This month saw warnings from three official sources regarding the long-term financial condition of the country.
The Department of the Treasury published the 2016 Financial Report of the United States Government, which “provides the President, Congress, and the American people a comprehensive view of how the Government is managing taxpayer dollars.” It concludes that “current policy is not sustainable” over the long run because the national debt held by the public is expected to grow continuously as a share of the economy in coming years. It urges, “Subject to the important caveat that changes in policy are not so abrupt that they slow continued economic growth, the sooner policies are put in place to avert these trends, the smaller the revenue increases and/or spending decreases will need to be to return the Government to a sustainable fiscal path.”
The U.S. Government Accountability Office (GAO), an independent, nonpartisan arm of Congress that keeps track of how the federal government spends taxpayer dollars, audited the Financial Report. Its Alternative simulation found debt rising even faster than Treasury, reaching the all-time record of 106 percent of the economy by 2032. GAO also found that “Debt held by the public as a share of GDP, however, remains well above the post-World War II historical average of 44 percent since 1946. At the end of fiscal year 2016, debt held by the public reached about 77 percent of GDP—the highest it has been as a share of GDP since 1950.” And GAO warns that “Debt held by the public at these high levels could limit the federal government’s flexibility to address emerging issues and unforeseen challenges, such as another economic downturn or large-scale disaster.”
In a related paper on the nation’s fiscal health, GAO advises that “To change the long-term fiscal path, policymakers will need to consider policy changes to the entire range of federal activities and spending—entitlement programs, other mandatory spending, discretionary spending, and revenue.” It also states, “In addition to near term financing decisions, a broader plan is needed to put the government on a more sustainable long-term path.”
Finally, the nonpartisan Congressional Budget Office (CBO) updated its ten-year budget and economic outlook. It found that the fiscal year 2016 budget deficit was $587 billion, more than one-third higher than the previous year. And deficits are projected to rise every year after 2018. Further, trillion-dollar deficits will return by 2023, and the deficit will reach $1.4 trillion by 2027. Debt held by the public will grow by $10 trillion over the next decade, from $15 trillion at the end of 2017 to $25 trillion in 2027. And as a share of the economy, debt will grow from 77 percent today to 89 percent in 2027. CBO strongly warns about the consequences of this outlook:
Three official studies, one message: the national debt is on an unsustainable path and action is required. Will policymakers listen? See more on the latest budget numbers from CBO.
National Debt and You