On March 21, the Government Accounting Office (GAO) released a study entitled, "The Nation’s Long-Term Fiscal Outlook." According to the report, in order to keep the national debt at or below today’s level over the next 75 years, long-term spending by the federal government needs to either be cut by 17.4 percent or individual income taxes would have to be increased by 38.1 percent.

Based on data released by the Congressional Budget Office in its January Budget and Economic Outlook, GAO says their updated "simulations" continue to illustrate that the long-term fiscal outlook is unsustainable. GAO has conducted these long-term fiscal outlook simulations since 1992.

The most recent report shows that, despite a 3-year decline in the unified budget deficit, the federal government still faces large and growing structural deficits driven primarily by rising health care costs. GAO reports the rising trends for Social Security and Medicare costs will likely put more pressure on the federal budget each year until Congress takes action to either cut costs or find new sources of revenue to keep the programs solvent. Over the past several decades, health care spending per capita has grown, on average, about 2.5 percent faster than gross domestic product (GDP) per capita. Health care spending is absorbing increasing shares of the nation’s resources, and it's rapid growth is projected to continue.

There are several ways to measure the nation's long-term fiscal challenge. One quantitative measure is called the fiscal gap. The fiscal gap is the amount of spending reduction or tax increases that would be needed to keep debt as a share of GDP at or below today’s rate. The study says delaying a spending cut or a tax increase by even 10 years would require a revenue increase of about 48 percent or non-interest spending cuts of about 42 percent. GAO reports that the gap is too large to simply grow out of the problem, and states that, while additional economic growth would help, it will not eliminate the need for action.

Please click here for a detailed description of the report.