Uncle Sam just got a fiscal health check-up from the Government Accountability Office (GAO) and it didn’t go well.
The patient should be alarmed. So should the American taxpayer.
“The Congress and administration face serious economic, security, and social challenges that will require difficult policy choices in the near term about the level of federal spending and investments as well as ways to obtain needed resources,” the GAO says in its latest fiscal health report. “At the same time, the federal government is highly leveraged in debt by historical norms.”
In addition, the GAO reminds us that various risks and unforeseen developments could make things even worse in the years ahead.
The new report is entitled “The Nation’s Fiscal Health: Action Is Needed to Address the Federal Government’s Fiscal Future.” While troubling, the report is hardly surprising.
It incorporates previously released information and warnings from the federal government’s 2017 Financial Report, the Congressional Budget Office (CBO) and the latest projections from Medicare and Social Security trustees. The GAO audited the government’s consolidated financial statements as well.
The new report also has a familiar ring because it echoes many of the same basic problems that the GAO discussed in its 2017 report on the nation’s fiscal health, issued just days before President Trump took office.
Unfortunately, the earlier report did not dissuade Trump and Congress from approving large deficit-financed tax cuts and budget-busting spending plans, boosting projected federal deficits.
At the same time, Washington has failed to pursue reforms that Social Security and Medicare so clearly need as the retiree population expands and health care costs continue to rise.
“In addition to near-term financing decisions,” the GAO says, “a broader plan is needed to put the federal government on a more sustainable long-term path.”
It also emphasizes again that procrastination is a costly option: “The 2017 Financial Report, CBO and GAO all make the point that the longer action is delayed, the greater and more drastic the changes will have to be.”
With trust funds for Medicare and Social Security — including the Disability Insurance program — facing financial challenges, GAO says, “it is important to develop and begin to implement a long-term fiscal plan for returning to a sustainable path.”
The GAO report also notes that the government’s rising interest costs will be a key driver in federal spending growth in the next few years. That is because the debt is getting larger and interest rates — still low by historical standards — are likely to rise.
“Of further concern is the fact that none of the long-term projections include certain other fiscal risks that could affect the federal government’s financial condition in the future,” the report says. “These include risks stemming from unforeseen events . . . such as wars or weather-related, economic, or financial challenges such as sustaining the multi-employer pension plans insured by the Pension Benefit Guaranty Corporation.”
This is an important warning that should be kept in mind, particularly for elected officials who are relying on rosy economic forecasts and best-case fiscal scenarios.
For example, the difficulties facing just the Pension Benefit Guaranty Corporation, the federal agency that helps protect private pension benefits, are enormous. So is the potential cost to American taxpayers. Yet few elected officials have focused much attention on this large and growing fiscal risk.
The GAO notes that its previous work has identified numerous ways in which executive agencies could help improve the fiscal picture. Examples include reducing improper payments, shrinking the gap between taxes owed and taxes paid, and cutting down on duplication and overlap.
In addition, however, Congress and the president should follow the GAO’s advice to develop a “broader plan” for fiscal sustainability. They should pursue sweeping budget reforms to rein in the federal debt, repair essential programs like Social Security, Medicare and pension protection, and leave the country in a solid financial position to meet future challenges.