2011   Financial Report of the United States Government

United States Government Supplemental Information (Unaudited) for the Years Ended September 30, 2011, and 2010

Statement of Long Term Fiscal Projections

Table 1 presents projections of the Federal Government's receipts and non-interest spending.1 Receipt categories include individual income taxes, Social Security and Medicare payroll taxes, and all other receipts. On the spending side, the projections include both discretionary programs, such as defense spending, which are funded through annual appropriations, and mandatory (entitlement) programs, such as Social Security and Medicare, which generally provide benefits under permanent or multi-year appropriations. The Federal budget provides the framework used for the projections in Table 1, which differs in some respects from the presentation of the projections in the trustees’ reports for Social Security and Medicare (as explained below). The key assumptions used in the long-term fiscal projections are summarized in the next section. This year’s projections for Social Security and Medicare are based on the same economic and demographic assumptions as are used for the 2011 trustees’ reports and the Statement of Social Insurance, while comparative information presented from last year’s report is based on the 2010 trustees’ reports. Projections for the other categories are consistent with the assumptions used for the trustees’ reports. 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 Term Projections of Federal Receipts and Spending
75-Year Present Values 1
  Dollars in Trillions %GDP 2
Receipts: 2011 2010 Change 2011 2010 Change
  Social Security Payroll Taxes 39.1 37.8 1.3 4.4 4.4 0.0
  Medicare Payroll Taxes 13.0 12.4 0.6 1.5 1.4 0.0
  Individual Income Taxes 93.5 90.6 2.9 10.5 10.5 0.0
  Other Receipts 34.7 34.4 0.3 3.9 4.0 -0.1
Total Receipts 180.2 175.2 5.0 20.3 20.2 0.0
Non-interest Spending:            
  Defense Discretionary 28.7 31.0 -2.3 3.2 3.6 -0.4
  Nondefense Discretionary 15.4 30.7 -15.4 1.7 3.6 -1.8
  Social Security 51.8 49.1 2.6 5.8 5.7 0.1
  Medicare Part A 3 17.6 17.3 0.4 2.0 2.0 0.0
  Medicare Parts B&D 4 21.1 20.4 0.7 2.4 2.4 0.0
  Medicaid 24.0 24.2 -0.3 2.7 2.8 -0.1
  Other Mandatory 28.1 18.8 9.3 3.2 2.2 1.0
Total Non-interest Spending 186.7 191.6 -4.9 21.0 22.1 -1.2
Non-interesting Spending less Receipts 6.4 16.3 -9.9 0.7 1.9 -1.2

1 75-year present value projections for 2011 are as of 9/30/2011 for the period FY 2012-2086; projections for 2010 are as of 9/30/2010 for the period FY 2010-2085.
2 The 75-year present value of nominal GDP, which drives the calculations above is $889.8 trillion starting in FY 2012, and was $865.6 trillion starting in FY 2011.
3 Represents portions of Medicare supported by payroll taxes.
4 Represents portions of Medicare supported by general revenues. Consistent with the President's Budget, Parts B &D are presented net of premiums.

The projections in Table 1 are expressed in present value dollars as of October 1, 2011, and as a percentage of the present value of Gross Domestic Product (GDP) 2. The present value of a future amount, for example, $1 billion in March 2021, is the amount of money that if invested on October 1, 2011 in an account earning the government borrowing rate would have a value of $1 billion in March 2021 3. The present value of a receipt or expenditure category over 75 years is the sum of the annual present value amounts. GDP measures the total value of all final goods and services produced in the U.S. in a year and is a standard 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 receipts and expenditures 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 are the rates that underlie the projections in the 2011 Social Security and Medicare trustees’ reports, with comparative present values presented from last year’s report consistent with the 2010 trustees’ report. The use of discount factors consistent with the Social Security actuaries rate allows for consistent present value budget calculations over 75 years between this report and the trustees’ reports. Present value calculations under higher and lower interest rate scenarios are presented in the “Alternative Scenarios” section.

The projections shown in Table 1 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 between the analysis in the Long-Term Fiscal Projections and the trustees’ reports is that these projections are based on fiscal years starting on October 1, 2011, whereas the trustees’ reports feature projections made on a calendar-year basis. This difference allows the projections to start from the actual results from fiscal year 2011. This Report 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 report compares projections of fiscal sustainability between 2011 and 2010, with significant changes between the two years evident in Table 1 and characterized and explained in Table 2 in the “Current Policy Projections for Primary Deficits” section.

Just as the financial statements give information about the financial position of the Federal government, but not State or local governments, the analysis and discussion of long-term fiscal projections for the U.S. Government does not address the fiscal sustainability 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. The projections are therefore neither forecasts nor predictions. If policy changes are enacted, perhaps in response to projections like those presented here, then actual fiscal outcomes will of course be different than those projected.

Even if policy does not change, actual expenditures and receipts could differ materially from those projected here. This is because the long-range projections are inherently uncertain and because simplifying assumptions are made. One key simplifying assumption, for example, is that interest rates paid on public debt remain unchanged, regardless of the amount of debt outstanding. It is likely that if the debt rises as shown in these projections, future interest rates will increase. To help illustrate this uncertainty, present value calculations under higher and lower interest rate scenarios are presented in the “Alternative Scenarios” section.

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. These cash-based projections reflect receipts or spending at the time cash is received or when a payment is made by the Government. In contrast, accrual-based projections would reflect amounts in the time period in which income is earned or when an expense or obligation is incurred. 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

As noted earlier, 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 throughout 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, indexing of the alternative minimum tax (AMT), and the reauthorization of many mandatory programs with expiration dates prior to the end of the 75-year projection period. The projections assume reductions in Medicare physician fees will occur as scheduled under current law, just as they are reflected in the Medicare trustees’ report and in the Statement of Social Insurance 8.


1For 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)

2GDP 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 from domestic production over the same time period. (Back to Content)

3Present values recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn interest. To calculate a present value, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. (Back to Content)

4 As indicated in the more detailed discussion of Social Insurance in Note 26 to the financial statements. (Back to Content)

5Medicare 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 $8.1 trillion, or 0.9 percent of GDP. (Back to Content)

6Christopher J. Truffer, John D. Klemm, Christian J. Wolfe, and Kathryn E. Rennie 2010 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)

7As indicated in the more detailed discussion of Social Insurance in Note 26 to the financial statements. (Back to Content)

8Congress has acted repeatedly to prevent the reductions in Medicare physician fees from taking place, but recent actions have also included spending reductions to offset the cost of physician fee relief. The assumption here that future reductions will occur as scheduled under current law is comparable to an assumption that the reductions will be overridden but the resulting costs will be paid for with reductions in other areas. (Back to Content)

Last Updated:  February 16, 2012