Federal watchdog: U.S. government spending "unsustainable"

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U.S. government spending is increasingly outstripping its revenue, which will eventually cause the federal debt to soar and harm the U.S. economy. 

This baleful assessment, issued by the U.S. Government Accountability Office on Tuesday, comes as the incoming Trump administration plans large increases in infrastructure and military spending, along with big tax cuts for corporations and individuals. 

While the GAO report’s findings are hardly new, the timing of the release as a new Congress and presidency get under way puts the issue back in the spotlight.

The study projected that the spending-revenue imbalance will put “the federal government on an unsustainable long-term fiscal path.” Without any changes to spending patterns, debt could expand to three times gross domestic product by 2090, according to the GAO, the government watchdog agency. 

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Government Accountability Office

After six years of shrinking deficits, the GAO said, the red ink increased to $587 billion in fiscal year 2016 (ending last Sept. 30), with U.S. debt held by the public at about $14.2 trillion. “These figures are only expected to grow,” the report said.

The primary causes are growing spending on entitlements -- Social Security, Medicare and Medicaid, largely due to the population’s aging -- and ever-higher interest on the national debt, the GAO said. Among the economic effects of expanding the nation’s balance sheet is higher debt. That would put pressure on the rest of the federal budget, restricting lawmakers’ ability to respond to unforseen events and increasing the likelihood of another financial crisis.

How Trump's proposed tax plan could impact you

The GAO did not take into account President-elect Donald Trump’s ambitious fiscal plans. But the nonpartisan Committee for a Responsible Federal Budget forecast last fall that federal debt as a share of GDP, now 77 percent, would explode to well above 100 percent by 2026 if his program was enacted in full. 

Mr. Trump has called for a massive tax cut amounting to nearly $6 trillion over 10 years, which he believes is necessary to boost economic growth.

The last time the debt exceeded GDP was in the wake of World War II (see above chart). Of course, the Republican majorities on Capitol Hill, with their sizable cohorts of budget hawks, will not necessarily go along with Mr. Trump’s plans.