Summary

The new President, the new Congress, and the American people have been understandably focused on addressing problems with financial markets and responding to the economic downturn. However, the nation will need to apply the same level of intensity to the nation's long-term fiscal challenge. As shown in the figure below and the attached charts, GAO's updated simulations continue to show escalating and persistent debt that illustrates the long-term fiscal outlook is unsustainable. By 2025, debt held by the public under the Alternative simulation exceeds the historical high reached in the aftermath of World War II.

GAO's updated simulations reflect the effects of policies undertaken to stabilize the financial markets and stimulate the economy through mid- March 2009. According to CBO's March 2009 estimates, the actions taken to date and the weakened economy will produce a surge in debt held by the public in fiscal year 2009. While the factors driving the near-term outlook can be and have been quite volatile, the long-term fundamentals have not changed. Health care costs are still growing faster than the economy and the nation's population continues to age. GAO's long-term simulations show that absent policy actions aimed at reforming the key drivers of our structural deficits-- health spending and Social Security--the federal government faces unsustainable growth in debt. The longer that action to deal with the federal government's long-term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing.