This week on Facing the Future, host Bob Bixby spoke with Jeff Arkin, Director of Strategic Issues at the Government Accountability Office (GAO), about the GAO’s newt report titled The Nation’s Fiscal Health: Urgent and Sustained Action Needed to Improve the Fiscal Outlook. The conversation provided a sobering examination of the United States’ fiscal trajectory and the pressing challenges that lie ahead.
Jeff Arkin began by summarizing the report’s central message: “The federal government is on an unsustainable fiscal path…And when we say unsustainable, what we mean is that our debt is growing faster than the economy, and has been for a while, and will continue to do so indefinitely based on our projections.”
He emphasized the growing burden of interest payments on the national debt, noting how recent increases in interest rates have exacerbated the situation. “We are paying more just on interest. It is one of the largest expenses for the federal government. It is larger than what we pay on defense, or at least did in fiscal year 2025, and it’s approaching the size of Medicare, another one of our largest programs.” This rising interest expense diverts resources away from national priorities, creating a cycle where more borrowing leads to higher interest payments, which in turn necessitates further borrowing.
The GAO’s projections paint a daunting picture for the future. Arkin discussed how the debt-to-GDP ratio could soar to over 250% in 30 years under their model, a figure significantly higher than the Congressional Budget Office’s estimate of 175%. While acknowledging the uncertainty inherent in such long-term forecasts, he stressed that the trend is clearly upward and unprecedented, stating, “We are quickly approaching unchartered territory… even though debt has risen relatively quickly in the past during wars or recessions, what has tended to happen is then that ratio would go back down during times of peace or economic expansion. And that has changed. Now it’s just going up and up and up.”
A fundamental driver behind this unsustainable path is a structural imbalance between spending and revenue. Arkin explained, “Revenue has tended to stay within a fairly tight band… but spending really grows, and much of that is being driven by our federal healthcare programs, like Medicare or Medicaid, and Social Security. Healthcare costs tend to grow faster than the economy, and that all snowballs to the point where the gap between revenue and spending keeps getting bigger and bigger over time.” This persistent gap creates primary deficits—when government program spending exceeds revenue—forcing the government to borrow more and increasing interest costs.
The report highlights the importance of distinguishing between the primary deficit and the overall deficit, which includes interest payments. Arkin clarified, “The primary deficit takes into account the difference between just revenue and program spending. That’s the part of the budget that Congress and the administration have more direct control over. Interest is really set by what we’ve borrowed and interest rates, and the government doesn’t control those directly.” He pointed out that in 2025, interest payments accounted for 3.2% of GDP, outpacing the primary deficit of 2.7%, illustrating how interest costs are overtaking the funds available for government programs. This dynamic creates a self-reinforcing cycle of borrowing and interest payments that intensifies the fiscal challenge.
The GAO’s report also included an important illustration of the cost of delay in addressing these fiscal challenges. Arkin explained the trade-offs policymakers face depending on when corrective actions begin: “If we wanted to keep our debt relative to the size of the economy about where it is today… even if we started today, it is a big challenge. We would need to start running a primary surplus… bring in another 26% a year or more in revenue, or spend 21% less or some combination of the two.” However, if actions are delayed by ten years, these required adjustments become significantly larger—potentially requiring 31% less spending or 42% more revenue annually by 2037. Arkin stressed the human impact of these fiscal decisions, saying, “Paying more taxes is not an abstract thing, that’s money coming out of the pockets of Americans, and spending less would mean fewer benefits, fewer services, whatever it may be.”
Beyond programmatic spending and revenue, Arkin discussed areas where the government could improve fiscal outcomes without raising taxes or cutting benefits. He pointed to significant opportunities in improving tax compliance and reducing improper payments and fraud. “The last tax year for that estimate was 2022, but it was over $600 billion [in lost revenue]. That’s compared to about $4.5 trillion that we bring in in revenue, and so it’s a pretty big share of funds that are not coming in like they’re supposed to.”
On fraud, the GAO estimated that government-wide fraud ranges between $233 billion and $521 billion annually. Arkin emphasized the need for enhanced anti-fraud efforts and better tools for the IRS, noting, “One big thing is: what kind of information does IRS receive on taxpayers’ income, on their transactions? The compliance rate for wage income is extremely high, over 99%, whereas people who may be self-employed or get income from other sources, if there’s not information that’s going to IRS, then they don’t necessarily have the ability to know whether what somebody is reporting on their tax return is correct.” He also described how improved reporting requirements could streamline compliance and reduce taxpayer burden.
Finally, the conversation addressed possible fiscal governance reforms. Arkin described GAO’s longstanding recommendation for Congress to adopt a long-term fiscal strategy that includes fiscal targets or rules. He explained, “A fiscal rule or fiscal target is a specific goal that the government wants to achieve by a certain time period… and then you would adopt rules that would help you reach that target… Many other countries, most other countries, particularly developed countries, employ [fiscal rules] as a way to manage their government finances, and we think it’s time for something like that here in the U.S.” He suggested such rules could replace the current debt limit, which he described as problematic because it reacts to past decisions rather than guiding future fiscal policy. “A debt limit’s not a constraint on what we’re doing now. It’s really something that’s responding to decisions that were already made in the past, which we don’t think is the optimal way to control our finances.”
Reflecting on the broader significance of the fiscal outlook, Arkin stressed why these issues matter to everyday Americans: “A high, kind of rising debt-to-GDP ratio can increase interest rates on our debt… which can affect the interest rates that individuals or businesses have on loans they get tied to things like mortgages or borrowing for automobiles… On the business side, higher interest rates might decrease their economic growth… which could result in reducing productivity, but also wage growth for workers, or at least the rate of wage growth.” He warned that without action, the country risks losing fiscal flexibility to respond to future crises, noting, “Do you have fiscal space to be able to react quickly and intervene if debt is already a large concern? The concern is that it could happen in the future, that there won’t be… flexibility to do so because of our fiscal situation.”
In closing, Arkin expressed the importance of public awareness and policymaker engagement on these critical fiscal issues to put the nation’s finances on a sustainable path before the costs and consequences become unmanageable.
