The Federal Government's Long-Term Fiscal Outlook: Fall 2011 Update

Since 1992, GAO has published long-term fiscal simulations showing federal deficits and debt under different sets of assumptions. GAO developed its long-term model in response to a bipartisan request from members of Congress concerned about the long-term effects of fiscal policy. GAO's simulations provide context for consideration of policy options. They are not intended to suggest particular policy choices but rather to help facilitate a dialogue on this important issue. GAO regularly updates its simulations as new data become available from the Congressional Budget Office (CBO) and the Social Security and Medicare Trustees (Trustees). This update incorporates provisions of the Budget Control Act. As in the past, GAO shows two simulations: The Baseline Extended simulation follows CBO's August 2011 baseline for the first 10 years and then holds revenue and spending other than interest on the debt and large entitlement programs (Social Security, Medicare, and Medicaid) constant as a share of gross domestic product (GDP). Revenue as a share of GDP over the entire period is higher than the historical averages; discretionary spending is below average. In the Alternative simulation, expiring tax provisions other than the temporary Social Security payroll tax reduction are extended to 2021 and the alternative minimum tax (AMT) exemption amount is indexed to inflation through 2021; revenues are then brought back to the historical average as a share of GDP; discretionary spending follows CBO's baseline for the first 10 years and thereafter gradually increases to the historical average. In both simulations, deficit reduction resulting from provisions in the Budget Control Act related to the Joint Select Committee on Deficit Reduction is applied to total annual deficits evenly from 2013 to 2021. It remains a constant share of GDP thereafter. In Baseline Extended, GAO uses the Trustees' 2011 intermediate projections and CBO's June 2011 long-term projections for Medicaid adjusted to reflect excess cost growth consistent with the Trustees' projections. In the Alternative, major health entitlement programs are based on the Centers for Medicare & Medicaid Services Office of the Actuary's (CMS Actuary) alternative projections that assume reductions in Medicare physician rates do not occur as scheduled under current law and that certain cost containment mechanisms intended to slow the growth of health care cost are not sustained over the long term. We also show the outlook using CBO's long-term projections for Social Security and the major health entitlements; the results are consistent with our other simulations.