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GAO: Federal Spending Driving ‘Unsustainable’ Debt
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GAO: Federal Spending Driving ‘Unsustainable’ Debt
By Matt Cover
April 5, 2012
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(CNSNews.com) – The Government Accountability Office (GAO) reported that federal spending will drive the national debt to “unsustainable” levels in the coming decades, fueled by ever-rising health care costs and federal entitlement spending.
“The growing fiscal imbalance is driven on the spending side by rising health care costs and the aging of the population,” the GAO said in its report, The Federal Government’s Long-Term Fiscal Outlook, Spring 2012 Update.
Furthermore, "[d]espite limits on discretionary spending that would bring discretionary spending to levels not seen in recent history, our simulations show total federal spending continuing to exceed revenues and feeding an unsustainable growth in debt," states the report. "The policy actions required to close the fiscal gap are significant, and changing the long-term outlook will likely require difficult decisions about both federal spending and revenue."
The GAO said that the federal spending caps negotiated by House Speaker John Boehner (R-Ohio) in August did improve the picture some, but they did not address the real cause of the crisis: entitlement spending, such as for Social Security and Medicare. (Back in August 2011, in a deal to raise the debt ceiling on federal borrowing, Congress agreed to a $1.047 trillion cap on discretionary spending for fiscal year 2013.)
President Barack Obama. (AP Photo/Carolyn Kaster)
“The Budget Control Act (BCA) of 2011 limits spending over the next decade and leads to an improved fiscal outlook,” the GAO said. “While the BCA improved the outlook, it did not eliminate the longer-term challenge, in part because it did not focus on the fundamental drivers of the government’s future fiscal imbalances -- a structural gap between revenues and spending driven by rising health care costs and demographics.”
In fact, in both of GAO’s long-term projections, federal health care and entitlement spending drive the government toward unmanageable levels of debt.
In its first scenario – what the GAO calls its baseline scenario – federal tax and spending policies take effect as planned, including the expiration of the current tax rates in 2013. Also included in GAO’s baseline scenario is the full and successful implementation of Obamacare, which that GAO said would greatly reduce health care costs should the entire law work the way its proponents claim.
“Several provisions of PPACA [Obamacare] were designed to control the growth of health care costs,” states the GAO. “The full implementation and effectiveness of these cost-control provisions, which are reflected in the Baseline Extended simulation, would slow the growth in federal health care spending over the long term.”
However, like the Congressional Budget Office (CBO) and other federal forecasters, the GAO’s baseline scenario is not considered to be the most likely course the federal government will take. Like the rest of the government, GAO constructed a more likely budget forecast based on past congressional actions and the predictions of other forecasters, such as the Medicare Chief Actuary and the CBO.
Dome of U.S. Capitol building. (AP Photo.)
This alternative scenario assumes that the current tax rates are continued over the next decade, and also assumes that Congress follows its historical course of preventing automatic cuts in Medicare physician payments with what has become known as the “Doc Fix.”
The GAO’s alternative scenario also incorporates the wide-ranging skepticism of budget and health care experts that Obamacare will work as planned, citing the CBO, the Medicare Chief Actuary, and the Medicare Trustees, all of whom have expressed doubt that the president’s signature law will actually reduce health care costs over the long term.
“The Trustees, CBO, and the CMS [Medicare] Actuary have expressed concerns about the sustainability of certain health care cost-control measures over the long term,” the GAO said.
Specifically, the GAO noted that Medicare experts doubted whether Obamacare could make health care efficient enough to allow for reduced Medicare payments as planned.
“They have also questioned whether a provision in PPACA that would restrain spending growth by reducing the payment rates for certain Medicare services based on productivity gains observed throughout the economy is sustainable over the long term,” stated the report.
Because Obamacare may not produce the savings its proponents claim, the GAO said that there were “significant uncertainties” about its effectiveness, uncertainties that were reflected in the alternative scenario.
That alternative scenario, the GAO found, led to massive federal deficits and debt as entitlement spending and debt service alone burn through 100 percent of tax receipts by 2030.
“In this simulation, spending on Social Security, Medicare, Medicaid, and interest exceeds revenues by 2030 and by 2040, 73 cents of every federal dollar spent would go to these categories,” reported the GAO.
The GAO also said that in order to avoid this situation, Congress needed to immediately cut spending by 32 percent, raise taxes by 46 percent, or find an acceptable mix of both. If it waited until 2022, Congress would have to cut spending by 37 percent, raise taxes by 54 percent, or find a combination of the two.
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Home » News
GAO: Federal Spending Driving ‘Unsustainable’ Debt
By Matt Cover
April 5, 2012
Subscribe to Matt Cover's posts
U.S. currency
(CNSNews.com) – The Government Accountability Office (GAO) reported that federal spending will drive the national debt to “unsustainable” levels in the coming decades, fueled by ever-rising health care costs and federal entitlement spending.
“The growing fiscal imbalance is driven on the spending side by rising health care costs and the aging of the population,” the GAO said in its report, The Federal Government’s Long-Term Fiscal Outlook, Spring 2012 Update.
Furthermore, "[d]espite limits on discretionary spending that would bring discretionary spending to levels not seen in recent history, our simulations show total federal spending continuing to exceed revenues and feeding an unsustainable growth in debt," states the report. "The policy actions required to close the fiscal gap are significant, and changing the long-term outlook will likely require difficult decisions about both federal spending and revenue."
The GAO said that the federal spending caps negotiated by House Speaker John Boehner (R-Ohio) in August did improve the picture some, but they did not address the real cause of the crisis: entitlement spending, such as for Social Security and Medicare. (Back in August 2011, in a deal to raise the debt ceiling on federal borrowing, Congress agreed to a $1.047 trillion cap on discretionary spending for fiscal year 2013.)
President Barack Obama. (AP Photo/Carolyn Kaster)
“The Budget Control Act (BCA) of 2011 limits spending over the next decade and leads to an improved fiscal outlook,” the GAO said. “While the BCA improved the outlook, it did not eliminate the longer-term challenge, in part because it did not focus on the fundamental drivers of the government’s future fiscal imbalances -- a structural gap between revenues and spending driven by rising health care costs and demographics.”
In fact, in both of GAO’s long-term projections, federal health care and entitlement spending drive the government toward unmanageable levels of debt.
In its first scenario – what the GAO calls its baseline scenario – federal tax and spending policies take effect as planned, including the expiration of the current tax rates in 2013. Also included in GAO’s baseline scenario is the full and successful implementation of Obamacare, which that GAO said would greatly reduce health care costs should the entire law work the way its proponents claim.
“Several provisions of PPACA [Obamacare] were designed to control the growth of health care costs,” states the GAO. “The full implementation and effectiveness of these cost-control provisions, which are reflected in the Baseline Extended simulation, would slow the growth in federal health care spending over the long term.”
However, like the Congressional Budget Office (CBO) and other federal forecasters, the GAO’s baseline scenario is not considered to be the most likely course the federal government will take. Like the rest of the government, GAO constructed a more likely budget forecast based on past congressional actions and the predictions of other forecasters, such as the Medicare Chief Actuary and the CBO.
Dome of U.S. Capitol building. (AP Photo.)
This alternative scenario assumes that the current tax rates are continued over the next decade, and also assumes that Congress follows its historical course of preventing automatic cuts in Medicare physician payments with what has become known as the “Doc Fix.”
The GAO’s alternative scenario also incorporates the wide-ranging skepticism of budget and health care experts that Obamacare will work as planned, citing the CBO, the Medicare Chief Actuary, and the Medicare Trustees, all of whom have expressed doubt that the president’s signature law will actually reduce health care costs over the long term.
“The Trustees, CBO, and the CMS [Medicare] Actuary have expressed concerns about the sustainability of certain health care cost-control measures over the long term,” the GAO said.
Specifically, the GAO noted that Medicare experts doubted whether Obamacare could make health care efficient enough to allow for reduced Medicare payments as planned.
“They have also questioned whether a provision in PPACA that would restrain spending growth by reducing the payment rates for certain Medicare services based on productivity gains observed throughout the economy is sustainable over the long term,” stated the report.
Because Obamacare may not produce the savings its proponents claim, the GAO said that there were “significant uncertainties” about its effectiveness, uncertainties that were reflected in the alternative scenario.
That alternative scenario, the GAO found, led to massive federal deficits and debt as entitlement spending and debt service alone burn through 100 percent of tax receipts by 2030.
“In this simulation, spending on Social Security, Medicare, Medicaid, and interest exceeds revenues by 2030 and by 2040, 73 cents of every federal dollar spent would go to these categories,” reported the GAO.
The GAO also said that in order to avoid this situation, Congress needed to immediately cut spending by 32 percent, raise taxes by 46 percent, or find an acceptable mix of both. If it waited until 2022, Congress would have to cut spending by 37 percent, raise taxes by 54 percent, or find a combination of the two.
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.Ok, at least read the LAST paragraph.....I agree with one of the objectives, the other is too scary at the level the GAO suggests to even consider.
Tru and I dont think anyone disputes that fact either. Also true that in a home budget you cannot spend your way out of debt. However the National budget does not work quite the same way in instances of depression and recession. Econemists across the board agree that in these instances, spending gives things a jumpstart and allows the financial world to help right itself. What I mean is this. If you simply quit spending across the board and people lose jobs, they start hanging on to their money. When they do this, employers lay off, jobs disappear, people quit spending, reducing the demand for just about everyhing and the financial world comes to a halt. Going back thruout history you will see that it is agreed and has been done to jumpstart growth in times like these.
In my own personal home budget things do not work the same way. If I get myself into debt thru overspending of course I stop spending except for basic necessities and will take on a second job or do something to bring in revenue to meet those needs. It hurts no one but my own house. Not so on a national level.
I think everyone agrees that running up any more debt is not a good thing and needs serious answers. Those answers depending on which party you want to agree with is the problem. No one can compromise.
We need to end the bush tax cuts, stop big oil subsidys, the american people need to understand that contrary to popular rhetoric, they have been paying the lowest taxes in years and years.
During the great depression when there was NO money, stimulating the econemy brought us the Statue of Liberty that we enjoy today. It created jobs and improved our land at the same time.
I dont understand what is so hard for people to understand here. Yes the spending needs attention, and it has gotten that attention. At the same time we must continue to raise revenu. I dont understand how people dont get that either. If I remember right over 67percent of the people agree that more revenu needs raised as well as some serious cutting. What to cut and where seems to be an issue as well.
Again we have the division of polor opposites with no compromise and the real issue is how to get around that fact. Once we do....Oh what a different world we will have.
In my own personal home budget things do not work the same way. If I get myself into debt thru overspending of course I stop spending except for basic necessities and will take on a second job or do something to bring in revenue to meet those needs. It hurts no one but my own house. Not so on a national level.
I think everyone agrees that running up any more debt is not a good thing and needs serious answers. Those answers depending on which party you want to agree with is the problem. No one can compromise.
We need to end the bush tax cuts, stop big oil subsidys, the american people need to understand that contrary to popular rhetoric, they have been paying the lowest taxes in years and years.
During the great depression when there was NO money, stimulating the econemy brought us the Statue of Liberty that we enjoy today. It created jobs and improved our land at the same time.
I dont understand what is so hard for people to understand here. Yes the spending needs attention, and it has gotten that attention. At the same time we must continue to raise revenu. I dont understand how people dont get that either. If I remember right over 67percent of the people agree that more revenu needs raised as well as some serious cutting. What to cut and where seems to be an issue as well.
Again we have the division of polor opposites with no compromise and the real issue is how to get around that fact. Once we do....Oh what a different world we will have.
I didn't even get past the first paragraph. Common sense alone would lead one to believe that we cannot keep spending, and the pace in which we are currently spending is completely unsustainable.
I've tried on the personal level to "spend" my way out of debt. It cannot work. In order to reel it all in, we have to prioritize one thing out of control and clean it up... cut spending everywhere else, focus on one issue and right that ship before we can get to the next issue... Using China as a "debt clearing house" is not a good idea. We haven't changed our habits, we just borrowed more money. We will spend it like we always do and accrue more debt.... Isn't this basic economics?
I've tried on the personal level to "spend" my way out of debt. It cannot work. In order to reel it all in, we have to prioritize one thing out of control and clean it up... cut spending everywhere else, focus on one issue and right that ship before we can get to the next issue... Using China as a "debt clearing house" is not a good idea. We haven't changed our habits, we just borrowed more money. We will spend it like we always do and accrue more debt.... Isn't this basic economics?
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