The Nation's Long-Term Fiscal Outlook:

September 2008 Update

GAO-09-94R: Published: Nov 6, 2008. Publicly Released: Nov 6, 2008.

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Since 1992, GAO has published long-term fiscal simulations of what might happen to federal deficits and debt levels under varying policy assumptions. We developed our long-term model in response to a bipartisan request from Members of Congress who were concerned about the longterm effects of fiscal policy. GAO runs two simulations: (1) "Baseline Extended" follows the Congressional Budget Office's (CBO) September baseline estimates for the first 10 years and then simply holds revenue and spending other than large entitlement programs constant as a share of gross domestic product (GDP); and (2) The "Alternative" simulation is based on historical trends and recent policy preferences. Discretionary spending grows with GDP rather than inflation during the first 10 years, Medicare physician payment rates are not reduced as in CBO's baseline, and all tax provisions are extended until 2018 and then revenues are brought back to about their historical level. We update our simulations as new estimates become available from CBO and the Social Security and Medicare Trustees. This update incorporates CBO's most recent baseline projections that were released in September. This product responds to congressional interest in receiving updated simulation results.

Recently the President, the Congress, and the American people have been focused on addressing problems with financial markets and the appropriate response to a weakening economy. However, once the current challenges are resolved, the next President, the next Congress, and the nation will need to focus with the same intensity on the nation's long-term fiscal challenge. The federal government faces large and growing structural deficits driven primarily by rising health care costs and known demographic trends. Furthermore, these simulations do not yet reflect recent actions taken by the federal government to support the financial sector. CBO also produces long-term estimates of these programs. Beginning with this update, we show the long-term outlook under both sets of projectio comparison of the two sets of simulations is presented later in this rep Under either set of projections, the long-term outlook is unsustainable.

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