GAO: America’s Money Matters – Understanding the Nation’s Long-Term Fiscal Health

GAO: America’s Money Matters – Understanding the Nation’s Long-Term Fiscal Health


[ Music ] Hi. I’m Kerstin, an analyst at the U.S. Government Accountability Office. Politicians, talking heads, and analysts like me are always talking about how large the debt is, and how the debt will be passed down to my generation, my kids’ generation, and maybe even my grandkids’ generation. The debt is part of the bigger picture of the federal government’s current and future fiscal health. At GAO, we’re constantly assessing the government’s fiscal condition and evaluating ideas to improve it. Let’s take a closer look at what’s going on. Have you seen this number before? 14.2 trillion dollars. It’s the amount of money that the federal government has borrowed from corporations, state and local governments, foreign governments, and individuals like you, as of the end of fiscal year 2016. This is only a portion of the total debt, which is approaching 20 trillion, including 5.5 trillion dollars that the government borrows from itself. And as you can see, it’s a number that just keeps growing. Each fiscal year, if the government spends more money than it brings in that year, that’s a deficit. The nation borrows money to cover that deficit-which increases the debt. You’d think that with revenues growing and deficits shrinking for the past several years, the nation would be in good shape. In 2016, however, deficits increased for the first time in 6 years. Some big trends in federal spending have a lot to do with this. So how is the country spending its money? There are a few different types of federal spending. Programs such as Social Security, Medicare, and Medicaid are considered “mandatory spending” because their budgets are determined by benefit formulas. If there are more people receiving Social Security this year, for example, the program costs more than it did last year. Programs such as defense, law enforcement, transportation, and national parks are considered “discretionary spending.” Congress sets the budgets for these programs annually. The other component is the net interest the government pays each year on the 14.2 trillion dollars of debt it already has. As the debt continues to grow, interest payments will become a larger and larger part of federal spending. The costs associated with mandatory spending programs will also continue to grow as our population ages and health care costs rise. As mandatory spending and interest on the debt grow, they can place pressure on spending in other important areas. We all expect to be protected from military threats-but also from cyber threats, which are multiplying as we speak. Nobody can predict how much cybersecurity will cost, as the threats are always evolving with technology. And while nobody wants to see a natural disaster, we all know that they happen-and that people will be seeking any federal assistance there is to help them recover. These kinds of things are considered “fiscal risks” to the government-things that, when they happen, the government is expected to step in and provide funding to help. There are many more fiscal risks than the ones I just mentioned-and they’re very hard to plan for. All of these are reasons why the country spends money faster than it comes in. While revenues will grow as the economy grows, it is not projected to keep pace with spending growth. According to the trends in our fiscal outlook, all of this is bad news for the nation’s future. In our simulated policy situation, the debt will be the greatest it has ever been by the year 2032-putting the squeeze on the federal budget. Without policy changes, critical Social Security and Medicare programs are projected to run short of funds to fully pay benefits within the next 20 years. – Social Security Disability Insurance in 2023 – Medicare hospital insurance in 2028, and – Social Security Old Age and Survivors Insurance in 2035. Growing pressure from these programs and interest on the debt are projected to lead to trillion-dollar annual deficits by 2023. Tackling trillions of dollars of debt and strengthening the nation’s financial condition will likely require making changes to mandatory programs, discretionary spending, and revenue. If we wait to make these changes, they will only get bigger and require harder decisions. To make future changes less painful, there are a few things the government could do right away. For example: Sometimes it makes payments to people by mistake. And the government doesn’t collect all the taxes it’s owed right now. There’s also not enough strong data and good financial information available across the government. In many cases, to help policymakers make important financial decisions, agencies need to take action to provide additional or better information on how much policies and programs cost. With some effort, the federal government could fix these things. It would be a start-but not nearly enough to fully tackle the 14.2 trillion dollar debt or close the future gaps. It’s important for policymakers to address the nation’s long term fiscal health in order to solve many of the other challenges facing the nation. Learn more at GAO.gov.

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