Executive Summary to the Fiscal Year 2024 Financial Report of U.S. Government

An Unsustainable Fiscal Path

An important purpose of this Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable. A sustainable fiscal policy is defined in this report as one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining over the long term. GDP measures the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs. This Financial Report presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is sustainable. The debt-to-GDP ratio was approximately 98 percent at the end of FY 2024, up slightly from approximately 97 percent at the end of FY 2023. The long-term fiscal projections in this Financial Report are based on the same economic and demographic assumptions that underlie the SOSI.

The current fiscal path is unsustainable. To determine if current fiscal policy is sustainable, the projections based on the assumptions discussed in the Financial Report assume current policy will continue indefinitely.¹ The projections are therefore neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy changes need to be enacted to achieve a sustainable fiscal policy.

Receipts, Spending, and the Debt

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Chart 5 shows historical and current policy projections for receipts, non-interest spending by major category, net interest, and total spending expressed as a percent of GDP.

• The primary deficit is the difference between non-interest spending and receipts. The ratio of the primary deficit to GDP is useful for gauging long-term fiscal sustainability.
• The primary deficit-to-GDP ratio spiked during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe recession, and rose again in 2020 due to the COVID-19 pandemic and ensuing economic downturn. Increased spending and temporary tax reductions enacted to stimulate the economy and support recovery contributed to elevated primary deficits over both periods, resulting in sharp increases in the ratio of debt to GDP. The primary deficit-to-GDP ratio in 2024 was 3.3 percent, a decrease of 0.5 percentage points from the primary deficit-to-GDP ratio in last year’s Financial Report partially due to higher receipts.
• The primary deficit-to-GDP ratio is projected to average 3.1 percent over the next 10 years, based on the technical assumptions in this Financial Report, and projected changes in receipts and outlays. After 2034, increased spending for Social Security and health programs due to the aging of the population, is projected to result in increasing primary deficit ratios that peak at 4.0 percent of GDP in 2045. Primary deficits as a share of GDP gradually decrease beyond that point and reach 2.8 percent of GDP in 2099, the last year of the projection period.
• The persistent long-term gap between projected receipts and total spending shown in Chart 5 occurs despite the projected effects of the PPACA² on long-term deficits.
• Enactment of the PPACA in 2010 and the MACRA (P.L. 114-10) in 2015 established cost controls for Medicare hospital and physician payments whose long-term effectiveness is still to be demonstrated fully.
• There is uncertainty about the extent to which these projections can be achieved and whether the PPACA’s provisions intended to reduce Medicare cost growth will be overridden by new legislation.

Table 1 summarizes the status and projected trends of the government’s Social Security and Medicare Trust Funds.

The primary deficit projections in Chart 5, along with those for interest rates and GDP, determine the debt-to-GDP ratio projections in Chart 6.

• The debt-to-GDP ratio was approximately 98 percent at the end of FY 2024, and under current policy and based on this report’s assumptions is projected to reach 535 percent in 2099.
• The debt-to-GDP ratio rises continuously in great part because primary deficits lead to higher levels of debt. The continuous rise of the debt-to-GDP ratio indicates that current fiscal policy is unsustainable.
• These debt-to-GDP projections are lower than the corresponding projections in both the 2023 and 2022 Financial Reports.

The Fiscal Gap and the Cost of Delaying Fiscal Policy Reform

• The 75-year fiscal gap is a measure of how much primary deficits must be reduced over the next 75 years in order to make fiscal policy sustainable. That estimated fiscal gap for 2024 is 4.3 percent of GDP (slightly lower than 2023).
• This estimate implies that making fiscal policy sustainable over the next 75 years would require some combination of spending reductions and receipt increases that equals 4.3 percent of GDP on average over the next 75 years. The fiscal gap represents 22.5 percent of 75-year PV receipts and 19.0 percent of 75-year PV non-interest spending.
• The timing of policy changes to make fiscal policy sustainable has important implications for the well-being of future generations as is shown in Table 2.

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• Table 2 shows that, if reform begins in 2035 or 2045, the estimated magnitude of primary surplus increases necessary to close the 75-year fiscal gap is 5.1 percent and 6.3 percent of GDP, respectively. The difference between the primary surplus increase necessary if reform begins in 2035 or 2045 and the increase necessary if reform begins in 2025, an additional 0.8 and 2.0 percentage points, respectively, is a measure of the additional burden policy delay would impose on future generations.
• The longer policy action to close the fiscal gap is delayed, the larger the post-reform primary surpluses must be to achieve the target debt-to-GDP ratio at the end of the 75-year period. Future generations are harmed by a policy delay because the higher the primary surpluses are during their lifetimes, the greater is the difference between the taxes they pay and the programmatic spending from which they benefit.

Conclusion

• Projections in the Financial Report indicate that the government’s debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy is kept in place. The projections in this Financial Report show that current policy is not sustainable.
• If changes in fiscal policy are not so abrupt as to slow economic growth and those policy changes are adopted earlier, then the required changes to revenue and/or spending will be smaller to return the government to a sustainable fiscal path.

Reporting on Climate Change

Since day one of the Biden-Harris Administration, addressing climate change has been of paramount importance. In response, the administration has driven investment and ignited a clean manufacturing boom, stimulating over $450 billion in announced private investment in clean energy manufacturing and deployment, and creating over 330,000 clean energy jobs in just over two years, with the intent to minimize waste and have a focus on sustainability in production and manufacturing processes. As summarized in the MD&A section of the Financial Report, many of the 24 CFO Act agencies have included information in their FY 2024 financial reports discussing a wide range of topics concerning how their agencies are responding to the climate crisis, including providing links to agency Climate Adaptation and Resilience Plans to articulate mitigation strategies that deliver emission reductions and more sustainable agency operations.

Footnotes

¹ Current policy in the projections is based on current law, but includes extension of certain policies that expire under current law but are routinely extended or otherwise expected to continue. The assumptions that underlie this analysis are discussed in the Management’s Discussion and Analysis and Note 24—Long-Term Fiscal Projections sections of this Financial Report. Please see the “Departures of Current Policy from Current Law” in Note 24. (Back to Content)

² The PPACA refers to P.L. 111-148, as amended by P.L. 111-152. The PPACA expands health insurance coverage, provides health insurance subsidies for low-income individuals and families, includes many measures designed to reduce health care cost growth, and significantly reduces Medicare payment rate updates relative to the rates that would have occurred in the absence of the PPACA. (See Note 25 and the RSI section of the Financial Report, and the 2024 Medicare Trustees' Report for additional information). (Back to Content)