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Financial Report of the United States Government

Management's Discussion & Analysis

The Long-Term Fiscal Outlook: “Where We Are Headed”

An important purpose of the Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable. This Financial Report includes the Statements of Long-Term Fiscal Projections and a related Note Disclosure (Note 23). The Statements display the present value of 75-year projections of the federal government’s receipts and non-interest spending21 for FY 2017 and FY 2016. The projections and accompanying discussion do not reflect the Tax Cuts and Jobs Act (P.L. 115-97) enacted on December 22, 2017.  Additional information about these projections may be found in Note 23 and the RSI section of this Financial Report; and additional information about the Tax Cuts and Jobs Act may be found in Note 25, Subsequent Events.

Fiscal Sustainability

A sustainable fiscal policy is one where the debt-to-GDP ratio is stable or declining over the long term. The projections discussed here show the impact on the ratio if current policy (i.e., current law, with certain adjustments, such as extension of expiring policies that are expected to continue)22 is assumed to continue indefinitely. The projections are therefore neither forecasts nor predictions. As policy changes are enacted, actual financial outcomes will be different than those projected.

The projections in this Financial Report show that current policy is not sustainable. As discussed below, if current policy is left unchanged, the debt-to-GDP ratio is projected to fall about 4 percentage points by 2023 before commencing a steady rise to 297 percent in 2092 and is projected to rise continuously thereafter. Preventing the debt-to-GDP ratio from rising over the next 75 years is estimated to require some combination of spending reductions and revenue increases that amount to 2.0 percent of GDP over the period. While this estimate of the “75-year fiscal gap” is highly uncertain, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

Delaying action to reduce the gap increases the magnitude of spending and/or revenue changes necessary to stabilize the debt-to-GDP ratio. For example, reforms necessary to close the gap rises about 20 percent if reforms are delayed ten years, and about 50 percent larger if reform is delayed 20 years.

The estimates of the cost of policy delay assume policy does not affect GDP or other economic variables. Delaying fiscal adjustments for too long raises the risk that growing federal debt would increase interest rates, which would, in turn, reduce investment and ultimately economic growth.

The Primary Deficit, Interest, and Debt

The primary deficit – the difference between non-interest spending and receipts – is the determinant of the debt-to-GDP ratio over which the Government has the greatest control (the other determinants include interest rates and growth in GDP). Chart G shows receipts, non-interest spending, and the difference – the primary deficit – expressed as a share of GDP. The primary deficit-to-GDP ratio spiked during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe recession, as well as the increased spending and temporary tax reductions enacted to stimulate the economy and support recovery. These elevated primary deficits resulted in a sharp increase in the ratio of debt to GDP, which rose from 39 percent at the end of 2008 to 70 percent at the end of 2012. As an economic recovery took hold, the primary deficit ratio fell, averaging 1.9 percent of GDP over 2013 through 2017. This primary deficit ratio was still high enough that the debt increased further relative to GDP, ending 2017 at 76 percent. The primary deficit is projected to shrink further through 2021 as discretionary spending limits called for in the BCA continue and the economic recovery boosts tax receipts. After 2021, however, increased spending for Social Security and health programs due to the ongoing retirement of the baby boom generation and increases in the price of health care services is projected to result in increasing primary deficits that reach 1.1 percent of GDP in 2027. The primary deficit peaks at 2.1 percent of GDP in 2037 and 2038, gradually decreases beyond that point as aging of the population continues at a slower pace and reaches 0.6 percent of GDP in 2088 through 2091.

Primary deficit trends are heavily influenced by tax receipts. Receipts as a share of GDP were markedly depressed in 2009 through 2012 because of the recession and tax reductions enacted as part of the American Recovery and Reinvestment Act of 2009 (ARRA) and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The share has increased in subsequent years and was 17.2 percent in 2017, similar to its 30-year average due to continued economic growth and the higher tax rates enacted under the ATRA.

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After 2020, receipts are projected to grow slightly more rapidly than GDP over the projection period as increases in real incomes cause more taxpayers and a larger share of income to fall into the higher individual income tax brackets.

Non-interest spending as a share of GDP is projected to stay at or below its current level of about 19 percent until 2025, and to then rise gradually to 21.5 percent of GDP by 2037 and 21.8 percent of GDP in 2070 through 2092. Slight reductions in the non-interest spending share of GDP over the next few years are mostly due to caps on discretionary spending, which hold growth in discretionary spending below GDP growth. The subsequent increases are principally due to faster growth in Medicare, Medicaid, and Social Security spending (see Chart G).

The aging of the baby boom generation over the next 25 years is projected to increase the Social Security, Medicare, and Medicaid spending shares of GDP by about 1.1 percentage points, 1.5 percentage points, and 0.5 percentage points, respectively. After 2042, the Social Security spending share of GDP remains relatively stable, while the combined Medicare and Medicaid spending share of GDP continues to increase, albeit at a slower rate, due to projected increases in health care costs.

One of the most important assumptions underlying the projections is the future growth of health care costs. As discussed in Note 22, these future growth rates – both for health care costs in the economy generally and for Federal health care programs such as Medicare, Medicaid, and Affordable Care Act (ACA) exchange subsidies – are highly uncertain. In particular, enactment of the ACA in 2010 and the Medicare Access and CHIP Reauthorization Act (MACRA) in 2015 established cost controls for Medicare hospital and physician payments whose long-term effectiveness is still to be demonstrated. The Medicare spending projections in the long-term fiscal projections are based on the projections in the 2017 Medicare trustees’ report, which assume the ACA and MACRA cost control measures will be effective in producing a substantial slowdown in Medicare cost growth. As discussed in Note 22, the Medicare projections are subject to much uncertainty about the ultimate effects of these provisions to reduce health care cost growth. For the long-term fiscal projections, that uncertainty also affects the projections for Medicaid and exchange subsidies, because the cost per beneficiary in these programs is assumed to grow at the same reduced rate as Medicare cost growth per beneficiary.

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The primary deficit-to-GDP projections in Chart G, projections for interest rates, and GDP growth rates are the primary determinants for the debt-to-GDP ratio projections shown in Chart H. That ratio was 76 percent at the end of FY 2017 and under current policy is projected to be 74 percent in 2027, 136 percent in 2047, and 297 percent in 2092. The debt-to-GDP ratio rises continually despite primary deficits that flatten out because higher levels of debt lead to higher net interest expenditures, and higher net interest expenditures lead to higher debt.23 The continuous rise of the debt-to-GDP ratio after 2023 indicates that current policy is unsustainable.

These debt-to-GDP projections are generally higher than the corresponding projections in both the FY 2016 and FY 2015 Financial Reports. For example, the debt-to-GDP projection for  2090  (the  final projection year for the 2015 report) is 289 percent in this year’s Financial Report, 249 percent in the FY 2016 Financial Report, and 223 percent in the FY 2015 Financial Report.24

Subsequent to the close of the reporting period, and after the preparation of these long-term fiscal projections, Congress passed and the President signed the Tax Cuts and Jobs Act (Public Law 114-411) which enacts comprehensive reforms to the individual and corporation income tax code.  See Note 25, Subsequent Events, for more information. 

The Fiscal Gap and the Cost of Delaying Policy Reform

The 75-year fiscal gap is one measure of the degree to which current fiscal policy is unsustainable. It is the amount by which primary surpluses over the next 75 years must, on average, rise above current-policy levels in order for the debt-to-GDP ratio in 2092 to remain at its level in 2017 (76 percent). This fiscal gap is estimated to equal 2.0 percent of GDP. The projections show that projected primary deficits average 1.2 percent of GDP over the next 75 years under current policies. If policies were adopted to eliminate the fiscal gap, the average primary surplus over the next 75 years would be 0.8 percent of GDP, 2.0 percentage points higher than the projected present value of receipts less non-interest spending shown in the basic financial statement. The 75-year fiscal gap represents 10.0 percent of 75-year present value receipts and 9.4 percent of 75 year present value non-interest spending. The fiscal gap was estimated at 1.6 percent in the 2016 Financial Report, 0.4 percentage points lower than estimated in this Report.

In these projections, closing the fiscal gap requires running substantially positive primary surpluses, rather than simply eliminating the primary deficit. The primary reason is that the projections assume future interest rates will exceed the growth rate of GDP. Achieving primary balance (that is, running a primary surplus of zero) implies that the debt grows each year by the amount of interest spending, which under these assumptions would result in debt growing faster than GDP.

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Table 6: Costs of Delaying Fiscal Reform

Period of Delay Change in Average Primary Surplus
No Delay: Reform in 2018 (No Delay) 2.0 percent of GDP between 2018 and 2092
Ten Years: Reform in 2028 (Ten-Year Delay) 2.1 percent of GDP between 2028 and 2092
Twenty Years: Reform in 2038 (Twenty-Year Delay) 3.0 percent of GDP between 2038 and 2092
Note: Reforms taking place in 2017, 2027, and 2037 from the 2016 Financial Report were 1.6, 1.9, and 2.4 percent of GDP, respectively.

Table 6 shows the cost of delaying policy reform to close the fiscal gap by comparing policy reforms that begin in three different years. Immediate reform would require increasing primary surpluses by 2.0 percent of GDP on average between 2018 and 2092 (i.e., some combination of reducing spending and increasing revenue by a combined 2.0 percent of GDP on average over the 75-year projection period). Table 6 shows that delaying policy reform forces larger and more abrupt policy reforms over shorter periods. For example, if policy reform is delayed by 10 years, any reforms must increase the primary surplus by 2.4 percent of GDP on average between 2028 and 2092. Similarly, delaying reform by 20 years requires primary surplus increases of 3.0 percent of GDP on average between 2038 and 2092. The differences between the required primary surplus increases that start in 2028 and 2038 (2.4 and 3.0 percent of GDP, respectively) and that which starts in 2018 (2.0 percent of GDP) is a measure of the additional burden that delay would impose on future generations. Future generations are harmed by such a policy reform delay, because the higher the primary surplus is during their lifetimes the greater the difference is between the taxes they pay and the programmatic spending from which they benefit.


The past nine years saw the national debt nearly double as a share of GDP, bringing it to a level not seen since shortly after World War II. The debt-to-GDP ratio is projected to remain relatively stable over the next decade and then rise indefinitely if current policies are unchanged, which implies that current policies are not sustainable and must ultimately change. As long as policy changes are not so abrupt as to hinder economic growth, the sooner policies are adopted to avert these trends, the smaller the changes to revenue and/or spending will need to be to achieve sustainability over the long term. While the estimated magnitude of the fiscal gap is subject to a substantial amount of uncertainty, there is little doubt that current policy is not sustainable.

These long-term fiscal projections and the topic of fiscal sustainability are discussed in further detail in Note 23 and the RSI section of this Financial Report.

Social Insurance

The long-term fiscal projections reflect Government receipts and spending as a whole. The Statement of Social Insurance (SOSI) focuses on the Government’s “social insurance” programs: Social Security, Medicare, Railroad Retirement, and Black Lung. 25 For these programs, the SOSI reports: (1) the actuarial present value of all future program revenue (mainly taxes and premiums) - excluding interest - to be received from or on behalf of current and future participants; (2) the estimated future scheduled expenditures to be paid to or on behalf of current and future participants; and (3) the difference between (1) and (2). Amounts reported in the SOSI and in the RSI section in this Financial Report are based on each program’s official actuarial calculations.

Table 7 summarizes amounts reported in the SOSI, showing that net social insurance expenditures are projected to be $49.0 trillion over 75 years as of January 1, 2017 for the “Open Group,” an increase of $2.3 billion over net expenditures of $46.7 trillion projected in the 2016 Financial Report.26 The current-law 2017 amounts reported for Medicare reflect the physician payment levels expected under the MACRA payment rules and the ACA-mandated reductions in other Medicare payment rates, but not the payment reductions and/or delays that would result from trust fund depletion.27 Similarly, current-law projections for Social Security do not reflect benefit payment reductions and/or delays that would result from fund depletion. By accounting convention, the transfers of general revenues are eliminated in the consolidation of the SOSI at the governmentwide level and as such, the general revenues that are used to finance Medicare Parts B and D are not included in these calculations even though the expenditures on these programs are included. For the FY 2017 and 2016 SOSI, the amounts eliminated totaled $30.0 trillion and $28.7 trillion, respectively. SOSI programs and amounts are included in the broader fiscal sustainability analysis in the previous section, although on a slightly different basis (as described in Note 23).

The amounts reported in the SOSI provide perspective on the Government’s long-term estimated exposures for social insurance programs. These amounts are not considered liabilities in an accounting context. Future benefit payments will be recognized as expenses and liabilities as they are incurred based on the continuation of the social insurance programs' provisions contained in current law. The social insurance trust funds account for all related program income and expenses. Medicare and Social Security taxes, premiums, and other income are credited to the funds; fund disbursements may only be made for benefit payments and program administrative costs. Any excess revenues are invested in special non-marketable U.S. Government securities at a market rate of interest. The trust funds represent the accumulated value, including interest, of all prior program surpluses, and provide automatic funding authority to pay cover future benefits.

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Table 7: Social Insurance Future Expenditures

Dollars in Trillions 2017 2016* Increase/
Open Group (Net):        
  Social Security (OASDI) $(15.4) $(14.1) $1.3 9.2%
  Medicare (Parts A, B, & D) $(33.5) $(32.5) $1.0 3.1%
  Other $(0.1) $(0.1) $0.0 0.0%
  Total Social Insurance Expenditures, Net
  (Open Group)
$(49.0) $(46.7) $2.3 4.9%
  Total Social Insurance Expenditures, Net
  (Closed Group)
$(68.2) $(64.9) $3.3 5.1%
Social Insurance Net Expenditures as a % of Gross Domestic Product (GDP)*
Open Group
  Social Security (OASDI) (1.2%) (1.1%)  
  Medicare (Parts A, B, & D) (2.8%) (2.7%)  
  Other (0.0%) 0.0%  
Total (Open Group) (4.0%) (3.8%)  
Total (Closed Group) (5.5%) (5.3%)  
Source: Statement of Social Insurance (SOSI). Amounts equal estimated present value of projected revenues and expenditures for scheduled benefits over the next 75 years of certain 'Social Insurance' programs (e.g., Social Security, Medicare). 'Open Group' totals reflect all current and projected program participants during the 75-year projection period. 'Closed Group' totals reflect only current participants.
* GDP values used are from the 2017 & 2016 Social Security and Medicare Trustees Reports and represent the present value of GDP over the 75-year projection period.  As the GDP used for Social Security and Medicare differ slightly in the Trust Fund Reports, the two values are averaged to estimate the 'Other' and Total Net Social Insurance Expenditures as percent of GDP.

Table 8 identifies the principal reasons for the changes in projected social insurance amounts during 2017 and 2016.

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Table 8: Changes in Social Insurance Projections

Dollars in Trillions 2017 2016
Net Present Value (NPV) - Open Group (Beginning of the Year) $(46.7) $(41.5)
Changes in:
    Valuation Period $(2.0) $(1.7)
    Demographic data and assumptions $0.2 $1.1
    Economic data and assumptions1 $(0.6) $(0.9)
    Law or policy $ $0.3
    Economic and other healthcare assumptions2 $(0.3) $(3.4)
    Change in projection base2 $0.7 $(0.6)
Net Change in Open Group measure $(2.3) $(5.2)
NPV - Open Group (End of the Year) $(49.0) $(46.7)

1Relates to SSA.

2Relates to HHS.
Note: Some totals may not equal sum of components due to rounding.

The following briefly summarizes the significant changes for the current valuation (as of January 1, 2017) as disclosed in Note 22, Social Insurance. See Note 22 for additional information.

  • Change in valuation period (relates to both Social Security and Medicare): This change replaces a small negative net cash flow for 2016 with a much larger negative net cash flow for 2091. As a result, the present value of the estimated future net cash flows decreased (became more negative) by $2.0 trillion.
  • Changes in economic data and assumptions (relates to Social Security only): For the current valuation, the only change to any of the ultimate assumptions was to the ultimate average real wage differential,28 which was assumed to be 1.20 percent, an approximate 0.01 percent decrease from the previous year. The assumed real-wage differential for the first 10 years of the projection period was also lower than previous years. Otherwise, the ultimate economic assumptions for the current valuation period are the same as those for the prior year valuation. However, the starting economic values and the way these values transition to the ultimate assumptions were changed. Most significantly, an assumed weaker recovery from the recent recession than previously expected led to a reduction in the ultimate level of actual and potential GDP of about 1.0 percent for all years after the short-range period. Overall, changes to these assumptions caused the present value of the estimated future net cash flows to decrease (become more negative) by $576 billion.
  • Change in Projection Base (relates to Medicare only): Actual income and expenditures in 2016 were different than what was anticipated when the 2016 Medicare Trustees Report projections were prepared. Part A income was higher and expenditures were lower than anticipated, based on actual experience. Part B total income and expenditures were higher than estimated based on actual experience. For Part D, actual income and expenditures were both lower than prior estimates. Actual experience of the Medicare Trust Funds between January 1, 2016 and January 1, 2017 is incorporated in the current valuation and is slightly more favorable than projected in the prior valuation. The net impact of the Part A, B, and D projection base changes is an increase (become less negative) in the estimated future net cash flow by $700 billion.

Projected net expenditures for Medicare Parts A and B declined significantly between FY 2009 and FY 2010 reflecting provisions of the ACA. As reported in Note 22, uncertainty remains about whether the projected cost savings and productivity improvements will be sustained in a manner consistent with the projected cost growth over time. Note 22 includes an alternative projection to illustrate the uncertainty of projected Medicare costs. As indicated earlier, GAO disclaimed opinions on the 2017, 2016, 2015, 2014 and 2013 SOSI because of these significant uncertainties.

Costs as a percent of GDP of both Medicare and Social Security, which are analyzed annually in the Medicare and Social Security Trustees’ Reports, are projected to increase substantially through the mid-2030s because: (1) the number of beneficiaries rises rapidly as the baby-boom generation retires and (2) the lower birth rates that have persisted since the baby boom cause slower growth in the labor force and GDP.29 According to the Medicare Trustees’ Report, spending on Medicare is projected to rise from its current level of 3.6 percent of GDP to 5.6 percent in 2041 and to 5.9 percent in 2091.30 As for Social Security, combined spending is projected to generally increase from its current level of 4.9 percent of GDP to about 6.1 percent by 2037, declining to 5.9 percent by 2050 and then generally increase to 6.1 percent by 2091. Table 9 summarizes additional current status and projected trend information for the Medicare and Social Security Trust Funds.

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Table 9: Trust Fund Status

Fund Projected Depletion Projected Post-Depletion Trend
Medicare Hospital Insurance (HI)* 2029 
(2028 in FY 2016 Report)
In 2029, trust fund income is projected to cover 88 percent of benefits, decreasing to 81 percent in 2041, then increasing to 88 percent by 2091. 
Combined Old-Age Survivors and Disability Insurance (OASDI)** 2034
(unchanged from FY 2016 Report)
In 2034, trust fund income is projected to cover 77 percent of scheduled benefits, decreasing to about 73 percent by 2091.
*Source: 2017 Medicare Trustees Report     ** Source: 2017 OASDI Trustees Report
Projections assume full Social Security and Medicare benefits are paid after fund depletion contrary to current law. 

As previously discussed and as noted in the Trustees’ Reports, it is apparent that these programs are on a fiscally unsustainable path. Additional information from the Trustees Reports may be found in the RSI section of this Financial Report.


21 For the purposes of the Statement of Long-Term Fiscal Projections and this analysis, spending is defined in terms of outlays. In the context of federal budgeting, spending can either refer to: (1) budget authority – the authority to commit the government to make a payment; (2) obligations – binding agreements that will result in either immediate or future payment; or (3) outlays, or actual payments made.  (Back to Content)

22 Current policy in the projections is based on current law, but includes certain adjustments, such as extension of certain policies that expire under current law but are routinely extended or otherwise expected to continue (e.g., reauthorization of the Supplemental Nutrition Assistance Program).  (Back to Content)

23 The change in debt each year is also affected by certain transactions not included in the budget deficit, such as changes in Treasury’s cash balances and the nonbudgetary activity of Federal credit financing accounts. These transactions are assumed to hold constant at about 0.4 percent of GDP each year, with the same effect on debt as if the primary deficit was higher by that amount.  (Back to Content)

24 See the Note 23 of the FY 2016 Financial Report of the U.S. Government for more information about changes in the long term fiscal projections between FY 2015 and FY 2016.  (Back to Content)

25 The Black Lung Benefits Act (BLBA) provides for monthly payments and medical benefits to coal miners totally disabled from pneumoconiosis (black lung disease) arising from their employment in or around the nation's coal mines. See (Back to Content)

26 'Closed' Group and 'Open' Group differ by the population included in each calculation. From the SOSI, the 'Closed' Group includes: (1) participants who have attained eligibility and (2) participants who have not attained eligibility. The 'Open' Group adds future participants to the 'Closed' Group. See ‘Social Insurance’ in the Required Supplementary Information section in this Financial Report for more information. (Back to Content)

27 The Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 permanently replaces the sustainable growth rate (SGR) formula, which was used to determine payment updates under the Medicare physician fee schedule with specified payment updates through 2025. The changes specified in MACRA also establish differential payment updates starting in 2026 based on practitioners’ participation in eligible alternative payment models; payments are also subject to adjustments based on the quality of care provided, resource use, use of certified electronic health records, and clinical practice improvement. (Back to Content)

28 The real wage differential is the annual percentage change in the average covered wage, minus the annual percentage change in the CPI. Source: Item 4. (Back to Content)

29 2017 Trustees Report for Medicare, pp. 5, 29. (Back to Content)

30 Percent of GDP amounts are expressed in gross terms (including amounts financed by premiums and state transfers). (Back to Content)

Last modified 02/09/23