Information on the Spending and Revenue Implications of Potential Debt Targets (GAO-21-211)
Summary
A GAO report to congressional requesters, GAO-21-211, dated December 2020, on the nation's fiscal health. It states that even before COVID-19, an imbalance between federal revenue and spending built into current law and policy was contributing to growing federal debt, and that the pandemic response and the severe economic contraction have increased it. GAO says that once the pandemic abates and the economy has substantially recovered, Congress and the administration will need to address the government's fiscal challenges. It recalls that in September 2020 GAO made a recommendation to Congress to help change the long-term fiscal path, and gives information on the spending and revenue implications of potential debt targets.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
United States Government Accountability Office
Report to Congressional Requesters
THE NATION’S
December 2020
FISCAL HEALTH
Information on the
Spending and
Revenue Implications
of Potential Debt
Targets
GAO-21-211
December 2020
THE NATION’S FISCAL HEALTH
Information on the Spending and Revenue
Implications of Potential Debt Targets
Highlights of GAO-21-211, a report to
congressional requesters
Why GAO Did This Study What GAO Found
Even before the fiscal and economic The COVID-19 pandemic has necessitated major federal spending to respond to
effects resulting from COVID-19, an the national public health emergency and resulting economic turmoil. This
imbalance between federal revenue response and the severe economic contraction from the pandemic have led to
and spending that is built into current increased federal debt. Once the COVID-19 pandemic abates and the economy
law and policy was contributing to the has substantially recovered, Congress and the administration will need to
growing federal debt. The address the federal government’s fiscal challenges. To help change the long-
Congressional Budget Office projects term fiscal path, in September 2020 GAO recommended that Congress consider
that by 2023 federal debt held by the establishing a long-term fiscal plan that includes fiscal rules and targets, such as
public will reach 107 percent of GDP,
a debt-to-gross domestic product (GDP) target.
its highest point in U.S. history. This
situation—in which federal debt grows In this report, GAO analyzed the changes in spending and revenue needed to
faster than GDP—means that our reach six potential debt-to-GDP targets at the end of a 30-year period (2020-
nation is on an unsustainable fiscal 2049). To reach any of the targets, policymakers will need to cut program
path. spending, increase revenue, or, most likely, a combination of both (see table).
GAO was asked to review issues
Illustrative Examples of Changes Needed to Achieve Debt-to-GDP Targets
related to fiscal rules and targets and Program spending
the federal fiscal condition. In response alone: Immediate and Revenue alone:
to this request, in September 2020, Spending and permanent decrease Immediate and
GAO issued a report (GAO-20-561) on Debt target, percent revenue: total needed in annual permanent increase
key considerations for the design, of GDP (end of 30 change over 30 projected program needed in annual
years) years spendinga projected revenue
implementation, and enforcement of
Percent Dollars, trillions Percent Percent
fiscal rules and targets. This report 140 25.4 13.8 18.5
supplements that work and describes 120 31.2 16.9 22.8
how changes in assumptions of future 100 37 20 27
spending and revenue affect the 80 42.8 23.1 31.2
federal government’s projected fiscal 60 48.5 26.3 35.4
condition. 0 (paying off all debt) 65.9 35.7 48.1
Source: GAO simulation. | GAO-21-211.
GAO updated its long-term simulations
Note: The simulation used for this analysis generally reflect historical trends, such as the extension of
of federal revenue and spending to (1) tax provisions scheduled to expire. It does not account for potential macroeconomic effects of fiscal
analyze six potential debt-to-GDP policy changes over time.
targets and (2) measure the fiscal Program spending consists of all spending except interest payments on debt held by the public.
a
gap—the policy change needed to
reach a given debt-to-GDP fiscal target When considering the spending and revenue changes needed to achieve various
from the start to the end of 30-years. debt-to-GDP targets, policymakers may also consider how changes in
GAO also analyzed how changes in assumptions about key variables—such as discretionary spending, revenue, and
key variables affected the debt-to-GDP GDP—affect these fiscal outcomes. For example, if GDP growth is greater than
targets and the fiscal gap. expected, policymakers may have to make smaller spending cuts or revenue
increases to reach a selected debt-to-GDP target than those that would be
needed based on GAO’s standard assumptions.
GAO created an interactive web tool accompanying this report to allow users to
enter different assumptions for each of these variables. This tool illustrates how
these changes would affect the different debt-to-GDP targets over time, as well
as the changes in spending and revenue needed to achieve various targets. This
tool can be found at https://www.gao.gov/products/GAO-21-211.
View GAO-21-211. For more information,
contact Jeff Arkin at (202) 512-6806 or
arkinj@gao.gov.
United States Government Accountability Office
Contents
Letter 1
Background 4
Key Variables Affect the Fiscal Policy Actions Needed to Achieve
Debt-to-GDP Targets 6
Appendix I Objectives, Scope, and Methodology 11
Appendix II GAO Contact and Staff Acknowledgments 14
Tables
Table 1: Illustrative Examples of Changes Needed to Achieve
Debt-to-Gross Domestic Product Targets 7
Table 2: Standard Assumptions about Key Variables under GAO’s
Alternative Simulation 12
Figure
Figure 1: Federal Debt Held by the Public, Fiscal Years 2000-
2049 5
Abbreviations
CBO Congressional Budget Office
COVID-19 Coronavirus Disease 2019
GDP gross domestic product
This is a work of the U.S. government and is not subject to copyright protection in the
United States. The published product may be reproduced and distributed in its entirety
without further permission from GAO. However, because this work may contain
copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.
Page i GAO-21-211 The Nation's Fiscal Health
Letter
441 G St. N.W.
Washington, DC 20548
December 15, 2020
The Honorable Mike Enzi
Chairman
Committee on the Budget
United States Senate
The Honorable Steve Womack
Ranking Member
Committee on the Budget
House of Representatives
By 2023, federal debt held by the public is projected to reach 107 percent
of gross domestic product (GDP)—its highest point in U.S. history—
according to the Congressional Budget Office (CBO). This projected rise
in debt would continue a trend that has been in place for some time. The
federal government last ran a budget surplus in fiscal year 2001. From
that time through fiscal year 2020, debt held by the public increased from
$3.3 trillion to $26.9 trillion, or from about 32 percent of GDP to 100
percent of GDP. 1 This situation—in which federal debt grows faster than
GDP—means that our federal government is on an unsustainable fiscal
path.
The Coronavirus Disease 2019 (COVID-19) pandemic has necessitated
major federal spending to respond to the national public health
emergency and resulting economic turmoil. This response combined with
the severe economic contraction from the pandemic has generated a
substantial increase in federal debt. Short-term fiscal decisions have
appropriately focused on protecting federal health and the economy.
However, once the current crisis abates, we have reported that Congress
and the administration will need to take action to address the federal
government’s underlying fiscal challenges. 2
1We are using debt held by the public throughout this report. Debt held by the public is the
amount of money that the federal government owes to its investors. Intragovernmental
debt is the amount of money the federal government owes to itself. Together, these forms
of debt comprise total federal debt.
2GAO, The Nation’s Fiscal Health: A Long-Term Plan Is Needed for Fiscal Sustainability,
GAO-21-161T (Washington, D.C.: Oct. 7, 2020).
Page 1 GAO-21-211 The Nation's Fiscal Health
Since 2017, we have reported on the need for a broad plan to put the
federal government on a more sustainable long-term fiscal path. 3 To help
change the long-term path, in September 2020 we recommended that
Congress consider establishing a long-term fiscal plan that includes fiscal
rules and targets, such as a debt-to-GDP target. 4 We have also reported
that, to address the federal government’s fiscal challenges, policymakers
will need to consider policy changes to the entire range of federal
activities: both revenue (including tax expenditures) and program
spending (including entitlement programs, other mandatory spending, and
discretionary spending). 5 Measuring the degree to which each of these
activities affects the long-term fiscal outlook can help policymakers as
they weigh the difficult decisions they would need to make to establish
and comply with the fiscal rules and targets.
You asked us to review issues related to fiscal rules and targets and the
federal fiscal condition. In response to this request, in September 2020,
we issued a report on key considerations for the design, implementation,
and enforcement of fiscal rules and targets. 6 This report supplements that
work and describes how changes in assumptions of future spending and
revenue affect the federal government’s projected fiscal condition.
3GAO, 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); The Nation’s Fiscal
Health: Action Is Needed to Address the Federal Government’s Fiscal Future,
GAO-19-314SP (Washington, D.C.: Apr. 10, 2019); The Nation’s Fiscal Health: Action Is
Needed to Address the Federal Government’s Fiscal Future, GAO-18-299SP
(Washington, D.C.: Jun. 21, 2018); and The Nation’s Fiscal Health: Action Is Needed to
Address the Federal Government’s Fiscal Future, GAO-17-237SP (Washington, D.C.:
Jan. 17, 2017).
4GAO, The Nation’s Fiscal Health: Effective Use of Fiscal Rules and Targets,
GAO-20-561 (Washington, D.C.: Sept. 23, 2020). According to the International Monetary
Fund, a fiscal rule is a long-lasting constraint on fiscal policy through numerical limits on
budgetary aggregates, such as expenditures, revenue, or the ratio of debt to GDP. Fiscal
targets are the interim benchmarks that may be established within the parameters set by
fiscal rules.
5Tax 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).
6GAO-20-561.
Page 2 GAO-21-211 The Nation's Fiscal Health
Fiscal Gap To do this work, we used our long-term simulations of federal revenue
For the purposes of this report, the fiscal gap and spending to analyze the debt-to-GDP ratio at the end of a 30-year
measures the policy change needed to reach period (2020-2049) and measure the fiscal gap. 7 These simulations use
a given debt-to-gross domestic product fiscal
target from the start to the end of 30 years. the most recent data available as of October 2020. We analyzed the fiscal
Source: GAO analysis. | GAO-21-211 gap for six potential debt-to-GDP targets:
• 0 percent (i.e., paying off the debt),
• 60 percent,
• 80 percent,
• 100 percent,
• 120 percent, and
• 140 percent.
We selected these targets to provide a range of illustrative scenarios,
both higher and lower than the debt-to-GDP level at the end of fiscal year
2020 (100 percent), as well as 0 percent to illustrate the changes needed
to pay off the debt. 8
We also analyzed how changes in the assumptions we used for key
variables in our simulations affect the debt-to-GDP ratio and the fiscal
gap. We selected key variables that can significantly affect both debt and
GDP. For each variable, we analyzed the variation from our standard
assumptions that we believe to be a reasonable degree of uncertainty in
the future projected value of the key variable. 9 Specifically, we analyzed
what the debt-to-GDP ratio and fiscal gap would look like if:
7Our 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 report. The alternative simulation generally assumes historical and
current policy conditions will continue in the future. For example, it assumes some tax
provisions do not expire as scheduled under current law, the Patient Protection and
Affordable Care Act and Medicare Access and CHIP Reauthorization Act of 2015
provisions to control health care cost growth are not sustained as they would be under
current law, and, in the long term, revenue and discretionary spending return to their
historical averages as shares of GDP. In contrast, our extended baseline simulation
generally assumes current law will continue into the future.
8A 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.
9We analyzed changes to these variables in isolation, excluding any impact of the
changed variable on other elements of the simulation.
Page 3 GAO-21-211 The Nation's Fiscal Health
• discretionary spending were 5 percent higher or lower than our
assumptions,
• the GDP growth rate were 0.5 percentage points higher or lower,
• health care excess cost growth were 1 percent higher or lower, 10
• interest rates were 1 percentage point higher or lower,
• revenue were 5 percent higher or lower, or
• Social Security spending were 3 percent higher or lower.
Detailed information on our scope and methodology including the
standard assumptions used in our simulations is included in appendix I.
We conducted our work from July 2020 to December 2020 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.
As we have previously reported, the federal government is on an
Background unsustainable long-term fiscal path caused by an imbalance between
revenue and spending that is built into current law and policy. 11 This
imbalance has led to the growing debt, and is expected to continue to do
so. In our simulations, absent any action, debt held by the public would
increase from 100 percent of GDP in 2020 to 229 percent of GDP in 2049
(see fig. 1).
10Excess cost growth refers to the number of percentage points by which the annual rate
of growth of spending on Medicare, Medicaid, or health care generally (per beneficiary or
per capita) exceeded the growth of nominal gross domestic product (per capita).
11GAO-20-403SP.
Page 4 GAO-21-211 The Nation's Fiscal Health
Figure 1: Federal Debt Held by the Public, Fiscal Years 2000-2049
In September 2020, we reported on key considerations to help Congress
should it choose to adopt a new fiscal rule or target for the federal
government. We outlined seven key considerations related to the design,
implementation, and enforcement of fiscal rules and targets, such as
alignment with fiscal policy goals and objectives and flexibility to address
emerging issues, such as national emergencies like COVID-19. 12
Fiscal rules in the form of laws that constrain and enforce fiscal policy
decisions have been enacted previously. 13 However, the federal
government experienced challenges in designing fiscal rules that were
achievable and effective in addressing the nation’s growing debt because
12GAO-20-561.
13Examples of fiscal rules previously enacted into law include Statutory Pay-As-You-Go
Act of 2010, Pub. L. No. 111-139, 124 Stat. 8 (2020) and the Budget Control Act of 2011,
Pub. L. No. 112-25, 125 Stat. 240 (2011).
Page 5 GAO-21-211 The Nation's Fiscal Health
the rules were not designed to encompass the entire range of factors that
contribute to the federal government’s fiscal imbalance. 14
The Organization for Economic Co-Operation and Development has
reported that debt-to-GDP targets can serve as a fiscal policy anchor for a
country’s government to help ensure the sustainability of fiscal policy and
maintain sufficient policy room for the government to cope with adverse
shocks. 15 In addition, the International Monetary Fund has reported that
well-designed fiscal rule frameworks should include a debt target to set
an anchor for fiscal policy, as well as a small number of operational rules
(such as rules that guide spending or revenues) that provide short term
guidance to policymakers. 16 The operational rules should be calibrated to
be consistent with the debt target.
Key Variables Affect
the Fiscal Policy
Actions Needed to
Achieve Debt-to-GDP
Targets
Spending and Revenue To reach any of the six potential debt-to-GDP targets we analyzed—
Changes Needed to including targets above the 100 percent debt-to-GDP level at the end of
fiscal year 2020—policymakers will need to cut program spending (i.e.,
Achieve Selected Debt-to-
spending other than interest payments on debt held by the public),
GDP Targets increase revenue, or both. Policymakers would most likely need to use a
14For more information on the federal government’s experience with fiscal rules, see
GAO-20-561 and The Nation’s Fiscal Health: Actions Needed to Achieve Long-Term
Fiscal Sustainability, GAO-19-611T (Washington, D.C.: Jun. 26, 2019).
15Organization for Economic Co-Operation and Development, Prudent Debt Targets and
Fiscal Frameworks, OECD Economic Policy Paper No. 15 (July 2015).
16International Monetary Fund Fiscal Affairs Department, How to Calibrate Fiscal Rules: A
Primer (Washington, D.C.: March 2018).
Page 6 GAO-21-211 The Nation's Fiscal Health
combination of both spending and revenue changes to achieve fiscal
sustainability. 17
Our analysis shows the total changes to spending and revenue over 30
years (2020-2049), in dollars, needed to reach these potential debt-to-
GDP targets, as shown in table 1. We also analyzed the percentage of
program spending reductions or revenue increases alone that would be
needed to reach these targets. For example, if policymakers choose to
achieve a debt-to-GDP target of 100 percent in 30 years, they would need
to make program spending cuts, revenue increases, or a combination of
both totaling about $37 trillion—in present value terms—over this period.
This change could be achieved by immediately and permanently either
cutting annual projected program spending by 20 percent or increasing
annual projected revenue by 27 percent. Choosing to achieve this change
through a combination approach would entail some lesser percentage
decrease in program spending combined with some lesser percentage
increase in revenue. Different debt-to-GDP targets that policymakers
choose would require different changes to annual projected spending or
revenue.
Table 1: 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 (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 fiscal sustainability.
Debt target, percent of GDP Spending and revenue: Program spending alone: Revenue alone: annual
(end of 30 years) total change over 30 annual projected decrease projected increase neededc
yearsa neededb,c
Percent Dollars in trillions Percent Percent
140 25.4 13.8 18.5
120 31.2 16.9 22.8
100 37 20 27
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-21-211.
17The changes shown in our analysis would need to be made immediately and
permanently to reach the specified target at the end of the 30-year period. Percentage
changes to spending and revenue represent the changes that would need to be made
each year, compared to what spending and revenue would otherwise be according to our
simulations. Total change in dollars represents the present value of the cumulative
amount of spending cuts and revenue increases over the 30-year period. Present value is
the worth of a future stream of returns or costs in terms of money paid immediately.
Page 7 GAO-21-211 The Nation's Fiscal Health
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 present value of spending and revenue changes combined that are needed to meet
the specified debt-to-GDP target at the end of 30 years.
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.
Changes in Assumptions As policymakers consider the spending and revenue changes needed to
about Key Variables achieve various debt-to-GDP targets, it can be helpful to consider how
changes in assumptions about key variables would affect these fiscal
outcomes. These variables are (1) discretionary spending, (2) the GDP
growth rate, (3) health care excess cost growth, (4) interest rates, (5)
revenue, and (6) Social Security spending.
We have created an interactive web tool to allow users to enter different
assumptions for each of these variables. This tool illustrates how these
changes would affect the different debt-to-GDP targets over time, as well
as the changes in spending and revenue needed to achieve various
targets. This tool can be found at
https://www.gao.gov/products/GAO-21-211. 18
The text box below provides one illustrative example of how an increase
in projected GDP would affect projected fiscal outcomes and the changes
needed to achieve a 100 percent debt-to-GDP target at the end of 30
years, compared to our standard assumptions. 19 This analysis can be
repeated using this interactive tool with higher- or lower-than expected
assumptions for any of the variables and the different debt-to-GDP
targets (140, 120, 100, 80, 60, or 0 percent) we examined. We are not
endorsing any particular debt-to-GDP target or fiscal policy actions.
18We plan to periodically update this tool on our America’s Fiscal Future website,
https://www.gao.gov/americas_fiscal_future.
19See appendix I for information on our scope and methodology and the standard
assumptions in our simulations.
Page 8 GAO-21-211 The Nation's Fiscal Health
Illustrative Example: Increasing the Projected Gross Domestic Product Growth
Rate by 0.5 Percentage Points
Our simulations of the future debt-to-gross domestic product (GDP) ratio and the fiscal
gap rely on assumptions about key variables for revenue and spending that affect the
federal fiscal condition over a 30-year period (2020-2049). Analyzing how changes to
the assumptions about any particular variable affect fiscal outcomes can help
policymakers determine how and where changes would have the greatest impact.
What debt-to-GDP ratio would we expect if the GDP growth rate were 0.5
percentage points higher than we assumed?
• The debt-to-GDP ratio would be 191 percent at the end of fiscal year 2049,
compared to 229 percent under our standard assumptions.a
What changes in spending or revenue would be needed to achieve a 100 percent
debt-to-GDP target if the GDP growth rate were 0.5 percentage points higher than
we assumed?
• Policymakers would need to make a combination of spending cuts and revenue
increases totaling a present value of $30.2 trillion over this period, compared to $37
trillion under our standard assumptions.b
• The target could be achieved by immediately and permanently cutting annual
projected program spending by 15.5 percent, compared to 20 percent under our
standard assumptions.
• Alternatively, the target could be achieved by immediately and permanently
increasing annual projected revenue by 20.3 percent, compared to 27 percent
under our standard assumptions.
• A combination of program spending reductions and revenue increases would most
likely be needed.
Source: GAO analysis. | GAO-21-211.
For more information on our standard assumptions, see appendix I.
a
Present value is the worth of a future stream of returns or costs in terms of money paid immediately.
b
We are sending copies of this report to the Director of the Office of
Management and Budget and the Secretary of the Treasury, as well as
cognizant congressional committees and other interested parties. This
report will be available at no charge on our website at
https://www.gao.gov.
Page 9 GAO-21-211 The Nation's Fiscal Health
If you or your staff has any questions about this report, please contact
Jeff Arkin at 202-512-6806 or arkinj@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of our report. Key contributors to this report are listed in
appendix II.
Jeff Arkin
Acting Director
Strategic Issues
Page 10 GAO-21-211 The Nation's Fiscal Health
Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
Methodology
Methodology
Our objective was to describe how changes in assumptions of future
spending and revenue affect the federal government’s projected fiscal
condition.
To do this work, we used our long-term simulations of federal revenue
and spending to analyze the debt-to-gross domestic product (GDP) ratio
at the end of a 30-year period (2020-2049), and measure the fiscal gap. 1
We analyzed the fiscal gap for six potential debt-to-GDP ratio targets:
• 0 percent (i.e., paying off the debt),
• 60 percent,
• 80 percent,
• 100 percent,
• 120 percent, and
• 140 percent.
We selected these targets to provide a range of illustrative scenarios.
Specifically, we selected the 100 percent target to show the policy change
needed to maintain the debt-to-GDP ratio at its level at the end of fiscal
year 2020. We selected 120 percent and 140 percent to show the policy
changes needed to maintain debt at incrementally higher levels at the end
of a 30-year period. In these scenarios, debt would be higher than the
fiscal year 2020 level, but significantly lower than it otherwise would be
absent any action (229 percent at the end of 2049), according to our
simulations. Similarly, we selected 60 percent and 80 percent to show the
policy changes needed to reduce debt from the fiscal year 2020 level at
the end of a 30-year period. Finally, we selected 0 percent to illustrate the
changes that would be needed to pay off the debt. While policymakers
would have a difficult time eliminating debt held by the public at the end of
30 years, this scenario provides context for the other debt-to-GDP targets
included in our analysis.
Our long-term simulations of federal revenue and spending include two
scenarios: the baseline extended simulation, and the alternative
simulation. To conduct these simulations, we primarily used data from the
Congressional Budget Office (CBO) and the Medicare and Social Security
1For the purposes of this report, the fiscal gap measures the policy change needed for the
government to reach a given debt-to-GDP fiscal target from the start to the end of 30
years.
Page 11 GAO-21-211 The Nation's Fiscal Health
Appendix I: Objectives, Scope, and
Methodology
Trustees. These simulations use the most recent data available as of
October 2020. For this report, we used the alternative simulation, which
generally assumes historical and current policy conditions will continue in
the future. 2 We also assume that Social Security and Medicare spending
continue as scheduled, even after the projected depletions of the
associated trust funds. 3
We also analyzed how higher or lower changes in the assumptions used
for key variables in our simulations affect the debt-to-GDP ratio and the
fiscal gap. We selected key variables that can significantly affect both
debt and GDP. These variables, and our standard assumptions about
them, are shown in table 2.
Table 2: Standard Assumptions about Key Variables under GAO’s Alternative Simulation
Variable Assumptions
Discretionary spending The Congressional Budget Office’s (CBO) September 2020 baseline estimates through 2030.a
After 2030, phases to 7.2 percent of gross domestic product (GDP) (the 20-year historical
average, 2000-2019).
GDP growth rate CBO’s baseline estimates through 2030. After 2030, GDP grows at a rate consistent with the
2020 Social Security Trustees’ intermediate projections.
Health care excess cost growthb Calculated based on the Centers for Medicare & Medicaid Services’ projections under current
law. Excess cost growth averages 0.5 percentage points over the long term.
Interest rates Consistent with CBO’s baseline estimates through 2030. After 2030, phases to CBO’s long-
term nominal interest rate projection.
Revenue CBO’s baseline estimates through 2030, adjusted to assume certain expiring tax provisions are
extended. After 2030, phases to 17.4 percent of GDP (the 50-year historical average, 1970-
2019).
Social Security spending CBO’s baseline estimates through 2030. After 2030, phases into the 2020 Social Security
Trustees’ intermediate projections.
Source: GAO. | GAO-21-211
2For example, the alternative simulation assumes some tax provisions do not expire as
scheduled under current law, the Patient Protection and Affordable Care Act and Medicare
Access and CHIP Reauthorization Act of 2015 provisions to control health care cost
growth are not sustained as they would be under current law, and, in the long term,
revenue and discretionary spending return to their historical averages as shares of GDP.
In contrast, our extended baseline simulation generally uses CBO’s estimates for the first
11 years—which generally reflect current law—and generally assumes that current law
continues into the future.
3CBO projects that the Medicare Hospital Insurance Trust Fund will be depleted in 2024,
and the Social Security Old-Age and Survivors Insurance Trust Fund will be depleted in
2031.
Page 12 GAO-21-211 The Nation's Fiscal Health
Appendix I: Objectives, Scope, and
Methodology
a
CBO’s baseline estimates generally reflect current law. For example, CBO assumes current tax
provisions will generally remain unchanged, tax provisions will expire as scheduled, and provisions of
the Patient Protection and Affordable Care Act and Medicare Access and CHIP Reauthorization Act
of 2015 designed to control health care cost growth will be achieved and sustained over the long
term. CHIP stands for the Children’s Health Insurance Program.
b
Excess cost growth refers to the number of percentage points by which the annual rate of growth of
spending on health care per capita exceeded the growth of nominal gross domestic product per
capita.
For each variable, we considered deviations from these standard
assumptions by a degree that represents what we believe to be a
reasonable level of uncertainty in the future projected value of the key
variable. 4 Specifically, we analyzed what the debt-to-GDP ratio and
measures needed to reach the fiscal targets would look like if:
• discretionary spending were 5 percent higher or lower than our
assumptions,
• the GDP growth rate were 0.5 percentage points higher or lower,
• health care excess cost growth were 1 percent higher or lower,
• interest rates were 1 percentage point higher or lower,
• revenue were 5 percent higher or lower, or
• Social Security spending were 3 percent higher or lower.
We conducted our work from July 2020 to December 2020 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.
4We analyzed changes to these variables in isolation, excluding any impact of the
changed variable on other elements of the simulation. When each variable is adjusted, we
re-calculate the fiscal gap to find the new change in spending or revenue that is required
to achieve a fiscal target.
Page 13 GAO-21-211 The Nation's Fiscal Health
Appendix II: GAO Contact and Staff
Appendix II: GAO Contact and Staff
Acknowledgments
Acknowledgments
Jeff Arkin, (202) 512-6806 or arkinj@gao.gov.
GAO Contact
In addition to the contact named above, Janice Latimer (Assistant
Staff Director), Laurel Plume (Analyst-in-Charge), Jazzmin Cooper, Meredith
Acknowledgments Moles, and Ardith Spence made major contributions to this report. Also
contributing to this report were Ellen Arnold-Losey, Jacqueline Chapin,
Melanie Fallow, Samantha Lalisan, Ernie Powell, Joseph Silvestri, and
Alicia White.
(104448)
Page 14 GAO-21-211 The Nation's Fiscal Health
The Government Accountability Office, the audit, evaluation, and investigative
GAO’s Mission arm of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of the
federal government for the American people. GAO examines the use of public
funds; evaluates federal programs and policies; and provides analyses,
recommendations, and other assistance to help Congress make informed
oversight, policy, and funding decisions. GAO’s commitment to good government
is reflected in its core values of accountability, integrity, and reliability.
The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of through our website. Each weekday afternoon, GAO posts on its website newly
GAO Reports and released reports, testimony, and correspondence. You can also subscribe to
GAO’s email updates to receive notification of newly posted products.
Testimony
Order by Phone The price of each GAO publication reflects GAO’s actual cost of production and
distribution and depends on the number of pages in the publication and whether
the publication is printed in color or black and white. Pricing and ordering
information is posted on GAO’s website, https://www.gao.gov/ordering.htm.
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card, MasterCard,
Visa, check, or money order. Call for additional information.
Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO Subscribe to our RSS Feeds or Email Updates. Listen to our Podcasts.
Visit GAO on the web at https://www.gao.gov.
Contact FraudNet:
To Report Fraud,
Website: https://www.gao.gov/fraudnet/fraudnet.htm
Waste, and Abuse in
Automated answering system: (800) 424-5454 or (202) 512-7700
Federal Programs
Orice Williams Brown, Managing Director, WilliamsO@gao.gov, (202) 512-4400,
Congressional U.S. Government Accountability Office, 441 G Street NW, Room 7125,
Relations Washington, DC 20548
Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, DC 20548
Stephen J. Sanford, Acting Managing Director, spel@gao.gov, (202) 512-4707
Strategic Planning and U.S. Government Accountability Office, 441 G Street NW, Room 7814,
External Liaison Washington, DC 20548
Please Print on Recycled Paper.
File and source
- File
- gao-21-211.pdf
- Size
- 306,689 bytes
- SHA-256
- 7fe1cb7a17dc22ea529134a036a2af3bb7c0d405f7d2bd4ae7ce89ece46eb922
- Our copy
- gao-21-211.pdf
- Original
- www.gao.gov