Management's Discussion & Analysis

An Unsustainable Fiscal Path

An important purpose of the Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable. This Financial Report includes the SLTFP and a related note disclosure (Note 24). The Statements display the PV of 75-year projections of the federal government’s receipts and non-interest spending¹⁸ for FY 2025 and FY 2024.

Fiscal Sustainability

A sustainable fiscal policy is defined in this Financial Report as one where the debt-to-GDP ratio is stable or declining over the long term. The projections based on the assumptions in this Financial Report indicate that current policy is not sustainable. 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 99 percent at the end of FY 2025¹⁹, up slightly from approximately 98 percent at the end of FY 2024. The long-term fiscal projections in this Financial Report are based on the same economic and demographic assumptions that underlie the 2025 SOSI, which is as of January 1, 2025. As discussed below, if current policy is left unchanged and based on this Financial Report’s assumptions, the debt-to-GDP ratio is projected to exceed 200 percent by 2048 and reach 576 percent in 2100. By comparison, under the 2024 projections, the debt-to-GDP ratio exceeded 200 percent in 2049 and reached 535 percent in 2099. Preventing the debt-to-GDP ratio from rising over the next 75 years is estimated to require some combination of spending reductions and revenue increases that amounts to 4.7 percent PV of GDP over the period. While this estimate of the “75-year fiscal gap” is highly uncertain, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

Delaying action to reduce the fiscal gap increases the magnitude of spending and/or revenue changes necessary to stabilize the debt-to-GDP ratio as shown in Table 6 below.

The estimates of the cost of policy delay assume policy does not affect GDP or other economic variables. Delaying fiscal adjustments for too long raises the risk that growing federal debt would increase interest rates, which would, in turn, reduce investment and ultimately economic growth.

The projections discussed here assume current policy²⁰ remains unchanged, and hence, are neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy changes must be enacted to move towards fiscal sustainability.

The Primary Deficit, Interest, and Debt

The primary deficit – the difference between non-interest spending and receipts – is the determinant of the debt-to-GDP ratio over which the government has the greatest control (the other determinants include interest rates and growth in GDP). Chart 8 shows receipts, non-interest spending, and the difference – the primary deficit – expressed as a share of GDP. 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 debt-to-GDP ratio rose from 39 percent at the end of 2008 to 70 percent at the end of 2012 and then from 79 percent at the end of 2019 to approximately 100 percent at the end of 2020.

The primary deficit-to-GDP ratio in 2025 was 2.7 percent, a decrease of 0.6 percentage points from the primary deficit-to-GDP ratio reported for 2024 in last year’s Financial Report, due to higher receipts, partially offset by higher non-interest spending. The primary deficit-to-GDP ratio is projected to average 3.3 percent over the next 10 years, based on the technical assumptions in this Financial Report, and projected changes in receipts and outlays, then increase to a peak of 4.2 percent of GDP in 2046, and gradually decrease beyond that point and reach 3.1 percent of GDP in 2100, the last year of the projection period.

Trends in the primary deficit are heavily influenced by tax receipts. The receipt share of GDP was markedly depressed in 2009 through 2012 because of the recession and tax reductions enacted as part of the American Recovery and Reinvestment Act and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The share subsequently increased to almost 18.0 percent of GDP by 2015, before falling to nearly 16.0 percent in 2020, following the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) (P.L. 115-97) and COVID-19 pandemic-induced economic downturn.

Receipts were 17.2 percent of GDP in 2025, an increase of 0.1 percentage point relative to the share of GDP reported for 2024 in last year’s Financial Report. Receipts are projected to fall slightly to 17.1 percent of GDP in 2026 and gradually increase to 18.0 percent of GDP in 2035. After 2035, receipts grow slightly more rapidly than GDP over the projection period as increases in real (i.e., inflation-adjusted) incomes cause more taxpayers and a larger share of income to fall into the higher individual income tax brackets.²¹

On the spending side, the non-interest spending share of GDP was 19.9 percent in 2025, 0.5 percentage points below the share of GDP reported for 2024 in last year’s Financial Report, which was 20.4 percent. The ratio of non-interest spending to GDP is projected to rise gradually, peaking at 23.5 percent of GDP in 2080. The ratio of non-interest spending to GDP then declines to 23.1 percent in 2100, the end of the projection period. These increases are principally due to expenditure growth rate in Social Security, Medicare, and Medicaid exceeding the GDP growth rate (see Chart 8). The aging of the population, among other factors, is projected to increase the spending shares of GDP of Social Security and Medicare by about 0.5 and 1.6 percentage points, respectively, from 2026 to 2046. After 2046, the Social Security and Medicare spending shares of GDP continue to increase in most years, albeit at a slower rate, due to projected increases in health care costs and population aging, before declining toward the end of the projection period.

On a PV basis, deficit projections reported in the SLTFP in this year’s Financial Report increased in both present-value terms and as a percent of the current 75-year PV of GDP. As shown in the SLTFP, this year’s estimate of the 75-year PV imbalance of receipts less non-interest spending is 3.9 percent of the current 75-year PV of GDP ($79.6 trillion), compared with 3.6 percent ($72.7 trillion) as was projected in last year’s Financial Report. For clarity, the “75-year PV imbalance of receipts less non-interest spending” is distinct from the fiscal gap. The measure of imbalance accounts for neither the initial debt level nor interest payments and therefore does not indicate the scale of fiscal reforms required to stabilize the debt-to-GDP ratio. As discussed in Note 24, these changes are attributable to the net effect of the following factors:

• The largest factor affecting the projections is the effect of new Social Security, Medicare, and Medicaid program-specific actuarial assumptions, which increased the fiscal imbalance by 0.7 percentage points (percentage points in reference to the percent of the 75-year PV of GDP).²² Changes to Medicare-specific actuarial assumptions account for 0.4 percentage points of that increase. Changes to Medicaid-specific actuarial assumptions account for a further 0.2 percentage points of that increase—note that this change is independent of the changes to Medicaid outlays in P.L. 119-21 (discussed further, below). Changes to Social Security-specific actuarial assumptions account for the balance of this increase.
• The second-largest factor affecting the projections is the change due to updated budget data, which decreased the fiscal imbalance by 0.2 percentage points (percentage points in reference to the percent of the 75-year PV of GDP). This figure is primarily the result of two larger changes, which largely offset one another. Those two changes are:
  • The incorporation of projected customs duties (largely revenue from tariffs) as projected by the Mid-Session Review (MSR) of the FY 2026 Budget.²³ This decreased the fiscal imbalance by 0.9 percentage points. The MSR-projected customs duties for FY 2035 were 1.2 percent of GDP. For the SLTFP, receipts from customs duties were fixed at 1.2 percent of GDP in FY 2036 and beyond.
  • The incorporation of revenue and outlay changes stemming from P.L. 119-21, the law signed by President Trump on July 4, 2025, which includes the WFTC.²⁴ On net, this increased the fiscal imbalance by 0.7 percentage points.²⁵
  • Prior to incorporating changes from P.L. 119-21 and tariff policies, budget projections were updated. Those pre-policy change updates had offsetting changes, with a decline in the PV of total receipts adding 0.3 percentage points to the fiscal imbalance matching a decline in the PV of total outlays subtracting 0.3 percentage points from the fiscal imbalance.
• The third-largest factor affecting the projections is update of economic and demographic assumptions, which decreased the fiscal imbalance by 0.2 percentage points (percentage points in reference to the percent of the 75-year GDP). Contributing to this improvement in the imbalance are higher wages that increase receipts and higher GDP levels that reduce spending as a percentage of GDP. The 75-year PV of GDP for this year’s projections is $2,043.6 trillion, 2.0 percent greater than last year’s $2,002.6 trillion.
• Factors that had smaller effects on the fiscal imbalance included the change in the reporting period (the shift of calculations from 2025 through 2099 to 2026 through 2100), and the updates to technical assumptions.

The net effect of these changes equal to the penultimate row in the SLTFP, shows that this year’s estimate of the overall 75-year PV of receipts less non-interest spending is negative 3.9 percent of the 75-year PV of GDP (negative $79.6 trillion, as compared to a GDP of $2,043.6 trillion).

One of the most important assumptions underlying the projections is that current federal policy does not change. The projections are therefore neither forecasts nor predictions, and do not consider large infrequent events such as natural disasters, military engagements, or economic crises. By definition, they do not build in future changes to policy. If policy changes are enacted, perhaps in response to projections like those presented here, then actual fiscal outcomes will be different than those projected.

Another important assumption is the future growth of health care costs. As discussed in Note 25, these future growth rates – both for health care costs in the economy generally and for federal health care programs such as Medicare, Medicaid, and PPACA exchange subsidies – are highly uncertain. In particular, enactment of the PPACA in 2010 and the MACRA in 2015 lowered payment rate updates for Medicare hospital and physician payments whose long-term effectiveness of which is not yet clear. The Medicare spending projections in the long-term fiscal projections are based on the projections in the 2025 Medicare Trustees Report, which assume the PPACA and MACRA cost control measures will be effective in producing a substantial slowdown in Medicare cost growth.

The Medicare projections are subject to much uncertainty about the ultimate effects of these provisions to reduce health care cost growth. Certain features of current law may result in some challenges for the Medicare program including physician payments, payment rate updates for most non-physician categories, and productivity adjustments. Payment rate updates for most non-physician categories of Medicare providers are reduced by the growth in economy-wide private nonfarm business total factor productivity although these health providers have historically achieved lower levels of productivity growth. Should payment rates prove to be inadequate for any service, beneficiaries’ access to and the quality of Medicare benefits would deteriorate over time, or future legislation would need to be enacted that would likely increase program costs beyond those projected under current law. For the long-term fiscal projections, that uncertainty also affects the projections for Medicaid and exchange subsidies, because the cost per beneficiary in these programs is assumed to grow at the same reduced rate as Medicare cost growth per beneficiary. Other key assumptions, as discussed in greater detail in Note 24—Long-Term Fiscal Projections, include the following:

• Social Security spending and payroll taxes are based on future spending and payroll taxes projected in the 2025 Social Security Trustees Report, adjusted for presentational differences and converted to a fiscal year basis. These amounts include a number of adjustments, including an adjustment to exclude certain taxation of Social Security benefits.
• Projected Medicare spending and Medicare Part A payroll taxes are based on Medicare spending and payroll taxes in the Medicare Trustees Report, adjusted for presentational differences and converted to a fiscal year basis. These amounts include a number of adjustments, including an adjustment to exclude certain taxation of Social Security benefits.
• Medicaid spending projections start with the National Health Expenditure (NHE) projections which are based on recent trends in Medicaid spending, and the demographic, economic, and health cost growth assumptions in the Medicare Trustees Report. NHE projections, which end in 2033, are adjusted to accord with the actual Medicaid spending in FY 2025. After 2033, the number of beneficiaries is projected to grow at the same rate as total population. Medicaid cost per beneficiary after 2033 is assumed to transition over a four-year period to growth at the same rate as Medicare benefits per beneficiary. Additionally, Medicaid cost projections were adjusted from 2026-2034 following CBO’s P.L. 119-21 estimates. In 2035 and thereafter, the effects of P.L. 119-21 on Medicaid are assumed to continue.
• Other mandatory spending includes federal employee retirement, veterans’ disability benefits, and means-tested entitlements other than Medicaid. Current mandatory spending components that are judged permanent under current policy are assumed to increase by the rate of growth in nominal GDP starting in 2026, implying that such spending will remain constant as a percent of GDP.²⁶  Additionally, other mandatory spending projections were adjusted from 2026-2034 following CBO’s P.L. 119-21 estimates. In 2035 and thereafter, the effects of P.L. 119-21 are assumed to continue.
• Defense and non-defense discretionary spending grow with GDP, starting in 2026.
• Interest spending is determined by projected interest rates and the level of outstanding debt held by the public. The long-run interest rate assumptions accord with those in the 2025 Social Security Trustees Report. The average interest rate over this year’s projection period is 4.5 percent, slightly higher than the 2024 Financial Report. Debt at the end of each year is projected by adding that year’s deficit and other financing requirements to the debt at the end of the previous year.
• Receipts (other than Social Security and Medicare payroll taxes) is comprised of individual income taxes, corporate income taxes, customs duties and other receipts.
  • Individual income taxes are projected using CBO’s January 2025 baseline projection of individual income taxes, expressed as a share of salaries and wages from 2026-2035. Those shares are then adjusted to reflect the salaries and wage projections in the Social Security 2025 Trustees Report. Starting in 2036, individual income taxes are initially fixed at the percentage of wages and salaries projected for 2035, then adjusted each year to reflect the tendency of effective tax rates to increase as growth in income per capita outpaces inflation (also known as “bracket creep”). Additionally, those rates are adjusted to reflect the P.L. 119-21 tax cuts, as estimated by CBO. Individual income taxes are projected to increase gradually from 20 percent of wages and salaries in 2026, to 27 percent of wages and salaries in 2100 as real taxable incomes rise over time, and an increasing share of total income is taxed in the higher tax brackets.
  • Corporation tax receipts as a percent of GDP reflect CBO’s January 2025 baseline revenue projections through the first 10 years of the projections. That percentage is then adjusted according to CBO’s estimated effects of P.L. 119-21 corporate tax reductions. Corporation tax receipts rise from 1.1 percent of GDP in 2027 to 1.2 percent of GDP in 2035, where they stay for the remainder of the projection period.
  • New in the FY 2025 SLTFP, customs duties are estimated separately from “Other Receipts.” For 2026 – 2035, customs duties as a percent of GDP follow the projections given in the MSR to the FY 2026 Budget. In 2024, customs revenues were 0.3 percent of GDP, and in 2025 they were 0.6 percent of GDP. Revenue projections in this statement do not encompass any effects of the result of the Supreme Court decision affecting tariffs imposed under the International Emergency Economic Powers Act (IEEPA). For more information regarding that decision and any effects or consideration of effects, see Note 29—Subsequent Events.
  • Other receipts, including excise taxes, estate and gift taxes, and miscellaneous receipts, reflect CBO’s January 2025 baseline levels as a share of GDP from 2026 – 2035, and then grow with GDP starting in 2036. The ratio of other receipts to GDP is estimated to increase from 0.8 percent in 2026 to 1.0 percent by 2035.

The long-term projections are highly uncertain. To illustrate this, the unaudited RSI section of the Financial Report presents alternative scenarios for the growth rate of health care costs, interest rates, discretionary spending, individual income tax receipts, and customs duties.

The primary deficit-to-GDP projections in Chart 8, projections for interest rates, and projections for GDP together determine the debt-to-GDP ratio projections shown in Chart 9. That ratio was 99 percent at the end of FY 2025 and under current policy is projected to be approximately 102 percent in 2026, exceed 200 percent by 2048 and reach 576 percent by 2100. The change in debt held by the public from one year to the next generally represents the budget deficit, the difference between total spending and total receipts. The debt-to-GDP ratio rises continually in great part because primary deficits lead to higher levels of debt, which lead to higher net interest expenditures, and higher net interest expenditures lead to higher debt.²⁷ The continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable.

These debt-to-GDP projections are higher than the corresponding projections in both the 2024 and 2023 Financial Reports. For example, the last year of the 75-year projection period used in the FY 2023 Financial Report is 2098. In the FY 2025 Financial Report, the debt-to-GDP ratio for 2098 is projected to be 561 percent, which compares with 528 and 531 percent for that same year in the FY 2024 Financial Report and the FY 2023 Financial Report, respectively.²⁸

The Fiscal Gap and the Cost of Delaying Policy Reform

The 75-year fiscal gap is one measure of the degree to which current policy is unsustainable. It is the amount by which primary surpluses over the next 75 years must, on average, rise above current-policy levels in order for the debt-to-GDP ratio in 2100 to remain at its level in 2025. Primary deficits average 3.9 percent of GDP over the next 75 years under current policy. If policies were adopted to eliminate the fiscal gap, the average primary surplus over the next 75 years would be 0.8 percent of GDP, 4.7 percentage points higher than the projected PV of receipts less non-interest spending shown in the financial statements. Hence, the 75-year fiscal gap is estimated to equal to 4.7 percent of GDP. This amount is, in turn, equivalent to 25.1 percent of 75-year PV receipts and 20.7 percent of 75-year PV non-interest spending. This estimate of the fiscal gap is 0.3 percentage points higher than estimated in the FY 2024 Financial Report (4.3 percent of GDP).

In these projections, closing the fiscal gap requires running positive primary surpluses, rather than simply eliminating the primary deficit. The primary reason is that the projections assume future interest rates will exceed the growth rate of nominal GDP. Achieving primary balance (that is, running a primary surplus of zero) implies that the debt grows each year by the amount of interest spending, which under these assumptions would result in debt growing faster than GDP.

Table 6 shows the cost of delaying policy reform to close the fiscal gap by comparing policy reforms that begin in three different years. Immediate reform would require increasing primary surpluses by 4.7 percent of GDP on average between 2026 and 2100 (i.e., some combination of reducing spending and increasing revenue by a combined 4.7 percent of GDP on average over the 75-year projection period). Table 6 shows that delaying policy reform forces larger and more abrupt policy reforms over shorter periods. For example, if policy reform is delayed by 10 years, closing the fiscal gap requires increasing the primary surpluses by 5.6 percent of GDP on average between 2036 and 2100. Similarly, delaying reform by 20 years requires primary surplus increases of 6.9 percent of GDP on average between 2046 and 2100. The differences between the required primary surplus increases that start in 2036 and 2046 (5.6 and 6.9 percent of GDP, respectively) and that which starts in 2026 (4.7 percent of GDP) is a measure of the additional burden that delay would impose on future generations. Future generations are harmed by policy reform delay, because the higher the primary surplus is during their lifetimes the greater the difference is between the taxes they pay and the programmatic spending from which they benefit.

Conclusion

The debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy is unchanged, based on this Financial Report’s assumptions, which implies that current policy is not sustainable and must ultimately change. If policy changes are not so abrupt as to slow economic growth, then the sooner policy changes are adopted to avert these trends, the smaller the changes to revenue and/or spending that would be required to achieve sustainability over the long term. While the estimated magnitude of the fiscal gap is subject to a substantial amount of uncertainty, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

These long-term fiscal projections and the topic of fiscal sustainability are discussed in further detail in Note 24 and the RSI section of this Financial Report. The fiscal sustainability under alternative scenarios for the growth rate of health care costs, interest rates, discretionary spending, and receipts are illustrated in the “Alternative Scenarios” section within the RSI.

Social Insurance

The long-term fiscal projections reflect government receipts and spending as a whole. The SOSI focuses on the government’s “social insurance” programs: Social Security, Medicare, Railroad Retirement, and Black Lung.²⁹ For these programs, the SOSI reports: 1) the actuarial PV of all future program revenue (mainly taxes and premiums) – excluding interest – to be received from or on behalf of current and future participants; 2) the estimated future scheduled expenditures to be paid to or on behalf of current and future participants; and 3) the difference between 1) and 2). Amounts reported in the SOSI and in the RSI section in this Financial Report are based on each program’s official actuarial calculations.

This year’s projections for Social Security and Medicare are based on the same economic and demographic assumptions that underlie the 2025 Social Security and Medicare Trustees Reports and the 2025 SOSI, while comparative information presented from last year’s report is based on the 2024 Social Security and Medicare Trustees Reports and the 2024 SOSI. Table 7 summarizes amounts reported in the SOSI, showing that net social insurance expenditures are projected to be $88.4 trillion over 75 years as of January 1, 2025 for the open group, an increase by approximately $10.1 trillion compared to net expenditures of $78.3 trillion projected in the FY 2024 Financial Report.³⁰

The current-law 2025 amounts reported for Medicare reflect the physician payment levels expected under the MACRA payment rules and the PPACA-mandated reductions in other Medicare payment rates, but not the payment reductions and/or delays that would result from trust fund depletion.³¹ Similarly, current-law projections for Social Security do not reflect benefit payment reductions and/or delays that would result from fund depletion. By accounting convention, the transfers from the General Fund to Medicare Parts B and D are eliminated in the consolidation of the SOSI at the government-wide level and as such, the General Fund transfers that are used to finance Medicare Parts B and D are not included in Table 7. For the FYs 2025 and 2024 SOSI, the amounts eliminated totaled $57.1 trillion and $50.2 trillion, respectively. SOSI programs and amounts are included in the broader fiscal sustainability analysis in the previous section, although on a slightly different basis (as described in Note 24).

In addition, the Medicare projections have been significantly affected by the enactment of the Inflation Reduction Act (IRA) of 2022. This legislation has wide-ranging provisions, including those that restrain price growth and negotiate drug prices for certain Part B and Part D drugs and that redesign the Part D benefit structure to decrease beneficiary out-of-pocket costs. The law takes several years to implement, resulting in very different effects by year. The total effect of the IRA of 2022 is to reduce government expenditures for Part B, to increase expenditures for Part D through 2030, and to decrease Part D expenditures beginning in 2031.

The amounts reported in the SOSI provide perspective on the government’s long-term estimated exposures for social insurance programs. These amounts are not considered liabilities in an accounting context. Future benefit payments will be recognized as expenses and liabilities as they are incurred based on the continuation of the social insurance programs’ provisions contained in current law. The social insurance trust funds account for all related program income and expenses. Medicare and Social Security taxes, premiums, and other income are credited to the funds; fund disbursements may only be made for benefit payments and program administrative costs. Any excess revenues are invested in special nonmarketable U.S. government securities at a market rate of interest. The trust funds represent the accumulated value, including interest, of all prior program surpluses, and provide automatic funding authority to pay cover future benefits.

Table 8 identifies the principal reasons for the changes in projected social insurance amounts during 2025 and 2024. Net Present Value (NPV)-Open Group is the PV of estimated future expenditures in excess of estimated future revenue, which represents net cash outflows.

The following briefly summarizes the significant changes for the current valuation (as of January 1, 2025) as disclosed in Note 25—Social Insurance. Note 25 is compiled from disclosures included in the financial statements of those entities administering these programs, including SSA and HHS. See Note 25 for additional information.

• Change in valuation period caused the PV of the estimated future net cash outflows to increase (became more negative) by $0.8 trillion and $1.8 trillion for Social Security and Medicare, respectively. The effect of this change on the 75-year PV of estimated future net cash flows is to replace a small negative net cash flow for 2024 with a much larger negative net cash flow for 2099.
• Changes in demographic data, assumptions, and methods caused the PV of the estimated future net cash outflows to increase (became more negative) by $0.1 trillion and decrease (become less negative) by $1.1 trillion for Social Security and Medicare, respectively. The most significant changes affecting these results included: 1) longer transition to the ultimate Total Fertility Rate (TFR); 2) updated mortality, historical population, immigration, marriage, and divorce data; and 3) higher levels of temporary or unlawfully present immigrant entrants in the period 2022-2025.
• Changes in economic data, assumptions, and methods caused the PV of the estimated future net cash outflows for Social Security to increase (become more negative) by $0.3 trillion. There was one change to the ultimate economic assumptions. The ratio of total labor compensation to GDP is assumed to increase gradually in 2034, and to remain approximately constant thereafter. However, the starting economic value and the way these values transition to the ultimate assumptions were changed. The one significant change is that historical Old-Age, Survivors, and Disability Insurance (OASDI) covered employment for 2022 was slightly higher and its age distribution was different than assumed under the prior valuation. In addition, the most significant changes included: 1) improved process to calculate and apply adjustments to the age profile for labor force participation rates; 2) updates to projections of OASDI-covered employment; and 3) updates to the model to project the civilian noninstitutional (CNI) population to make these projections more consistent with the Social Security area population.
• Changes in law or policy: There were two notable changes in law or policy: 1) SSA published a final rule on past relevant work which affects disability determinations and decisions; and 2) the Social Security Fairness Act of 2023 which reduced or eliminated the Social Security benefits of individuals receiving a pension based on work that was not covered by Social Security.
• Changes in methodology and programmatic data caused the PV of the estimated future net cash outflows to increase (become more negative) by $0.2 trillion for Social Security. The most significant changes were: 1) lower near-term and ultimate levels of revenue from income taxation of OASDI benefits than projected in the prior valuation; and 2) updates to better reflect the distribution of taxable earnings levels observed through 2019 in order to project average benefit levels of retired-worker and disabled-worker beneficiaries.
• Changes in economic and healthcare assumptions caused the PV of estimated future net cash outflows to increase (become more negative) by $4.8 trillion for Medicare. The economic assumptions used in the Medicare projections are the same as those used for the OASDI (described above); and the healthcare assumptions are specific to the Medicare projections. Changes include higher Part A projected spending growth because of higher-than-anticipated 2024 expenditures and higher projected spending for inpatient hospital and hospice service; higher Part B projected spending growth due to higher projected spending for outpatient hospital and physician-administered drugs; and lower Part D projected spending growth because of lower Part D enrollment which is disproportionately lower for those eligible for low-income subsidies.
• Change in the net impact of Part A, B, and D projection base caused the PV of estimated future cash outflows to increase (become more negative) by $2.1 trillion for Medicare. Part A, B, and D income and expenditures were higher than estimated based on actual experience. Actual experience of the Medicare Trust Funds between January 1, 2024, and January 1, 2025, is incorporated in the current valuation and is less than projected in the prior valuation.

As reported in Note 25—Social Insurance, uncertainty remains about whether the projected cost savings and productivity improvements will be sustained in a manner consistent with the projected cost growth over time. Note 25 includes an alternative projection to illustrate the uncertainty of projected Medicare costs. As indicated earlier, GAO disclaimed opinions on the 2025, 2024, 2023, 2022 and 2021 SOSI because of these significant uncertainties. Refer to Note 25 and SSA’s and HHS’s financial statements for additional information.

In addition, Note 25—Social Insurance references the potential impact of P.L. 119-21. Because it was enacted after the release of the 2025 Social Security and Medicare Trustees Reports, the impact of P.L. 119-21 is not reflected in the actuarial estimates presented in the SOSI and SCSIA. However, it is estimated that enactment of P.L. 119-21 will result in the PV of the estimated future net cash outflows to increase (become more negative).

Costs as a percent of GDP of both Medicare and Social Security, which are analyzed annually in the Medicare and Social Security Trustees Reports, are projected to increase substantially through the mid-2030s because: 1) the number of beneficiaries rises rapidly as the baby-boom generation retires; and 2) the lower birth rates that have persisted since the baby boom cause slower growth of employment and GDP.³² According to the Medicare Trustees Report, spending on Medicare is projected to rise from its current level of 3.8 percent of GDP in 2024 to 6.2 percent in 2049 and then rise more slowly before leveling off at around 6.7 percent in the final 25 years of the projection period.³³ As for Social Security, combined spending is projected to generally increase from 5.3 percent of GDP in 2025 to a peak of about 6.4 percent for 2079, and then decline to 6.1 percent by 2099. The government collects and maintains funds supporting the Social Security and Medicare programs in trust funds. A scenario in which projected funds expended exceed projected funds received, as reported in the SOSI, will cause the balances in those trust funds to deplete over time. Table 9 summarizes additional current status and projected trend information, including years of projected depletion, for the Medicare HI and Social Security Trust Funds.

As previously discussed, and as noted in the Trustees Reports, these programs are on a fiscally unsustainable path. Additional information from the Trustees Reports may be found in the RSI section of this Financial Report.

Footnotes

¹⁸ For the purposes of the SLTFP and this analysis, spending is defined in terms of outlays. In the context of federal budgeting, spending can either refer to: 1) budget authority – the authority to commit the government to make a payment; 2) obligations – binding agreements that will result in either immediate or future payment; or 3) outlays, or actual payments made. (Back to Content)

¹⁹ Calculated with the September 2025 total debt held by the public and the FY 2025 GDP, as reported in Bureau of Economic Analysis’s (BEA’s) second estimate. Total debt held by the public is adjusted to account for borrowing by other (non-Treasury) agencies and for net unamortized premiums/discounts. It excludes accrued interest payable. See Note 12—Federal Debt and Interest Payable for details. (Back to Content)

²⁰ Current policy in the projections is based on current law, but includes certain adjustments, such as extension of certain policies that expire under current law but are routinely extended or otherwise expected to continue (e.g., reauthorization of the Supplemental Nutrition Assistance Program). See Note 24 for additional discussion of departures of current policy from current law. (Back to Content)

²¹ Other possible paths for the receipts-to-GDP ratio and projected debt held by the public are shown in the “Alternative Scenarios” RSI section of this Financial Report. (Back to Content)

²² For more information on Social Security and Medicare actuarial estimates, refer to Note 25—Social Insurance. (Back to Content)

²³ “Budget” refers to the Budget of the U.S. Government. (Back to Content)

²⁴ P.L. 119-21 is commonly referred to as the OBBBA. Prominent components of P.L. 119-21 are WFTC, which provide federal income tax deductions for certain income from Social Security benefits, overtime, and tips (P.L. 119-21). (Back to Content)

²⁵ The increase in the fiscal imbalance is relative to the current law baseline used in the 2024 Financial Report, which assumed expiration of the individual income and estate and gift tax provisions of the 2017 TCJA. In addition to providing WFTC and extending expiring TCJA provisions, P.L. 119-21 decreased direct spending by over $1.2 trillion between 2025 and 2034, according to the CBO’s cost estimate (with small adjustments to match the GDP growth path in the Social Security Trustees’ Report – for CBO estimates see: https://www.cbo.gov/publication/61570). In the long-term fiscal projections, the inclusion of this spending reduction over the full 75-year window decreases the 75-year PV of total programmatic outlays by $9.5 trillion (0.5 percent of the 75-year PV of GDP), with $8.4 trillion of those decreases coming via reduced Medicaid outlays. As a result, it is likely that P.L. 119-21 reduced the fiscal imbalance relative to a current policy baseline that assumed an extension of the TCJA provisions. (Back to Content)

²⁶ This assumed growth rate for other mandatory programs after 2025 is slightly higher than the average growth rate in the most recent OMB and CBO 10-year budget baselines. (Back to Content)

²⁷ The change in debt each year is also affected by certain transactions not included in the budget deficit, such as changes in Treasury’s cash balances and the nonbudgetary activity of federal credit financing accounts. These transactions are assumed to hold constant at about 0.3 percent of GDP each year, with the same effect on debt as if the primary deficit was higher by that amount. (Back to Content)

²⁸ See Note 24 of the FY 2023 Financial Report of the U.S. Government for more information about changes in the long-term fiscal projections between FYs 2023 and 2022. (Back to Content)

²⁹ The Black Lung Benefits Act provides for monthly payments and medical benefits to coal miners totally disabled from pneumoconiosis (black lung disease) arising from their employment in or around the nation's coal mines. See https://www.dol.gov/owcp/regs/compliance/ca_main.htm. RRB’s projections are based on economic and demographic assumptions that underlie the 29th Actuarial Valuation of the Assets and Liabilities Under the Railroad Retirement Acts as of December 31, 2022 with Technical Supplement, which also serves as the Annual Report for 2024, and the 2025 Annual Report on the Railroad Retirement System required by Section 502 of the Railroad Retirement Solvency Act of 1983 (P.L. 98-76). (Back to Content)

³⁰ Closed group and open group differ by the population included in each calculation. From the SOSI, the closed group includes: 1) participants who have attained eligibility; and 2) participants who have not attained eligibility. The open group adds future participants to the closed group. See ‘Social Insurance’ in the RSI section in this Financial Report for more information. (Back to Content)

³¹ MACRA permanently replaces the Sustainable Growth Rate formula, which was used to determine payment updates under the Medicare physician fee schedule with specified payment updates through 2025. The changes specified in MACRA also establish differential payment updates starting in 2026 based on practitioners’ participation in eligible Alternative Payment Models; payments are also subject to adjustments based on the quality of care provided, resource use, use of certified electronic health records, and clinical practice improvement. (Back to Content)

³² A Summary of the 2025 Annual Social Security and Medicare Trust Fund Reports, page 6. (Back to Content)

³³ Percent of GDP amounts are expressed in gross terms (including amounts financed by premiums and state transfers). (Back to Content)