summing Treasury estimates for
85See GAO, Partnerships and S Corporations: IRS Needs to Improve Information to
Address Tax Noncompliance, GAO-14-453 (Washington, D.C.: May 14, 2014); Paid Tax
Return Preparers: In a Limited Study, Preparers Made Significant Errors, GAO-14-467T
(Washington, D.C.: Apr. 8, 2014); Recovery Act: IRS Quickly Implemented Tax Provisions,
but Reporting and Enforcement Improvements Are Needed, GAO-10-349 (Washington,
D.C.: Feb. 10, 2010); Tax Gap: IRS Could Do More to Promote Compliance by Third
Parties with Miscellaneous Income Reporting Requirements, GAO-09-238 (Washington,
D.C.: Jan. 28, 2009); and Tax Gap: Actions That Could Improve Rental Real Estate
Reporting Compliance, GAO-08-956 (Washington, D.C.: Aug. 28, 2008).
86See GAO, Federal Financial Management: Substantial Progress Made since Enactment
of the 1990 CFO Act; Refinements Would Yield Benefits, GAO-20-566 (Washington, D.C.:
Aug. 6, 2020).
Page 46 GAO-21-275SP The Nation's Fiscal Health
each tax expenditure. 87 According to unaudited information in the 2019
Financial Report, the largest tax expenditure was related to employer-
provided health insurance and represented an estimated $202 billion in
reduced income tax revenue in fiscal year 2019. 88
Although tax expenditures are used routinely as a policy tool, they are not
regularly reviewed and their outcomes are not measured as closely as
spending programs’ outcomes. In September 2005, we recommended
that OMB take actions to develop a framework for evaluating tax
expenditure performance and to review tax expenditures regularly in
executive branch budget and performance review processes. 89 However,
OMB has not implemented these recommendations.
In July 2016, we recommended that OMB work with agencies to identify
which tax expenditures contribute to agency goals. OMB generally agreed
but had taken no action as of January 2021. 90 Absent such analysis,
policymakers have little way of knowing whether these tax provisions
advance the intended outcomes. Policymakers also lack information to
compare their cost and efficacy with other policy tools. 91 When difficult
decisions about spending and revenues must be made, policymakers
should have both the information about the various policy tools—
87The sum of the specific tax expenditure estimates is useful for gauging the general
magnitude of reduced revenue through provisions of the tax code, but aggregate tax
expenditure estimates must be interpreted carefully. Summing revenue loss estimates
does not take into account possible interactions between individual provisions or potential
behavioral responses to changes in these provisions on the part of taxpayers. Additionally,
Treasury’s tax expenditure estimates include the effect of certain tax credits on receipts
only and not the effect of the credits on outlays, which Treasury reports separately, but
does not take into account interactions between individual provisions. Fiscal year 2020 tax
expenditure estimates were not available at the time of our report release.
88Employees generally pay no income taxes on their employers’ contributions to their
health insurance premiums. The value of employer-provided health insurance and medical
care expenses is also excluded from Medicare and Social Security payroll taxes, and
Treasury estimated that the payroll tax revenue losses were $136.7 billion in 2019.
89GAO, Government Performance and Accountability: Tax Expenditures Represent a
Substantial Federal Commitment and Need to Be Reexamined, GAO-05-690
(Washington, D.C.: Sept. 23, 2005).
90GAO, Tax Expenditures: Opportunities Exist to Use Budgeting and Agency Performance
Processes to Increase Oversight, GAO-16-622 (Washington, D.C.: July 7, 2016).
91For more information on our work on tax expenditures, see GAO, Key Issues: Tax
Expenditures, accessed on March 11, 2021, https://www.gao.gov/tax-expenditures/.
Page 47 GAO-21-275SP The Nation's Fiscal Health
mandatory spending, discretionary spending, and tax expenditures—in
any given area and the ability to compare them.
Eliminating material weaknesses in internal control over financial
reporting. Overall, the federal government has made significant strides in
improving financial management since key federal financial management
reforms were enacted in the 1990s. Twenty-two of the 24 Chief Financial
Officers Act of 1990 (CFO Act) agencies received unmodified (“clean”)
opinions on their respective entities’ fiscal year 2020 financial statements,
up from six CFO Act agencies that received clean audit opinions for fiscal
year 1996. 92 Eliminating remaining weaknesses would improve the
reliability of financial information and improve financial decision-making.
The U.S. government’s consolidated financial statements are intended to
present the results of operations and the financial position and condition
of the federal government as a single entity.
Since the federal government began preparing consolidated financial
statements more than 20 years ago, three major impediments have
continued to prevent us from rendering an opinion on the federal
government’s accrual-based consolidated financial statements over this
period: (1) serious financial management problems at DOD, (2) the
federal government’s inability to adequately account for
intragovernmental activity and balances between federal entities, and (3)
weaknesses in the federal government’s process for preparing the
consolidated financial statements. 93 Over the years, we have made a
number of recommendations to OMB, Treasury, and DOD to address
9231 U.S.C. § 901.
93Bipartisan legislation was introduced in both houses in the 116th Congress that, if
enacted, would have required the Congressional budget committees to conduct an annual
joint hearing to receive a presentation from the Comptroller General of the United States
regarding our audit of the financial statements of the U.S. government, and the financial
position and condition of the federal government. Fiscal State of the Nation Resolution, S.
Con. Res. 35, 116th Cong. (2020); Fiscal State of the Nation Resolution, H.R. Con. Res.
68, 116th Cong. (2019). Because this legislation was not enacted before the start of the
117th Congress, it would need to be reintroduced.
Page 48 GAO-21-275SP The Nation's Fiscal Health
these issues. 94 Generally, these entities have taken or plan to take
actions to address these recommendations.
The material weaknesses in internal control underlying these three major
impediments continue to (1) hamper the federal government’s ability to
reliably report a significant portion of its assets, liabilities, costs, and other
related information; (2) affect the federal government’s ability to reliably
measure the full cost, as well as the financial and nonfinancial
performance, of certain programs and activities; (3) impair the federal
government’s ability to adequately safeguard significant assets and
properly record various transactions; and (4) hinder the federal
government from having reliable financial information to operate in an
efficient and effective manner.
In our review of the CFO Act, we identified areas in which legislative
action could enhance federal financial management. In August 2020, we
suggested eight matters for congressional consideration including
standardizing the responsibilities of chief financial officers, preparing
government-wide and agency-level financial management plans, and
identifying and, if necessary, developing key financial management
information needed for effective financial management and decision-
making. 95 During the 116th Congress, bipartisan legislation aiming to
strengthen financial management by updating the CFO Act passed the
Senate by unanimous consent. 96
Similarly, during the 116th Congress, Congress passed and the President
signed into law the National Defense Authorization Act for Fiscal Year
2021, which contains a provision on the inventory of program activities of
94GAO, Management Report: Improvements Needed in Controls over the Processes Used
to Prepare the U.S. Consolidated Financial Statements, GAO-20-586 (Washington, D.C.:
Aug. 25, 2020). In addition, see GAO, DOD Financial Management, High Risk Issue,
accessed on January 25, 2021, https://www.gao.gov/highrisk/dod-financial-management.
Further, other auditors have made recommendations to DOD to improve DOD’s financial
management.
95GAO-20-566.
96CFO Vision Act of 2020, S. 3287, 116th Cong. (2020). While the bill passed the Senate
on December 16, 2020, it was not enacted before the start of the 117th Congress on
January 3, 2021. Therefore, it would need to be reintroduced in the 117th Congress.
Page 49 GAO-21-275SP The Nation's Fiscal Health
federal agencies. 97 The law requires that OMB make available a program
inventory as an open government data asset, update the information on
the website on a quarterly basis and update the program inventory on an
annual basis. The program inventory is intended to link programs to their
purposes and show spending and other data useful for policymakers to
compare and evaluate across programs. GAO is also required to report
on the program inventory once program inventory data are available
online.
In addition, full implementation of the Digital Accountability and
Transparency Act of 2014 (DATA Act) will also enable federal agencies to
report information that complements the annual audited financial
statements by providing much more detailed information on federal
program spending and the activities of those programs. 98 OMB and
Treasury have taken significant steps toward implementing the DATA
Act’s various requirements and addressing our related recommendations.
Continue to Address Since 2011, we have reported on federal programs, agencies, offices,
Duplication, Overlap, and and initiatives that have duplicative goals or activities as well as
opportunities to achieve greater efficiency and effectiveness that result in
Fragmentation: Agencies
cost savings or enhanced revenue collection. In our nine annual reports
Have the Potential to from 2011 through 2019, we presented 908 actions for executive branch
Achieve Billions in agencies or Congress to reduce, eliminate, or better manage
Financial Benefits for the fragmentation, overlap, or duplication; achieve cost savings; or enhance
Government revenue. Actions taken by executive branch agencies and Congress on
these issues have resulted in roughly $429 billion in financial benefits
since fiscal year 2010. 99 As of March 2020, about 57 percent of the
actions were fully addressed, about 22 percent were partially addressed,
97William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021,
Pub. L. No. 116-283, div. H, title XCVI, § 9601, 134 Stat. 3388, 4823 (Jan. 1, 2021). This
provision of the law incorporated language from the Taxpayers Right-To-Know Act, H.R.
3830, 116th Cong. (2020).
98Pub. L. No. 113-101, 128 Stat. 1146 (May 9, 2014). The DATA Act amended the Federal
Funding Accountability and Transparency Act of 2006 (FFATA), Pub. L. No. 109-282, 120
Stat. 1186 (Sept. 26, 2006) codified at 31 U.S.C. § 6101 note.
99The $429 billion includes about $393 billion from 2010 through 2019 and $36 billion
projected to accrue in future years. In calculating these totals, we relied on individual
estimates from a variety of sources, which considered different time periods and used
different data sources, assumptions, and methodologies. These totals represent a rough
estimate of financial benefits and have been rounded down to the nearest $1 billion.
Page 50 GAO-21-275SP The Nation's Fiscal Health
and about 12 percent were not addressed. 100 We estimate that tens of
billions of dollars in additional financial benefits are possible by fully
implementing our recommended actions.
This publication was prepared under the direction of Susan J. Irving,
Senior Advisor to the Comptroller General, Debt and Fiscal Issues, who
may be reached at (202) 512-6806 or irvings@gao.gov; Robert F. Dacey,
Chief Accountant, who may be reached at (202) 512-3406 or
daceyr@gao.gov; and Dawn B. Simpson, Director, Financial
Management and Assurance, who may be reached at (202) 512-3406 or
simpsondb@gao.gov if there are any questions. GAO staff who made key
contributions to this publication are listed in appendix II. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this publication. In addition, this publication will be
available at no charge on GAO’s website at http://www.gao.gov.
Gene L. Dodaro
Comptroller General of the United States
100Nine percent of the actions have been consolidated, replaced, or subsumed by new
actions based on additional audit work or other relevant information or were closed as not
addressed because the action is no longer relevant due to changing circumstances. For
more information on our work on duplication, overlap, and fragmentation including cost-
savings and revenue enhancements, see GAO, 2020 Annual Report: Additional
Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Billions in
Financial Benefits, GAO-20-440SP (Washington, D.C.: May 19, 2020) and Duplication &
Cost Savings: Action Tracker, updated on May 19, 2020, https://www.gao.gov/duplication-
cost-savings.
Page 51 GAO-21-275SP The Nation's Fiscal Health
Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
Methodology
Methodology
This report summarizing the fiscal health of the federal government was
conducted under the authority of the Comptroller General. In this report,
we discuss the federal government’s fiscal condition and how it changed
in fiscal year 2020, the federal government’s unsustainable long-term
outlook, and risks to the government’s fiscal condition. We also discuss
actions the federal government can take to achieve a more sustainable
fiscal path as well as the potential consequences of not taking action.
To summarize the current fiscal condition and how it changed in fiscal
year 2020, we reviewed CBO reports on the effects of legislation on its
projections of the federal deficit, Treasury’s Monthly Treasury Statements,
relevant Medicare and Social Security Trustees reports, and our prior
work on the federal debt.
For the federal government’s long-term outlook, we reviewed projections
from CBO’s March 2021 long-term budget outlook report, CBO’s February
2021 budget and economic outlook report, and our long-term simulations
of federal revenues and spending. Our two simulations are the extended
baseline and the alternative. To conduct our simulations, we primarily
used data from CBO and the Medicare and Social Security Trustees.
We chose the data and assumptions for our simulations to illustrate the
nation’s potential fiscal path under current law and current policy, and to
complement CBO projections included in this report.
• CBO’s baseline (10-year) and extended baseline (30-year) projections
generally reflect current law. For example, CBO assumes current tax
provisions will generally remain unchanged, tax provisions will expire
as scheduled, and provisions of PPACA 1 and the Medicare Access
and CHIP Reauthorization Act of 2015 (MACRA) designed to control
health care cost growth will be achieved and sustained over the long
term. 2
• GAO’s extended baseline simulation uses CBO’s estimates for the
first 10 years and generally assumes current law continues into the
future. For years beyond the 10th, the simulation assumes that
revenues and discretionary spending remain at their 10th-year levels
as shares of gross domestic product. It also uses health care
1PPACA, Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and
Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (2010).
2MACRA, Pub. L. No. 114-10, title I, § 101, 129 Stat. 87, 89 (Apr. 16, 2015).
Page 52 GAO-21-275SP The Nation's Fiscal Health
Appendix I: Objectives, Scope, and
Methodology
spending projections from CMS and Social Security spending
projections from the Social Security Trustees.
• GAO’s alternative simulation generally assumes historical and current
policy conditions will continue in the future. For example, the
simulation assumes some tax provisions do not expire as scheduled,
PPACA and MACRA provisions to control health care cost growth are
not sustained, and, in the long term, revenues and discretionary
spending return to their historical averages as shares of gross
domestic product. 3
For a more complete description of the assumptions and data for GAO’s
simulations, see https://www.gao.gov/assets/2021-
03/2021_key_assumptions.pdf. 4
To describe the risks to the federal government’s fiscal condition, we
drew from our 2021 High-Risk List, our bodies of work in a number of
areas, and relevant laws.
To identify actions the federal government can take to achieve a more
sustainable fiscal path, we reviewed our prior work on the debt limit and
the use of fiscal rules by both the United States and other countries. We
also reviewed our prior reports on improper payments; the tax gap; tax
expenditures; and on duplication, overlap, and fragmentation.
We conducted our work from August 2020 to March 2021 in accordance
with all sections of GAO’s Quality Assurance Framework that are relevant
to our objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We believe
that the information and data obtained, and the analysis conducted,
provide a reasonable basis for any findings and conclusions in this
product.
3GAO’s alternative simulation assumptions draw from the CMS Office of the Actuary’s
2020 illustrative alternative assumptions for health care cost growth. These assumptions
assume that Medicare cost containment measures provided under PPACA and the
physician payment rate methodology provided under MACRA are not sustained over the
long term, leading to a substantial increase in health care costs.
4A description of CBO’s methodology for its baseline projections is available in CBO, How
CBO Prepares Baseline Budget Projections (Washington, D.C.: February 2018).
Page 53 GAO-21-275SP The Nation's Fiscal Health
Appendix II: GAO Contacts and Staff
Appendix II: GAO Contacts and Staff
Acknowledgments
Acknowledgments
Susan J. Irving, (202) 512-6806, irvings@gao.gov
GAO Contacts Robert F. Dacey, (202) 512-3406, daceyr@gao.gov
Dawn B. Simpson, (202) 512-3406, simpsondb@gao.gov
In addition to the contacts named above, Jason Vassilicos (Assistant
Staff Director), Erinn L. Sauer and J. Daniel Paulk (Analysts-in-Charge),
Acknowledgments Michelle Bacon, Melanie Magnotto, Robert Gebhart, Meredith Moles,
Robert Robinson, and Ardith Spence made key contributions to this
report. Additional assistance in their areas of expertise was provided by
Margaret Adams, Jeff Arkin, Cindy Brown Barnes, Kyle Browning, Nikki
Clowers, Michael Collins, Chris Currie, Beryl Davis, Elizabeth Field,
Richard Geiger, Mark Glickman, Kathryn Godfrey, Yvonne Jones,
Samantha Lalisan, Hannah Laufe, Thomas McCabe, Elizabeth Mixon,
Tranchau (Kris) T. Nguyen, Joseph O’Neill, Laura Pacheco, Oliver
Richard, Marylynn Sergent, Joseph Silvestri, Dawn Simpson, Justin
Snover, Joseph Thompson, Frank Todisco, Robyn Trotter, Matthew
Valenta, Patrick Ward, Steve Westley, Rebecca Rust Williamson, and
Charles Young.
(104501)
Page 54 GAO-21-275SP The Nation's Fiscal Health
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