GAO: Federal Spending Driving ‘Unsustainable’ Debt

Matt Cover | April 5, 2012 | 6:10pm EDT
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( – The Government Accountability Office (GAO) reported that federal spending will drive the national debt to “unsustainable” levels in the coming decades, fueled by ever-rising health care costs and federal entitlement spending.

“The growing fiscal imbalance is driven on the spending side by rising health care costs and the aging of the population,” the GAO said in its report, The Federal Government’s Long-Term Fiscal Outlook, Spring 2012 Update.

Furthermore, "[d]espite limits on discretionary spending that would bring discretionary spending to levels not seen in recent history, our simulations show total federal spending continuing to exceed revenues and feeding an unsustainable growth in debt," states the report. "The policy actions required to close the fiscal gap are significant, and changing the long-term outlook will likely require difficult decisions about both federal spending and revenue."

The GAO said that the federal spending caps negotiated by House Speaker John Boehner (R-Ohio) in August did improve the picture some, but they did not address the real cause of the crisis: entitlement spending, such as for Social Security and Medicare. (Back in August 2011, in a deal to raise the debt ceiling on federal borrowing, Congress agreed to a $1.047 trillion cap on discretionary spending for fiscal year 2013.)

President Barack Obama. (AP Photo/Carolyn Kaster)

“The Budget Control Act (BCA) of 2011 limits spending over the next decade and leads to an improved fiscal outlook,” the GAO said. “While the BCA improved the outlook, it did not eliminate the longer-term challenge, in part because it did not focus on the fundamental drivers of the government’s future fiscal imbalances -- a structural gap between revenues and spending driven by rising health care costs and demographics.”

In fact, in both of GAO’s long-term projections, federal health care and entitlement spending drive the government toward unmanageable levels of debt.

In its first scenario – what the GAO calls its baseline scenario – federal tax and spending policies take effect as planned, including the expiration of the current tax rates in 2013. Also included in GAO’s baseline scenario is the full and successful implementation of Obamacare, which that GAO said would greatly reduce health care costs should the entire law work the way its proponents claim.

“Several provisions of PPACA [Obamacare] were designed to control the growth of health care costs,” states the GAO. “The full implementation and effectiveness of these cost-control provisions, which are reflected in the Baseline Extended simulation, would slow the growth in federal health care spending over the long term.”

However, like the Congressional Budget Office (CBO) and other federal forecasters, the GAO’s baseline scenario is not considered to be the most likely course the federal government will take. Like the rest of the government, GAO constructed a more likely  budget forecast based on past congressional actions and the predictions of other forecasters, such as the Medicare Chief Actuary and the CBO.

Dome of U.S. Capitol building. (AP Photo.)

This alternative scenario assumes that the current tax rates are continued over the next decade, and also assumes that Congress follows its historical course of preventing automatic cuts in Medicare physician payments with what has become known as the “Doc Fix.”

The GAO’s alternative scenario also incorporates the wide-ranging skepticism of budget and health care experts that Obamacare will work as planned, citing the CBO, the Medicare Chief Actuary, and the Medicare Trustees, all of whom have expressed doubt that the president’s signature law will actually reduce health care costs over the long term.

“The Trustees, CBO, and the CMS [Medicare] Actuary have expressed concerns about the sustainability of certain health care cost-control measures over the long term,” the GAO said.

Specifically, the GAO noted that Medicare experts doubted whether Obamacare could make health care efficient enough to allow for reduced Medicare payments as planned.

“They have also questioned whether a provision in PPACA that would restrain spending growth by reducing the payment rates for certain Medicare services based on productivity gains observed throughout the economy is sustainable over the long term,” stated the report.

Because Obamacare may not produce the savings its proponents claim, the GAO said that there were “significant uncertainties” about its effectiveness, uncertainties that were reflected in the alternative scenario.

That alternative scenario, the GAO found, led to massive federal deficits and debt as entitlement spending and debt service alone burn through 100 percent of tax receipts by 2030.

“In this simulation, spending on Social Security, Medicare, Medicaid, and interest exceeds revenues by 2030 and by 2040, 73 cents of every federal dollar spent would go to these categories,” reported the GAO.

The GAO also said that in order to avoid this situation, Congress needed to immediately cut spending by 32 percent, raise taxes by 46 percent, or find an acceptable mix of both. If it waited until 2022, Congress would have to cut spending by 37 percent, raise taxes by 54 percent, or find a combination of the two.

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