Executive Summary to the Fiscal Year 2021 Financial Report of U.S. Government
An Unsustainable Fiscal Path
An important purpose of this Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable. A sustainable fiscal policy is defined as one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining over the long term. GDP measures the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs. This report presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is sustainable. The debt-to-GDP ratio reached approximately 100 percent at the end of FY 2021 which is similar to (but slightly below) the debt-to-GDP ratio at the end of FY 2020. The long-term fiscal projections in this report are based on the same economic and demographic assumptions that underlie the SOSI.
The current fiscal path is unsustainable. To determine if current fiscal policy is sustainable, the projections based on the assumptions discussed in the Financial Report assume current policy will continue indefinitely.1 The projections are therefore neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy changes need to be enacted for the actual financial outcomes to differ from those projected.
Receipts, Spending, and the Debt
Chart 6 shows historical and current policy projections for receipts, non-interest spending by major category, net interest, and total spending expressed as a percent of GDP.
- The primary deficit is the difference between non-interest spending and receipts. The ratio of the primary deficit to GDP is useful for gauging long-term fiscal sustainability.
- The primary deficit-to-GDP ratio spiked during 2009 through 2012 due to the financial crisis of 2008-09 and the ensuing severe recession, as well as the effects of the government’s response thereto. As an economic recovery took hold, the primary deficit-to-GDP ratio fell, averaging 2.1 percent from 2013 through 2019. The ratio spiked again in 2020 rising to 13.3 percent of GDP due to increased spending to address the COVID-19 pandemic and lessen the economic impacts of stay-at-home and social distancing orders on individuals, hard-hit industries, and small businesses. Spending remained elevated in 2021 due to additional funding to support economic recovery, but increased receipts reduced the primary deficit-to-GDP ratio to 10.8 percent. The ratio is projected to fall to 4.7 percent in 2022 and then decreases to 4.3 percent in 2027. After 2027, however, increased spending for Social Security and health programs2 due to the continued retirement of the baby boom generation and increases in health care costs is projected to result in increasing primary deficits that reach 5.0 percent of GDP in 2030. The primary deficit peaks at 6.3 percent of GDP in 2043, then gradually decreases beyond that point as the aging of the population continues at a slower pace, and reaches 4.9 percent in 2096, the last year of the projection period.
- GDP, interest, and other economic and demographic assumptions are the same as those that underlie the most recent Social Security and Medicare Trustees’ Report projections, adjusted for historical revisions that occur annually. The most recent Social Security and Medicare Trustees’ Reports were released in August 2021, reflecting the effects of the COVID-19 pandemic and including the projected depletion dates in Table 1. Projections for the other categories of receipts and spending are consistent with the economic and demographic assumptions in the Trustees’ Reports and include updates for actual budget results for FY 2021 or budgetary estimates from the President’s FY 2022 Budget. Where possible, those budget totals are adjusted before spending is projected to remove outlays for programs or activities that are judged to be temporary, such as spending related to the COVID-19 pandemic and economic recovery. Where not possible, budget totals were not adjusted resulting in higher projections of future spending, increasing the uncertainty surrounding this year’s projections.
- The persistent long-term gap between projected receipts and total spending shown in Chart 6 occurs despite the projected effects of the PPACA3 on long-term deficits.
- Enactment of the PPACA in 2010 and the MACRA in 2015 established cost controls for Medicare hospital and physician payments whose long-term effectiveness is still to be demonstrated fully.
- There is uncertainty about the extent to which these projections can be achieved and whether the PPACA’s provisions intended to reduce Medicare cost growth will be overridden by new legislation.
Table 1 summarizes the status and projected trends of the government’s Social Security and Medicare Trust Funds.
|Table 1: Trust Fund Status|
|Fund||Projected Depletion||Projected Post-Depletion Trend|
|Medicare Hospital Insurance*
(unchanged from FY 2020 Report)
|In 2026, trust fund income is projected to cover 91.0 percent of benefits, decreasing to 78.0 percent in 2045, then returning to 91.0 percent by 2095.|
|Combined Old-Age Survivors and Disability Insurance**
(one year earlier than FY 2020 Report)
|In 2034, trust fund income is projected to cover 78.0 percent of scheduled benefits, decreasing to 74.0 percent by 2095.|
Projections assume full Social Security and Medicare benefits are paid after fund depletion contrary to current law.
The primary deficit projections in Chart 6, along with those for interest rates and GDP, determine the debt-to-GDP ratio projections in Chart 7.
- The debt-to-GDP ratio was approximately 100 percent at the end of FY 2021, and under current policy and based on this report’s assumptions is projected to reach 701 percent in 2096.
- The debt-to-GDP ratio rises continuously in great part because primary deficits lead to higher levels of debt. The continuous rise of the debt-to-GDP ratio indicates that current fiscal policy is unsustainable.
- These debt-to-GDP projections are higher than both the 2020 and 2019 Financial Report projections.
The Fiscal Gap and the Cost of Delaying Fiscal Policy Reform
- The 75-year fiscal gap is a measure of how much primary deficits must be reduced over the next 75 years in order to make fiscal policy sustainable. That estimated fiscal gap for 2021 is 6.2 percent of GDP (compared to 5.4 percent for 2020).
- This estimate implies that making fiscal policy sustainable over the next 75 years would require some combination of spending reductions and receipt increases that equals 6.2 percent of GDP on average over the next 75 years. The fiscal gap represents 32.4 percent of 75-year PV receipts and 25.0 percent of 75-year PV non-interest spending.
- The timing of policy changes to make fiscal policy sustainable has important implications for the well-being of future generations as is shown in Table 2.
Table may scroll on smaller screens
|Costs of Delaying Fiscal Reform|
|Period of Delay||Change in Average Primary Surplus|
|Reform in 2022 (No Delay)||6.2 percent of GDP between 2022 and 2096|
|Reform in 2032 (Ten-Year Delay)||7.3 percent of GDP between 2032 and 2096|
|Reform in 2042 (Twenty-Year Delay)||9.0 percent of GDP between 2042 and 2096|
- Table 2 shows that, if action is delayed by 10 years, the estimated magnitude of primary surplus increases necessary to close the 75-year fiscal gap increases by 17.7 percent from 6.2 percent of GDP on average over 75 years to 7.3 percent on average over 65 years; if action is delayed by 20 years, the magnitude of reforms necessary increases by an additional 23.3 percent.
- The longer policy action to close the fiscal gap is delayed, the larger the post-reform primary surpluses must be to achieve the target debt-to-GDP ratio at the end of the 75-year period. Future generations are harmed by a policy delay because the higher the primary surpluses are during their lifetimes, the greater is the difference between the taxes they pay and the programmatic spending from which they benefit.
- Projections in the Financial Report indicate that the government’s debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy is kept in place. The projections in this Financial Report show that current policy is not sustainable.
- If changes in fiscal policy are not so abrupt as to slow economic growth and those policy changes are adopted earlier, then the required changes to revenue and/or spending will be smaller to return the government to a sustainable fiscal path.
1Current policy in the projections is based on current law, but includes extension of certain policies that expire under current law but are routinely extended or otherwise expected to continue. (Back to Content)
2See the 2021 Trustees Report for Medicare and Social Security and the most recent Medicaid Actuarial Report. (Back to Content)
3The PPACA refers to P.L. 111-148, as amended by P.L. 111-152. The PPACA expands health insurance coverage, provides health insurance subsidies for low-income individuals and families, includes many measures designed to reduce health care cost growth, and significantly reduces Medicare payment rates relative to the rates that would have occurred in the absence of the PPACA. (See Note 25 and the RSI section of the Financial Report, and the 2021 Medicare Trustees' Report for additional information). (Back to Content)
- Current Report: Fiscal Year 2021 - PDF version
- A Message from the Secretary of the Treasury - PDF version
- Table of Contents - PDF version
- The Nation By The Numbers
- Executive Summary - PDF version
- Management's Discussion & Analysis - PDF version
- Statement of the Comptroller General of the United States - PDF version
- Financial Statements - PDF version
- Statements of Net Cost
- Statements of Operations and Changes in Net Position
- Reconciliations of Net Operating Cost and Budget Deficit
- Statements of Changes in Cash Balance from Budget and Other Activities
- Balance Sheets
- Statements of Long-Term Fiscal Projections
- Statements of Social Insurance and Changes in Social Insurance Amounts
- Statements of Changes in Social Insurance Amounts
- Notes to the Financial Statements - PDF version
- Note 1. Summary of Significant Accounting Policies - PDF version
- Note 2. Cash and Other Monetary Assets - PDF version
- Note 3. Accounts Receivable, Net - PDF version
- Note 4. Loans Receivable, Net and Loan Guarantee Liabilities - PDF version
- Note 5. Inventory and Related Property, Net - PDF version
- Note 6. General Property, Plant, and Equipment, Net - PDF version
- Note 7. Investments - PDF version
- Note 8. Investments in Special Purpose Vehicles - PDF version
- Note 9. Investments in Government-Sponsored Enterprises - PDF version
- Note 10. Advances and Prepayments - PDF version
- Note 11. Other Assets - PDF version
- Note 12. Accounts Payable - PDF version
- Note 13. Federal Debt and Interest Payable - PDF version
- Note 14. Federal Employee and Veteran Benefits Payable - PDF version
- Note 15. Environmental and Disposal Liabilities - PDF version
- Note 16. Benefits Due and Payable - PDF version
- Note 17. Insurance and Guarantee Program Liabilities - PDF version
- Note 18. Advances from Others and Deferred Revenue - PDF version
- Note 19. Other Liabilities - PDF version
- Note 20. Collections and Refunds of Federal Revenue - PDF version
- Note 21. Commitments - PDF version
- Note 22. Contingencies - PDF version
- Note 23. Funds from Dedicated Collections - PDF version
- Note 24. Fiduciary Activities - PDF version
- Note 25. Social Insurance - PDF version
- Note 26. Long-Term Fiscal Projections - PDF version
- Note 27. Stewardship Property, Plant, and Equipment - PDF version
- Note 28. Disclosure Entities and Related Parties - PDF version
- Note 29. Public-Private Partnerships - PDF version
- Note 30. COVID-19 Activity - PDF version
- Note 31. Subsequent Events - PDF version
- Required Supplementary Information (Unaudited) - PDF version
- The Sustainability of Fiscal Policy - PDF version
- Social Insurance - PDF version
- Deferred Maintenance and Repairs - PDF version
- Other Claims for Refunds - PDF version
- Tax Assessments - PDF version
- Federal Oil and Gas Resources - PDF version
- Federal Natural Resources Other than Oil and Gas - PDF version
- Other Information (Unaudited) - PDF version
- U.S. Government Accountability Office Independent Auditor's Report - PDF version
- Related Resources
Table of Contents
Certain material weaknesses, limitations, and uncertainties prevented the Government Accountability Office from expressing an opinion on the U.S. Government's consolidated financial statements included in the Financial Report and, therefore, GAO disclaimed an opinion on such statements. Certain information included on or referenced in this website, such as individual agency financial reports that were audited by other auditors, is separate from and not specifically reported in the Financial Report and therefore not covered by GAO's disclaimer.