GAO: Long-term still unsustainable

The Government Accountability Office released an update to their long-term fiscal outlook. GAO illustrates taxes and spending under two baselines:

The first is “Baseline Extended,” which follows the CBO’s January baseline estimates for the first 10 years and then simply holds revenue and spending other than large entitlement programs constant as a share of gross domestic product (GDP). The second is the “Alternative simulation” based on historical trends and recent policy preferences. Under these alternative assumptions, discretionary spending grows with the economy rather than inflation during the first 10 years, Medicare physician payments are not reduced as in current law, and revenues are brought down to their historical level.

The following table summarizes the fiscal gap under the two baselines.

So we have a choice between a 17% increase in federal taxes or reduction in spending under the optimistic baseline, or a 36% increase in taxes or reduction in spending in the other. As with other analyses, most of this is driven by cost growth in health care, with smaller contributions from Social Security and other programs. Sobering stuff. Read more!