While many in Washington have put fiscal sustainability on the back burner, the Government Accountability Office (GAO) offers an important reminder of the need for prompt fiscal reforms.
“Significant action to change the long-term fiscal path must be taken soon to minimize the disruption to individuals and the economy,” the GAO says in its annual update on that path. “The entire range of federal activities and spending—entitlement programs, other mandatory spending, discretionary spending, and revenue—will need to be re-examined.”
The report’s Baseline Extended Simulation builds on the Congressional Budget Office’s baseline; the GAO’s Alternative Simulation assumes baseline changes “to reflect historical trends.”
GAO points out that “a fundamental imbalance between revenue and spending over the long term leads to continuous growth in debt” as a share of GDP, which is unsustainable. The report also notes that spending increases are driven by the aging population and rising health care costs.
In the Alternative Simulation, which better reflects recent congressional action, the fiscal situation deteriorates more rapidly. By 2026, it shows interest on the federal debt exceeding Medicare costs. By 2027, debt held by the public would exceed the nation’s entire GDP; the following year Social Security, Medicare, Medicaid and net interest would consume all federal revenues.