The Federal Government's Long-Term Fiscal Outlook: Fall 2011 Update
October 24, 2011
The federal government's fiscal outlook has improved since GAO's last report, largely due to provisions in the Budget Control Act of 2011. This Act requires at least $2.1 trillion in deficit reduction from 2012-2021. Nevertheless, GAO's simulations continue to underscore the need to address the longer-term outlook as soon as possible while still recognizing the current weakness in the economy. Rising health care costs and the aging of the U.S. population continue to create budgetary pressure. The oldest members of the baby-boom generation are already eligible for early Social Security retirement benefits and become eligible for Medicare this year. The Social Security program, which historically ran large cash surpluses that helped reduce the need to borrow from the public to finance other programs, is now projected to pay more in benefits than it receives in tax income each year into the future. Budgetary pressure will increase in coming decades as more members of the baby-boom generation retire and become eligible for federal health programs. The timing of the debt buildup varies depending on the assumptions used: debt held by the public increases less rapidly in the Baseline Extended simulation than under the Alternative simulation. However, even with the improvement from the Budget Control Act, debt held by the public under the Alternative simulation exceeds the post-World War II high of 109 percent of GDP by 2027. The Budget Control Act set limits on discretionary spending for fiscal years 2012-2021 and created the Joint Select Committee on Deficit Reduction. Under the enacted discretionary spending limits, discretionary spending as a share of the economy would be lower in 2021 than at any point in the last 40 years. The Act also provides for an additional $1.2 trillion in deficit reduction over the period--either through enactment of recommendations made by the Joint Select Committee or through automatic procedures that would reduce spending. Since the Joint Select Committee may allocate the deficit reduction between changes in tax and spending law as it deems appropriate, savings are applied to the total deficit in the simulations shown in this report. The simulations also assume that the savings as a share of GDP are maintained throughout the simulation period. To do this would require a sustained commitment extending beyond the time horizon and the goals specified in the Budget Control Act. However, based on our simulations even this level of deficit reduction is not sufficient to ensure sustainability.