GAO Warns on Federal Fiscal Outlook

Commentary

GAO Warns on Federal Fiscal Outlook

Report cites growing gap between revenue, spending through the year 2089

Back in December, the U.S. Government Accountability Office (GAO) issued a fairly dire long-term fiscal outlook for states and local governments, finding that they will continue to face long-term fiscal challenges and a growing gap between revenue and spending through the year 2060, absent significant policy changes. GAO estimated that to close the gap state and local government expenditures would need to be cut by 18% and then held flat as a percentage of GDP for decades to come. As it turns out, the picture at the federal level is no better-if not worse.

Earlier this month, GAO released its annual Federal Fiscal Outlook, which similarly finds a fundamental, long-term imbalance between revenue and spending, which if unaddressed will lead to an unsustainable scenario of ever-increasing debt as a share of GDP, regardless of which set of spending assumptions are used. Also similar to state and local governments, the growing fiscal imbalance at the federal level is largely a result of an aging population and the associated spending on entitlement programs-Social Security and Medicare. Further, the report suggests that the growing debt and cost of interest will limit the federal government’s ability to respond to future challenges (e.g., financial or natural disasters) and emerging fiscal issues. In short, an already tenuous fiscal situation is set to become increasingly risky in the coming decades.

Not surprisingly, the GAO recommends action to restore long-term fiscal balance, noting that “[t]he entire range of federal activities and spending-entitlement programs, other mandatory spending, discretionary spending, and revenue-will need to be reexamined.” Depending on what projections are used, GAO finds that to close the fiscal gap, either: (1) revenue would have to be 20-37% higher, or (2) noninterest spending would have to be about 17-27% lower (or some combination of the two) on average each year over the 75-year period to keep the debt-to-GDP ratio in 2089 from exceeding the current level.

And those projections are based on immediate action; inaction increases the costs. GAO finds that delaying action increases the scale of actions needed and the risk that changes will bring disruptive and destabilizing economic impacts. For example, if policymakers wait a decade to take action to close the gap, revenue would have to be 43% higher, or noninterest spending would have to be about 31% lower (or some combination of the two) on average each year through 2089.

The latest GAO federal outlook is hardly groundbreaking or “new.” GAO has issued similar annual reports for years, and the Congressional Budget Office and others have long warned about the worsening fiscal picture. Perhaps what’s more notable than the GAO report’s dire outlook itself is the abundance of deaf ears that it is likely to fall upon.

The GAO’s observation that “the federal government will need to make tough choices in setting priorities and ensuring that spending leads to positive results” to right the ship seems understated and blasé; we’ve heard it so often in some form or fashion. What would actually be striking is if current and aspiring policymakers-starting with the 2016 presidential candidates-actually took the fiscal warning seriously as a policy priority and explained to taxpayers the true threats and risks that they and future generations are facing absent a meaningful push for fiscal restraint.

Leonard Gilroy is director of government reform at Reason Foundation and is the editor of the Privatization & Government Reform Newsletter, available here.

Leonard Gilroy is vice president of government reform at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He also serves as senior managing director of the Pension Integrity Project at Reason Foundation, which assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.