According to the 2016 Financial Report, the federal deficit in fiscal year  2016 increased to $587 billion—up from $439 billion in fiscal year 2015. Spending increases in 2016 were driven by Social  Security (the Old-Age and Survivors Insurance and Disability Insurance  programs), Medicare, Medicaid, and interest on debt held by the public  (net interest). Debt held by the public was 77 percent of GDP at the end of fiscal year  2016—an increase from 74 percent at the end of fiscal year 2015. Since 1946 the debt-to-GDP ratio has averaged 44  percent. The long-term fiscal projections in the federal government’s 2016  Financial Report and those prepared annually by CBO and GAO each  use somewhat different assumptions, but their results are the same:  absent policy changes, the federal government’s fiscal path is  unsustainable with debt held by the public as a share of GDP projected to  grow continuously. Projections show that under current law it will grow to exceed the  historical high of 106 percent in 15 to 25 years. Of further concern is the fact that none of these long-term projections  include certain fiscal risks that create fiscal exposures that could affect  the government’s financial condition in the future. Some examples of such fiscal risks include:
The Pension Benefit Guaranty Corporation’s (PBGC) financial future  is uncertain because of long-term challenges related to PBGC’s  governance and funding structure. The 2016 Financial Report, CBO, and GAO all make the point  that the longer action is delayed, the greater and more drastic the  changes will have to be. Medicare’s Hospital Insurance trust fund, and Social Security’s OASI and  DI trust funds face financial challenges that add to the importance of  beginning action soon. (See figure 5.) It is important to develop and begin  to implement a long-term fiscal plan for returning to a sustainable path. Debt Limit Is Not a Control on Debt

As currently structured, the debt limit—a legal limit on the amount of  federal debt that can be outstanding at one time—does not restrict  Congress and the President’s ability to enact spending and revenue  legislation that affects the level of debt; nor does it otherwise constrain  fiscal policy. In other words,  the debt limit restricts Treasury’s authority to borrow to finance the  decisions already enacted by Congress and the President. We did not endorse a specific option but we did recommend that  Congress consider alternative approaches that better link decisions about  the debt limit with decisions about spending and revenue at the time  those decisions are made. However, in our prior work we have  also identified numerous actions Congress and agencies can take now to  help improve the fiscal situation. Although these actions alone cannot put  the U.S. government on a sustainable fiscal path, they would improve  both the fiscal situation and the federal government’s operations. Since fiscal year 2003—when  certain agencies began reporting improper payments as required by the  Improper Payments Information Act of 2002 (IPIA)—cumulative reported  improper payment estimates have totaled over $1.2 trillion, as shown in  figure 6. Opportunities Exist to Improve Efficiency and Effectiveness of Government Programs

For the last 7 years, we have annually presented actions Congress or  executive branch agencies could take to reduce, eliminate, or better  manage fragmentation, overlap, or duplication; achieve cost savings; or  enhance revenue. We also maintain our High-Risk List to bring attention  to government operations that are at high risk of fraud, waste, abuse, and  mismanagement, or that need broad-based transformation to address  economy, efficiency, or effectiveness challenges of government  operations. Fully addressing the  issues we raise in those reports could yield additional benefits, such as  increased savings, better services to the public, and improved federal  programs. While these issues span  the government, a substantial number of them involve five agencies that  made up 69 percent—$3.0 trillion—of federal outlays in fiscal year 2016:  the Departments of Defense, Health and Human Services, and Veterans  Affairs; the Social Security Administration; and the Office of Management  Budget. Multiple Strategies Needed to Address the Persistent Tax Gap

The tax gap—the difference between taxes owed to the government and  total taxes paid on time—has been a persistent problem for decades  despite the Internal Revenue Service’s (IRS) efforts to improve voluntary  compliance. We have identified actions IRS and Congress can take to reduce the tax  gap. In particular, decision making could be  improved by strengthening internal controls over financial reporting to  ensure the statements are fully auditable, increasing attention to tax  expenditures, and effectively implementing the DATA Act. The material weaknesses in internal control  underlying these three major impediments continued to (1) hamper  the federal government’s ability to reliably report a significant portion  of its assets, liabilities, costs, and other related information; (2) affect  the federal government’s ability to reliably measure the full cost, as  well as the financial and nonfinancial performance of certain programs  and activities; (3) impair the federal government’s ability to adequately  safeguard significant assets and properly record various transactions;  and (4) hinder the federal government from having reliable financial  information to operate in an efficient and effective manner. Having a broader fiscal plan to put the federal government on a  more sustainable long-term path would help with these tough decisions. Appendix I: Related GAO Work

	Long-Term Fiscal Outlook

The Nation’s Fiscal Health: Action is Needed to Address the Federal  Government’s Fiscal Future.
Why GAO Did This Study

The Congress and administration face serious economic, security, and social challenges that will require difficult policy choices in the short term about the level of federal spending and investments as well as ways to obtain needed resources. At the same time, the federal government is highly leveraged in debt by historical norms.
In addition to near term financing decisions, a broader fiscal plan is needed to put the government on a more sustainable long-term path. In January 2017, GAO reported on the need for such a plan by outlining the fiscal condition of the U.S. government and its future path based on current fiscal policies. This statement summarizes GAO’s work on this issue and also discussed how Congress and executive branch agencies can help in the near term by taking action to address improper payments; duplication, overlap, or fragmentation; high-risk areas; and the tax gap.

What GAO Found

The Federal Government Is on an Unsustainable Fiscal Path
According to the 2016 Financial Report , the federal deficit in fiscal year 2016 increased to $587 billion—up from $439 billion in fiscal year 2015. Federal receipts grew a modest $18.0 billion due primarily to extensions of tax preferences, but that was outweighed by a $166.5 billion increase in spending, driven by Social Security, Medicare, and Medicaid, and interest on debt held by the public (net interest). Debt held by the public rose as a share of gross domestic product (GDP), from 74 percent at the end of fiscal year 2015 to 77 percent at the end of fiscal year 2016. This compares to an average of 44 percent of GDP since 1946.
The 2016 Financial Report , the Congressional Budget Office (CBO), and GAO projections all show that, absent policy changes, the federal government’s fiscal path is unsustainable and that the debt-to-GDP ratio would surpass its historical high of 106 percent within 15 to 25 years (see figure).
Of further concern is the fact that none of the long-term projections include certain other fiscal risks that could affect the federal government’s financial condition in the future. Some examples of such fiscal risks are the Pension Benefit Guaranty Corporation’s funding and governance structure, U.S. Postal Service’s retiree health and pension funds, government insurance programs such as the National Flood Insurance Program, and military, economic, financial, or weather-related crises.
Importance of Early Action: The 2016 Financial Report , CBO, and GAO all make the point that the longer action is delayed, the greater and more drastic the changes will have to be. As shown in the timeline, the trust funds face financial challenges that add to the importance of beginning action. It is important to develop and begin to implement a long-term fiscal plan for returning to a sustainable path.
Debt Limit Is Not a Control on Debt: The current debt limit is not a control on debt, but rather an after-the-fact measure that restricts the Department of the Treasury’s authority to borrow to finance the decisions already enacted by Congress and the President. GAO has suggested Congress consider alternative approaches that would better link decisions about borrowing to finance the debt with decisions about spending and revenue at the time those decisions are made.
Opportunities to Begin to Address the Government’s Fiscal Health
GAO has identified actions Congress and agencies can take now to help improve the fiscal situation. GAO highlighted five agencies—the Departments of Defense, Health and Human Services, and Veterans Affairs; the Social Security Administration; and the Office of Management and Budget. These agencies made up 69 percent—$ 3.0 trillion—of federal outlays in fiscal year 2016. Although these actions alone cannot put the federal government on a sustainable fiscal path, they would improve both the fiscal situation and the federal government’s operations.
Actions Needed to Reduce Improper Payments: Reducing payments that should not have been made or that were made in an incorrect amount could yield significant savings. The improper payments estimate in fiscal year 2016 was over $144 billion. Since fiscal year 2003, cumulative estimates have totaled over $1.2 trillion.
Opportunities Exist to Improve the Efficiency and Effectiveness of Government Operations : GAO has identified government operations that are at high risk of fraud, waste, abuse, and mismanagement and has presented numerous areas to reduce, eliminate, or better manage fragmentation, overlap, or duplication; achieve cost savings; or enhance revenue. Fully addressing the issues raised could yield increased savings, better services to the public, and improved federal programs.
Multiple Strategies Needed to Address the Persistent Tax Gap: Reducing the gap between taxes owed and those paid on time could increase tax collections by billions. Most recently, the annual gross tax gap was estimated to be $458 billion.
Action Needed to Improve Information on Programs and Fiscal Operations: Decision-making could be improved by ensuring the government’s financial statements are fully auditable, increasing attention to tax expenditures, and effectively implementing the Digital Accountability and Transparency Act of 2014.