The federal government is on an unsustainable long-term fiscal path that, if left unaddressed, will pose serious economic, national security, and social challenges. And the longer we delay action, the more dire the consequences will be for our economy and our people.
Congress and the administration will need to make difficult budget and policy decisions to address the major drivers of the federal debt. Reliable federal financial statements are essential to helping policymakers make these important decisions. But we continue to review government books and discover weaknesses that undermine their credibility.
Today's WatchBlog post features a new report on the nation's fiscal health and ongoing issues with government financial statements.
Deterioration of financial soundness
The fiscal health of the United States is declining, primarily due to rapidly increasing debt levels relative to the size of the U.S. economy. Huge fiscal deficits each year fuel debt growth as governments borrow to cover spending that exceeds revenues. For example, the federal budget deficit for fiscal year 2023 was $1.7 trillion. The deficit is due to a $1 trillion gap between the revenue the government collects and the amount it spends on government programs. This is also due to interest payments on the federal debt, a large and growing source of government spending.
“Congress and the Administration must act to move the nation away from the unsustainable long-term fiscal path it is on,” said Gene L. Dodaro, U.S. Comptroller General and GAO Director. “We are growing at a rate that threatens the vitality of our nation's economy and the safety and well-being of the American people. Both spending and revenue issues need to be addressed as part of a comprehensive long-term plan.”
In fact, debt is projected to grow twice as fast as the economy over the next 30 years. It's already about the size of our economy. As of the end of fiscal 2023, the debt held by the Japanese people has reached approximately 97% of gross domestic product (GDP).
A permanent increase in debt as a percentage of GDP is unsustainable and has many direct and indirect consequences for the economy and its people. All else being equal, an increase in debt can cause interest rates to rise. Higher interest rates typically have a negative impact on Americans' personal finances by lowering wages and increasing the cost of borrowing for things like buying a home or a car.
Furthermore, increased debt increases the risk of financial crisis. If investors lose confidence in U.S. fiscal management, significant tax increases and key spending cuts could occur.
The debt held by the people is predicted to increase at a faster pace than GDP
How did we get on this unsustainable financial path and how can we get out of it?
The decline in our country's fiscal health is not the fault of one administration or one decision. When a government runs a deficit every year and spends more than its revenue (mainly taxes), it must borrow money to make up the difference. The federal government has been running deficits for decades.
Other factors also contribute to the increase in our debt. For example, interest rate increases last year increased borrowing costs.
We have consistently urged Congress to develop a fiscal sustainability plan and identified the elements necessary for this plan to be effective. This plan is meant to address unsustainable spending and revenue policies and reduce the need for national debt.
An effective plan includes several key elements. among them:
- Review mandatory and discretionary expenses and income, including tax expenses such as deductions and tax credits.
- Address funding gaps in Medicare and Social Security. Both he is supported by trust funds that will be depleted within 10 years.
Serious weaknesses in government bookkeeping
The U.S. government's financial reports integrate the financial statements of various departments, including the Department of Defense. These statements provide a comprehensive view of government finances.
This year, as in previous years, our audit of the federal government's consolidated financial statements revealed several continuing issues. As a result, it is no longer possible to again determine whether federal financial statements are reliable. Ongoing issues include:
- The processes used to prepare these financial statements and account for transactions between federal agencies continue to be compromised.
- Long-standing financial management problems persist Department of Defenseaccounting for transactions between federal agencies remains inadequate.
- of Small and Medium Enterprise Agency Financial management deficiencies in pandemic relief programs
- of Ministry of Education There was a problem with the data used to estimate the cost of the loan program
We also noted the continuing policy of the federal government payment error Improper payments (also known as improper payments) (mostly overpayments) total $236 billion across multiple government agencies and programs.
“Congress and the administration need reliable and complete financial information within departments and across the government to govern effectively and efficiently,” Dodaro said.
Without this quality financial information, our nation's leaders are not in the best position to make the decisions they need to make regarding our nation's fiscal health.
Read our report to learn more about our plan to improve the nation's fiscal health and our audit of the federal government's books.
- GAO's fact-based, bipartisan information helps Congress and federal agencies improve government. WatchBlog allows us to contextualize GAO's efforts a little more for the public. Check out more of our posts. GAO.gov/Blog.
