Understanding the Federal Debt
So far, we discussed when and why governments borrow and lend money. Now, we'll touch on how governments actually borrow money and manage debt. Debt management is crucially important for governments, given that the money they pay in interest on bonds comes directly from taxpayers' money. Do you think the government's decision to issue a specific number of securities has an effect on their yield?
After Pandemic Recovery, Focus Needed on Achieving Long-Term Sustainability
The Coronavirus Disease 2019 (COVID-19) pandemic has resulted in catastrophic loss of life and substantial damage to the global economy, stability, and security. The COVID-19 pandemic prompted a major federal response to our national public health emergency. Since March 2020, pandemic response has cost trillions of federal dollars. Until the country better contains the spread of the virus, the pandemic will likely remain a significant obstacle to more robust economic activity. Once public health goals are achieved and the economy substantially recovers, Congress and the Administration should quickly pivot to developing an approach to place the government on a sustainable long-term fiscal path.
So, what's new this year? Read our March 2021 press release on our report on the nation's fiscal health and listen to our podcast to find out more.
Tough Choices and Opportunities Ahead
To change the long-term fiscal path, policymakers will need to consider policy changes to the entire range of federal activities, both revenue (including tax expenditures) and spending (entitlement programs, other mandatory spending, and discretionary spending). One way to quantify the magnitude of the needed policy changes is by calculating the fiscal gap – the policy changes needed to reach a given debt-to-GDP fiscal target over a given period. If action is delayed, the necessary changes will be more significant.
Decrease in Noninterest Spending Needed to Close the Fiscal Gap without Increasing Revenue, with Federal Noninterest Outlays for Comparison
Notes: The colored pie on the left represents noninterest spending in 2020. The red slice in the pie on the right is the fiscal gap, as calculated from GAO's 2021 alternative simulation.
Increase in Revenue Needed to Close the Fiscal Gap without Decreasing Spending, with Federal Revenues for Comparison
Notes: Percentages in the colored pie on the left do not sum to 100 percent due to rounding. The colored pie on the left represents revenue in 2020. The green slice in the pie on the right is the fiscal gap, as calculated from GAO's 2021 alternative simulation.
While long-term changes in spending and revenue require legislation, executive agencies have other opportunities to contribute to a sustainable fiscal future.
- Federal agencies made an estimated $206 billion in fiscal year 2020 in improper payments – payments that should not have been made or that were made in an incorrect amount.
- There is an estimated average net tax gap of $381 billion/year – which is the difference between taxes owed to the government and total taxes paid (on time or after IRS enforcement actions). We have made recommendations to improve tax enforcement efforts.
- Federal agencies could also save tens of billions of dollars by taking our recommended actions – specifically the ones for addressing duplication, overlap, and fragmentation, and achieving potential cost savings.
This work is in the Public Domain.