Executive Summary to the Fiscal Year 2022 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 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 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 97 percent at the end of FY 2022, down from approximately 100 percent at the end of FY 2021. The long-term fiscal projections in this 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 for the actual financial outcomes to differ from those projected.

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 increased during the financial crisis of 2008 and the COVID-19 pandemic. Spending remained elevated in 2021 due to additional funding to support economic recovery, but increased receipts reduced the primary deficit-to-GDP ratio to 10.8 percent. The primary deficit-to-GDP ratio in 2022 was 3.6 percent, decreasing by 7.1 percentage points from 2021 as spending attributable to the pandemic winds down.
• 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 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 97 percent at the end of FY 2022, and under current policy and based on this report’s assumptions is projected to reach 566 percent in 2097.
• 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 both the 2021 and 2020 Financial Report projections.

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 2022 is 4.9 percent of GDP (compared to 6.2 percent for 2021).
• 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 4.2 percent of GDP on average over the next 75 years. The fiscal gap represents 26.0 percent of 75-year PV receipts and 21.2 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 2033 or 2043, the estimated magnitude of primary surplus increases necessary to close the 75-year fiscal gap is 5.7 percent and 7.0 percent of GDP, respectively. The difference between the primary surplus increase necessary if reform begins in 2033 or 2043 and the increase necessary if reform begins in 2023, an additional 0.9 and 2.1 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

As stated in EO 14008, Tackling the Climate Crisis at Home and Abroad “the United States and the world face a profound climate crisis…Domestic action must go hand in hand with United States international leadership, aimed at significantly enhancing global action.” In response, the administration has enacted key legislation and issued important policy actions. As summarized in the Financial Report, many of the 24 CFO Act agencies have leveraged their FY 2022 financial statements to discuss 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.

Footnotes

¹Current 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. (Back to Content)

²The 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 rates 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 2022 Medicare Trustees' Report for additional information). (Back to Content)