Thursday, February 15, 2024: GAO Issued Three Frank, Blunt, & Shocking Warning Reports that U.S. Fiscal Health is Not Good & Federal Government Spending is Not Sustainable
Report 1: “The federal government faces an unsustainable long-term fiscal path that poses serious economic, security, and social challenges if not addressed,” the U.S. Government Accountability Office (“GAO”) wrote in the opening sentence of the first of its three “Nation’s Financial Health” reports released on February 15 and 16, 2024: “The Nation’s Fiscal Health: Road Map Needed to Address Projected Unsustainable Debt Levels.”
Report 2: “Congress and the administration will need to make difficult budgetary and policy decisions to address the key drivers of federal debt,” GAO wrote as it began its second report the next day on February 16: “A Warning About the Nation’s Fiscal Health.” That report went on to foreshadow its third report issued the same day by further stating: “Reliable federal financial statements are critical to help policymakers make these important decisions. But we have reviewed the government’s bookkeeping and continue to find weaknesses that undermine its reliability.”
Report 3: “[The GAO] is again unable to determine if the federal government’s consolidated financial statements are reliable. This year’s audit report discusses progress that has been made, but also underscores that much work remains to improve federal financial management and highlights that the federal government continues to be on an unsustainable long-term fiscal path:” “GAO Unable to Provide an Opinion on the U.S. Government’s Financial Statements.”
GAO – often called the “congressional watchdog” – describes itself as:
“an independent, non-partisan agency that works for Congress. GAO examines how taxpayer dollars are spent and provides Congress and federal agencies with objective, non-partisan, fact-based information to help the government save money and work more efficiently.”
Furthermore, it is “the supreme audit institution for the United States. Federal and state auditors look to GAO to provide standards for internal controls, financial audits, and other types of government audits.”
GAO summarized its first report on February 15th by stating:
“The federal government faces an unsustainable long-term fiscal path that poses serious economic, security, and social challenges if not addressed. Our review of the nation’s fiscal health found:
- Debt is projected to grow faster than the economy, reaching 200% of GDP by 2050 if revenue and spending policies are unchanged
- Large budget deficits drive the growing debt, as Medicare and Social Security spending outpace revenue
- Government interest spending as a share of GDP will reach an all-time high by 2030, in part due to rising interest rates
We suggested developing a plan for fiscal sustainability and identified pieces of an effective plan.”
The February 15th GAO report highlights section also warned that:
“Debt is Projected to Grow Faster than the Economy Over the Long Term
At the end of fiscal year 2023, the $26.2 trillion in debt held by the public was about 97 percent of gross domestic product (GDP). GAO projects that under current revenue and spending policies, debt held by the public will:
- reach its historical high of 106 percent of GDP by 2028, and
- grow more than twice as fast as the economy over a 30-year period, reaching 200 percent of GDP by 2050.
Perpetually rising debt as a share of GDP is unsustainable and has many direct and indirect implications on the economy and American households and individuals.”
Editor’s Note: The U.S. National Debt Clock reported the U.S. federal debt to be $34,235,571,438,061 ($34 Trillion and change) as of Friday, February 16, 2024, at 11 am EST, and growing at a rate of $5.2 Billion per day (or almost $2M per minute). Debt will continue to grow at that daily rate for the next 10 years according to MarketWatch.
The GAO’s second report warned not only that the trust funds supporting both Medicare and Social Security will (again) “be depleted within 10 years,” but also that:
“Our declining fiscal health isn’t because of one administration or one decision. Every year that the government runs a deficit—where it spends more than it collects in revenues (primarily taxes)—it must borrow to make up the difference. The federal government has run a deficit for decades.
Other factors have also contributed to our growing debt. For example, last year’s rising interest rates meant that it cost us more to borrow money.
We have consistently urged Congress to develop a plan for fiscal sustainability and we identified components needed for this plan to be effective. This plan would mean addressing unsustainable spending and revenue policies, and reducing the nation’s need to borrow.
An effective plan includes several key components. Among them:
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Review mandatory and discretionary spending and revenue—including tax expenditures, such as deductions and tax credits.
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Address financing gaps for Medicare and Social Security, both of which are supported by trust funds that will be depleted within 10 years.”
EDITOR’S NOTE REGARDING THE IMPLICATIONS OF THE GAO WARNING REPORTS: The implications of the GAO reports are widespread and staggering given that the reports singled out the need for reform of both “mandatory” (i.e., Medicare and Social Security) and “discretionary” spending budgets (i.e., federal agency annual budgets). Discretionary spending budgets have been a political lightning rod in almost every federal budget debate for the last decade and the mandatory budget has been politically untouchable (the “third rail”) since the federal taxpayers last bailed it out in 2010 to prevent it from (again) going bankrupt.
While GAO is a strictly non-partisan federal accounting agency of the United States Congress, it’s three new reports certainly strengthens the hand of the Republican Freedom Caucus in the current budget debates. The Freedom Caucus has been the “thorn in the side” of Congress holding up passage of the 12 federal budget bills Congress needs to pass yearly to the President to sign into law to annually fund the federal Government.
The Freedom Caucus has steadfastly opposed continued unchecked federal spending which has already led to two budget agreement impasses in this Fiscal Year 2024. The federal government, thus far unable to agree upon spending limits, will next face the third federal budget crisis of the year in early March when the two Congressional “Continuing Budget Resolutions” providing the federal agencies with their budgets at the level of the prior Fiscal Year (2023) expire on March 1 and March 8, 2024. See our Week In Review story on the last budget impasse Congress only temporarily resolved on January 19, 2024.
The GAO Fiscal Health Reports suggest the need for potential (personal and corporate) tax increases, federal agency budget cuts, increases in payments for Social Security and Medicare or decreases in benefits, or all of the above. Tough choices continue to lie ahead for all as the sound of the waves crashing down upon us increases with the GAO’s frank reminder reports.