When the U.S. government’s official 2007 financial report was released last December, the response could hardly have been worse. Not only were its ratios worrisome enough to make corporate shareholders blanche, but its results were so full of “serious material weaknesses” that the Government Accountability Office could not even audit it.
In the absence of an audit, the Treasury Department and the Office of Management and Budget heeded the GAO’s advice and released a more informal report titled “The Federal Government’s Financial Health: A Citizens Guide to the 2007 Financial Report of the United States Government.”
Some of the language in the eight-page summary document — boiled down from a dense 186 pages — is scalding, and the projections border on the terrifying. The first such guide, it was produced in hopes of helping the public understand America’s long-term financial predicament. But what it is that’s to be understood is distinctly scary.
“Unless action is taken to bring program cost in line with available resources, the coming surge of entitlement spending will end in a fiscal train wreck that will have an adverse effect on the U.S. economy and on virtually every American,” the report says.
Despite recent improvements noted in the government’s short-term finances, due to rising revenues and a declining deficit, America’s economy sits on shaky ground. The main culprit remains government debt, which has increased in 2007 to a total of $9 trillion. The government has $4 trillion in its coffers from Social Security and Medicare trust funds. Those programs will need all the reserves they can muster, as 80 million “baby boomers” will soon be eligible for benefits.
“Absent reforms, the Social Security Trust Funds will be exhausted in 2041 and the Medicare Part A Trust fund will be exhausted in 2019,” according to the report. By 2019, people due to receive Medicare benefits would receive only 79 percent of what they were expecting. And by 2041, those due Social Security benefits would receive only 75 percent of what they were owed.
Extrapolating further, America’s debt could reach unprecedented levels if the current course is not corrected. In 2040, the debt predicament could be as bad as its historical high after World War II, when the federal debt held by the public reached 109 percent of gross domestic product (GDP). Things have stabilized since then, but rising costs could send that number spiking to 600 percent of GDP by 2080.
“Unless the government makes fundamental changes in its budget, entitlement, discretionary spending and tax policies, and soon, the coming surge of spending on Social Security and Medicare will bring a fiscal tsunami of spending and debt that threatens to swamp our ship of state, damaging the U.S. economy,” says the Comptroller General of the GAO, David M. Walker, in a press release that accompanies the report. (Walker since has announced his plans to resign.
To ward off this dire forecast, Walker says that America will need to fundamentally change its programs and policies on spending. If revenues hold steady at the historical average of 18 percent of GDP, government cost would rise to represent half of America’s GDP—the highest such ratio since World War II.