November 26, 2014

U.S. Financial Report Shows Need for Long-Term Reform

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

The latest Financial Report of the U.S. Government shows that despite recent lower deficits, long-term fiscal policy remains on an unsustainable course.

The annual report, released by the Department of the Treasury, says that despite cuts to discretionary spending and increased revenue collection, the spending growth in Social Security and Medicare will cause a precipitous rise in the debt-to-GDP ratio in the next decade and beyond.

The report includes 75-year spending and revenue projections for Social Security and Medicare. These show both programs with mounting unfunded commitments in the coming decades. Estimates of the present-value of these 75-year shortfalls -- how much money it would take now to cover them -- are $12.3 trillion for Social Security and $27.3 trillion for Medicare.

The 75-year calculations provide a general sense of the fiscal challenges facing these important government programs, although such estimates involve many variables and assumptions that may prove inaccurate.

The projections for Medicare, for example, assume that the recent slowdown in the growth of health costs will continue over the long term. Many experts, however, are uncertain how long the slowdown will last.

Government publications, including the U.S. Financial Report and the Medicare Trustees report, publish “alternative scenarios” assuming faster health care cost growth and projecting substantially larger fiscal burdens on the federal government than the standard projections.

But even the standard projections indicate that unless the government substantially raises revenue or makes sweeping changes to the nation’s major health and retirement programs, over time they will contribute to unsustainable levels of federal debt.

This week the administration also released this year’s Economic Report of the President, which provides a detailed look at the U.S. economy.