2010   Financial Report of the United States Government

United States Government Supplemental Information (Unaudited) for the Years Ended September 30, 2010, and 2009

Statement of Long Term Fiscal Projections

Table 1 presents projections of the Federal Government's receipts and non-interest spending.3 Receipt categories include individual income taxes, Social Security and Medicare payroll taxes, and all other receipts. On the spending side, the projections include both mandatory (entitlement) programs, such as Social Security and Medicare, which provide benefits under standing law, and discretionary programs, such as defense spending, which are funded through annual appropriations. The data in Table 1 are presented as in the Federal budget, which differs in some respects from the presentation of these data in the trustees' reports for Social Security and Medicare (these differences are explained below). The key assumptions used in preparing these projections are summarized in the next section. The projections for Social Security and Medicare are based on the same economic and demographic assumptions as are used for the 2010 trustees' reports for these programs. Projections for the other categories are also consistent with the assumptions used for the trustees' reports. The Federal budget provides the framework used for the projections. In order to produce a more realistic projection of the fiscal outlook under current policy, the projections assume several likely departures from current law, noted below.

Table 1: Long Range Projections of Federal Receipts and Spending
75-Year Present Values: FY 2011-2085
as of 09/30/2010
Receipts: Dollars in Trillions %GDP
Social Security Payroll Taxes 37.8 4.4
Medicare Payroll Taxes 12.4 1.4
Individual Income Taxes 90.6 10.5
All Other Receipts 34.4 4.0
Total Receipts 175.2 20.2
Non-interest Spending:    
Defense Discretionary 31.0 3.6
Nondefense Discretionary 30.7 3.6
Social Security 49.1 5.7
Medicare Part A (supported by payroll taxes) 17.3 2.0
Medicare Parts B&D (net of premiums; supported by general revenues) 20.4 2.4
Medicaid 24.2 2.8
Other Mandatory 18.8 2.2
Total Non-interest Spending 191.6 22.1
Non-interesting Spending less Receipts 16.3 1.9

Note: The 75-year present value of nominal GDP, which drives the calculations above, is $865.6 trillion.

The projections in Table 1 are expressed in present value dollars as of October 1, 2010, and as a percentage of the present value of Gross Domestic Product (GDP) 4. The present value of a future amount, say $1 billion in March 2020, is the amount of money that if invested on October 1, 2010 in an account earning the government borrowing rate would have a balance of $1 billion in March 2020. The present value of a receipt or expenditure category over 75 years is simply the sum of the annual present value amounts. GDP measures the total value of all final goods and services produced in the U.S. and is thus a good measure of the overall size of the economy. When expressing a receipt or expenditure category over 75 years as a percent of GDP, the present value dollar amount is divided by the present value of GDP over 75 years. Measuring budget quantities as a percentage of GDP is a useful indicator of the economy's capacity to sustain Government programs. The interest rates used to compute present values (the rates of interest earned in the hypothetical account) are the rates that underlie the projections in the 2010 Social Security trustees' report.

The projections shown in Table 1 5 are made over a 75-year time frame, consistent with the time frame featured in the Social Security and Medicare trustees' reports. As discussed later, one notable difference introduced in broadening the fiscal perspective to the Government as a whole is that the projections are based on fiscal years starting on October 1, 2010, whereas the trustees' reports feature projections made on a calendar-year basis. This change allows the projections to start from more current numbers, including the actual results from fiscal year 2010.

The discussion below also considers the period of time beyond the 75-year window, noting most importantly that the assumptions become more uncertain the further in time the projections are extended.

This analysis and discussion of long-term fiscal projections for the U.S. Government does not include activities of State and local governments.

Assumptions Used and Relationship to Other Financial Statements

A fundamental assumption underlying the projections in Table 1 is that current Federal policy as defined below does not change. It is important to note that the projection of receipts and expenditures under current policy is not a forecast or prediction of the most likely outcome. Indeed, the primary reason to project current policy amounts is to help inform the question of whether policy should change. If policy does change, the projections will of course prove to be untrue.

In addition, actual expenditures and receipts could be materially different than those projected even if policy does not change. This is because the long-range projections are inherently uncertain and because simplifying assumptions are made. One key simplifying assumption is that interest rates paid on public debt are assumed to be similar to those paid in the past, regardless of the amount of debt outstanding.

The projections in Table 1 focus on future cash flows, and do not reflect either the accrual basis or the modified-cash basis of accounting. The differences among the bases are largely based on timing. Cash-based projections reflect receipt or spending at the time cash is received or when a payment is made by the Government. In contrast, accrual-based projections reflect amounts in the time period in which income is earned (even if not yet received) or when an expense or obligation is incurred (even if cash has not yet been disbursed). The cash basis is consistent with methods used to prepare the Statement of Social Insurance (SOSI) and the generally cash-based Federal budget.

The following summarizes the assumptions used for the key categories of receipts and spending presented in Table 1 and in the related analysis:

Departures from Current Law and Policy

It was noted earlier that the long-term fiscal projections are made on the basis of current Federal policy, even where current Federal policy would not be continued under provisions of current law. For example, the projections presented in Table 1 and throughout this analysis are made without regard to the statutory limit on outstanding Federal debt. The projection also assumes several other departures from current law: continued discretionary appropriations in the projection period, the continued payment of Social Security and Medicare benefits beyond the projected point of trust fund exhaustion, extension of some of the 2001/2003 tax cuts and the indexing of the alternative minimum tax (AMT), and the reauthorization of many mandatory programs with future expiration dates. The projections do not assume continued action to override the scheduled reductions in Medicare physician fees. These physician reductions are reflected in the projections incorporated here, just as they are reflected in the Medicare trustees' report and in the Statement of Social Insurance.


3For the purposes of this analysis, spending is defined in terms of outlays. In the context of Federal budgeting, spending can either refer to budget authority the authority to commit the government to spend an amount or to outlays, which reflect actual payments made. (Back to Content)

4GDP is the total market value of all final goods and services produced domestically during a given period of time. The components of GDP are: private sector consumption and investment, government consumption and investment, and net exports (exports less imports). Equivalently, GDP is a measure of the gross income generated domestically over the same time period. (Back to Content)

5Of the $16.3 trillion 75-year present value net excess of non-interest spending over receipts (1.9 percent of the 75-year present value of GDP) expressed in Table 1, $5.3 trillion or 0.6 percent of GDP relates to programs funded by the government's general revenues and $11.1 or 1.3 percent of GDP relates to Social Security (OASDI) and Medicare Part A, which are funded by payroll taxes and which are not funded in any material respects by the government's general revenues. If payroll and self-employment taxes and related assets in the OASDI Trust Funds or Medicare Part A become insufficient to cover related benefits, as indicated by projections, additional funding for each of these two programs would be necessary or scheduled benefits would need to be reduced. If the government's general revenues are insufficient to cover both mandated transfers to Medicare Parts B and D and spending for other general government programs funded by the government's general revenues, as indicated by the projections, either Medicare Parts B and D revenues (premiums and state transfers), or the government's general revenues would need to be increased, spending for Medicare Parts B and D and/or other general government spending would need to be reduced, and/or additional amounts would need to be borrowed from the public. (Back to Content)

6 Medicare Part B and D premiums and State contributions to Part D are subtracted from the Part B and D spending displayed in Table 1. The total 75-year present value of these subtractions is $7.7 trillion, or 0.9 percent of GDP. (Back to Content)

7Christopher J. Truffer, John D. Klemm, E. Dirk Hoffman, and Christian J. Wolfe, 2008 Actuarial Report on the Financial Condition for Medicaid, Office of the Actuary, Centers for Medicare and Medicaid Services, United States Department of Health and Human Services. (Back to Content)

Last Updated:  December 07, 2011