There’s a familiar ring to the latest report by the Government Accountability Office (GAO) on the nation’s fiscal health, and that is not a good sign.
The new report reiterates GAO’s past warnings about the federal government’s budget problems and the lack of responsible action — and then discusses how things have gotten worse since the last such report was issued only 10 months ago.
“Congress and the administration face serious economic, security and social challenges that require difficult policy choices in the near term in setting national priorities and charting a path forward on economic growth,” the GAO says. It also reminds elected officials and other readers that the federal government is already “highly leveraged in debt by historical norms.”
The new report says that longer-term fiscal projections “show the federal government is on an unsustainable fiscal path.” The key drivers of growing federal spending are expected to be health care programs — due in part to an aging population — and snowballing interest on the debt.
GAO points out that it is not alone in its general assessment of unsustainability; supporting evidence comes from the Congressional Budget Office (CBO) and the Fiscal Year 2018 Financial Report of the United States Government.
All show that without policy changes, the federal government’s debt-to-GDP ratio will surpass its historical high of 106 percent within 13 to 20 years, which GAO notes is sooner than projected last year.
The GAO says the 2018 Financial Report and CBO also agree that the longer corrective action is delayed, the greater the changes will have to be. Many other analysts and organizations, including The Concord Coalition, have also warned that procrastination in Washington will make the needed reforms more difficult and require greater public sacrifices.
The GAO report includes a troubling timeline of fiscal difficulties and milestones in the years ahead: This year Social Security spending will surpass $1 trillion in annual spending, in 2025 the Pension Benefit Guaranty Corporation’s multiemployer trust fund will be depleted, in 2026 Medicare’s Hospital Insurance Trust Fund will be depleted, that same year Medicare and Medicaid (state and federal) spending will each surpass $1 trillion annually, and so on.
Discussing the past year, GAO notes that the federal deficit in Fiscal 2018 increased to $779 billion, up from $666 billion the previous year. In a separate report last week, the Treasury Department said that the deficit just for the first half of Fiscal 2019 was slightly over $691 billion.
The GAO says federal receipts increased by only $14 billion in the last fiscal year, when new tax-cut legislation took effect. Spending, meanwhile, increased by $127 billion.
Politicians, of course, often blame increased federal spending on the other party. But the spending increases last year, GAO says, were “driven by, among other things, increases in defense, interest on debt held by the public (net interest), Social Security, Medicaid, and disaster relief and flood insurance.” Interest costs aside — they are unavoidable — each of these other items enjoy strong support from Republicans, Democrats or both. That support seldom comes with credible financing plans.
The new GAO report raises another warning flag about fiscal risks: programs, activities and responsibilities that could — based on current policy or past practices — put additional pressure on the federal budget. Early last week the GAO issued a separate report that provides extensive information on the “fiscal exposures” that create such risks.
The GAO’s broader report on the nation’s fiscal health includes a welcome reminder of the need for congressional action on the federal debt limit. While waiting for such action, the Treasury Department is currently falling back on what it calls “extraordinary measures” to avoid the government defaulting on some of its debts.
“The full faith and credit of the U.S. must be preserved,” GAO warns. It points out that the debt limit “is not a control on debt but rather an after-the-fact measure that restricts the Treasury’s authority to borrow to financed the decisions already enacted by Congress and the president.”
GAO and others have suggested alternative approaches to the current debt limit. Unfortunately, Congress has yet to take action.
The GAO’s fiscal health report provides a broad overview of what ails the federal budget and it emphasizes the fundamental importance of sweeping reforms. This includes an array of executive agency actions in areas such as tax collection, improper payments, bureaucratic duplication and “fully auditable” financial statements by the government.
The report deserves careful review by lawmakers, administration officials, candidates for any federal office in 2020, and voters who want to know more about what fiscal concerns they should expect those candidates to address.