NOTES TO THE FINANCIAL STATEMENTS 150

Note 23. Long-Term Fiscal Projections

The Statements of Long-Term Fiscal Projections are prepared pursuant to SFFAS No. 36, Comprehensive Long-Term 

Projections for the U.S. Government, as amended. The basic financial statement, Note 23, and related unaudited required 

supplementary information (RSI) provide information to aid readers of the Financial Report in assessing whether current 

policies for Federal spending and taxation can be sustained and the extent to which the cost of public services received by 

current taxpayers will be shifted to future taxpayers under sustainable policies. This assessment requires prospective 

information about receipts and spending, the resulting debt, and how these amounts relate to the size of the economy. A 

sustainable policy is defined as one where the ratio of Federal debt held by the public to GDP (the debt-to-GDP ratio) is 

ultimately stable or declining. The Financial Report does not address the sustainability of State and local government fiscal 

policy.

The projections and analysis presented here are extrapolations based on an array of assumptions described in detail 

below. A fundamental assumption is that current Federal policy will not change. This assumption is made so as to inform the 

question of whether current fiscal policy is sustainable and, if it is not sustainable, the magnitude of needed reforms to make 

fiscal policy sustainable. The projections are therefore neither forecasts nor predictions. If policy changes are implemented, 

perhaps in response to projections like those presented here, then actual financial outcomes will be different than those 

projected. The methods and assumptions underlying the projections are subject to continuing refinement.

The projections 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 accounting underlying the long-term fiscal projections is 

consistent with methods used to prepare the Statements of Social Insurance (SOSI) and the generally cash-based Federal 

budget. 

The basic financial statement, Long-Term Fiscal Projections for the U.S. Government, displays the present value of 75-

year projections for various categories of the Federal Government’s receipts and non-interest spending.10 The projections for 

fiscal years 2017 and 2016 are expressed in present value dollars and as a percentage of the present value of Gross Domestic 

Product (GDP)11 as of September 30, 2017 and September 30, 2016, respectively. The present value of a future amount, for 

example $1 billion in October 2092, is the amount of money that if invested on September 30, 2017 in an account earning the 

government borrowing rate would have a value of $1 billion in October 2092.12 

The present value of a receipt or expenditure category over 75 years is the sum of the annual present value amounts. 

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 Federal Government programs. 

Fiscal Projections

Receipt categories in the long-term fiscal projections include individual income taxes, Social Security and Medicare 

payroll taxes, and a residual remaining category of “other receipts.” On the spending side, categories include: (1) 

discretionary spending that is funded through annual appropriations, such as spending for national security, and (2) 

mandatory (entitlement) spending that is generally financed with permanent or multi-year appropriations, such as spending 

for Social Security and Medicare. This year’s projections for Social Security and Medicare are based on the same economic 

and demographic assumptions that underlie the 2017 Social Security and Medicare trustees’ reports and the 2017 Statement 

of Social Insurance, while comparative information presented from last year’s report is based on the 2016 Social Security and

Medicare trustees’ reports and the 2016 Statement of Social Insurance. Projections for the other categories of receipts and 

spending are consistent with the economic and demographic assumptions in the trustees’ reports. The projections assume the 

continuance of current policy which, as is explained below, can be different than current law in cases where lawmakers have 

in the past periodically changed the law in a consistent way. Also, the projections are based on current policy as of September 

 10 For 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 make a payment; to obligations – binding agreements that will result in payments, either immediately or in the 

future; or to outlays – actual payments made. 11 GDP is a standard measure of the overall size of the economy and represents 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. 12 Present 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.
151 NOTES TO THE FINANCIAL STATEMENTS

30. Therefore, such projections do not reflect legislation enacted subsequent to September 30 that changes policy that was in

effect as of the end of the fiscal year.

The projections shown in the basic statement are made over a 75-year time frame, consistent with the time frame 

featured in the Social Security and Medicare trustees’ reports. However, these projections are for fiscal years starting on 

October 1, whereas the trustees’ reports feature calendar-year projections. This difference allows the projections to start from 

the actual budget results from fiscal years 2017 and 2016.

The Tax Cuts and Jobs Act (P.L. 115-97) was enacted on December 22, 2017, and is therefore not reflected in the 

projections shown in the Statements of Long-Term Fiscal Projections and this note. For more information on the Tax Cuts 

and Jobs Act, see Note 25—Subsequent Events.

This year’s estimate of the 75-year present value imbalance of receipts less non-interest spending is 1.2 percent of the 

75-year present value of GDP, compared to 0.8 percent as was projected in last year’s Financial Report.

13 The above table

reports the effects of various factors on the updated projections. The largest factor, increasing the imbalance by 0.3 percent of

GDP ($4.7 trillion), is attributable to the economic and demographic assumptions used in formulating the projection. Lower

GDP and wage projections had the effect of decreasing the 75-year present value of income tax and social insurance receipts,

with a smaller decrease in Social Security outlays, for a net increase in the 75-year present value imbalance. Nearly as

significant is the effect of a change in the model’s assumption for the future growth of spending for Overseas Contingency

Operations (OCO). As discussed further below in the section on assumptions used in the projections, outlays for OCO are

now assumed to grow with GDP from the level of outlays in the most recent year, in contrast to the previous assumption

under which OCO outlays were assumed to phase out entirely during the first 10 years of the projection. The OCO change

and other minor offsetting updates increase the imbalance by 0.3 percent of GDP ($3.8 trillion). The next largest change in

the table – decreasing the imbalance by 0.2 percent of GDP ($2.1 trillion) – is attributable to actual budget results for fiscal

year 2017 and other budget data, including lower actual spending for mandatory programs other than Social Security,

Medicare, and Medicaid, partially offset by increased funding for OCO in final 2017 appropriations action. The cumulative

effect of the various changes to OCO described above (which reflect current policy without change as discussed in footnote

21) increased the imbalance by 0.4 percent of GDP ($5.7 trillion).

The penultimate row in the basic financial statement shows that this year’s estimate of the overall 75-year present value

of receipts less non-interest spending is 1.2 percent of the 75-year present value of GDP (negative $16.2 trillion, as compared 

to GDP of $1,347.0 trillion). 

13 More information on the projections in last year’s Financial Report can be found in Note 23 to the Financial Statements 

here: https://fiscal.treasury.gov/files/reports-statements/financial-report/notes-to-the-financial-statements16.pdf
 NOTES TO THE FINANCIAL STATEMENTS 152

This imbalance can be broken down by funding source. There is a surplus of receipts over spending of 0.2 percent of GDP 

($3.3 trillion) among programs funded by the government’s general revenues, but an imbalance of 1.5 percent of GDP ($19.6 

trillion14) for the combination of Social Security (OASDI) and Medicare Part A, which under current law are funded with 

payroll taxes and not in any material respect with general revenues.15, 16 By comparison, the fiscal year 2016 projections 

showed that programs funded by the Government’s general revenues had an excess of receipts over spending of 0.7 percent 

of GDP ($8.7 trillion) while the payroll tax-funded programs had an imbalance of spending over receipts of 1.5 percent of 

GDP ($19.4 trillion).

Sustainability and the Fiscal Gap

As discussed further in RSI, the projections in this report indicate that current policy is not sustainable. If current policy 

is left unchanged, the projections show the debt-to-GDP ratio will fall about 4 percentage points between 2017 and 2023 

before commencing a steady rise, exceeding its 2017 level by 2029, exceeding 100 percent by 2037, and reaching 297 

percent in 2092. Moreover, if the trends that underlie the 75-year projections were to continue, the debt-to-GDP ratio would 

continue to rise beyond the 75-year window. 

The fiscal gap measures how much the primary surplus (receipts less non-interest spending) must increase in order for 

fiscal policy to achieve a target debt-to-GDP ratio in a particular future year. In these projections, the fiscal gap is estimated 

over a 75-year period, from 2018 to 2092, and the target debt-to-GDP ratio is equal to the ratio at the beginning of the 

projection period, in this case the debt-to-GDP ratio at the end of fiscal year 2017. 

The 75-year fiscal gap under current policy is estimated at 2.0 percent of GDP, which is 10.0 percent of the 75-year 

present value of projected receipts and 9.4 percent of the 75-year present value of non-interest spending. This estimate of the 

fiscal gap is 0.4 percentage point larger than was estimated in 2016 (1.6 percent of GDP).

The projections show that projected primary deficits average 1.2 percent of GDP over the next 75 years under current 

policies. If policies were put in place that would result in a zero fiscal gap, the average primary surplus over the next 75 years 

would be 0.8 percent of GDP, 2.0 percentage points higher than the projected present value of receipts less non-interest 

spending shown in the basic financial statement. In these projections, closing the fiscal gap requires running a substantially 

positive level of primary surplus, rather than simply eliminating the primary deficit. The primary reason is that the 

projections assume future interest rates will exceed the growth rate of GDP. Achieving primary balance (that is, running a 

primary surplus of zero) implies that the debt held by the public grows each year by the amount of interest spending, which 

under these assumptions would result in debt growing faster than GDP.

Assumptions Used and Relationship to Other Financial Statements

A fundamental assumption underlying the projections is that current Federal policy (defined below) does not change. 

The projections are therefore neither forecasts nor predictions, and do not consider large infrequent events such as natural 

disasters, military engagements, or economic crises. By definition, they do not build in changes in policy, such as recent 

proposals to repeal the Affordable Care Act. If policy changes are enacted, perhaps in response to projections like those 

presented here, then actual fiscal outcomes will be different than those projected.

 14 The 75-year present value imbalance for Social Security and Medicare Part A of $19.6 trillion is comprised of several line items from the long-term fiscal 

projections – Social Security outlays net of Social Security payroll taxes ($20.6 trillion) and Medicare Part A outlays net of Medicare payroll taxes ($7.2 

trillion) – as well as subcomponents of these programs not presented separately in the table. These subcomponents include Social Security and Medicare Part 

A administrative costs that are classified as non-defense discretionary spending ($0.7 trillion) and Social Security and Medicare Part A income other than 

payroll taxes: taxation of benefits (-$4.0 trillion), Federal employer share (-$1.2 trillion), and other income (-$3.7 trillion). 15 Social Security and Medicare Part A expenditures can exceed payroll tax revenues in any given year to the extent that there are sufficient balances in the 

respective trust funds, balances that derive from past excesses of payroll tax revenues over expenditures and interest earned on those balances and represent 

the amount the General Fund owes the respective trust fund programs. When spending does exceed payroll tax revenues, as has occurred each year since 

2008 for Medicare Part A and 2010 for Social Security, the excess spending is financed first with interest due from the General Fund and secondly with a 

drawdown of the trust fund balance; in either case, the spending is ultimately supported by general revenues or borrowing. Under current law, benefits for 

Social Security and Medicare Part A can be paid only to the extent that there are sufficient balances in the respective trust funds. In order for the long-term 

fiscal projections to reflect the full size of these program’s commitments to pay future benefits, the projections assume that all scheduled benefits will be 

financed with borrowing to the extent necessary after the trust funds are exhausted. 16 The fiscal imbalances reported in the long-term fiscal projections are limited to future outlays and receipts. They do not include the initial level of 

publicly-held debt, which was $14.7 trillion in 2017 and $14.2 trillion in 2016, and therefore they do not by themselves answer the question of how large 

fiscal reforms must be to make fiscal policy sustainable, or how those reforms divide between reforms to Social Security and Medicare Part A and to other 

programs. Other things equal, past cash flows (primarily surpluses) for Social Security and Medicare Part A reduced Federal debt at the end of 2017 by $3.1 

trillion (the trust fund balances at that time); the contribution of other programs to Federal debt at the end of 2017 was therefore $17.7 trillion. Because the 

$19.6 trillion imbalance between outlays and receipts over the next 75 years for Social Security and Medicare Part A does not take account of the Social 

Security and Medicare Part A trust fund balances, it overstates the magnitude of reforms necessary to make Social Security and Medicare Part A solvent 

over 75 years by $3.1 trillion. The $3.1 trillion combined Social Security and Medicare Part A trust fund balance represents a claim on future general 

revenues.
153 NOTES TO THE FINANCIAL STATEMENTS 

Even if policy does not change, actual expenditures and receipts could differ materially from those projected here. 

Long-range projections are inherently uncertain and are necessarily based on simplifying assumptions. For example, one key 

simplifying assumption is that interest rates paid on debt held by the public remain unchanged, regardless of the amount of 

debt outstanding. To the contrary, it is likely that future interest rates would increase if the debt-to-GDP ratio rises as shown 

in these projections. To help illustrate this uncertainty, projections that assume higher and lower interest rates are presented in 

the “Alternative Scenarios” discussion in the RSI section of this Financial Report.

As is true for prior long-term fiscal projections for the Financial Report, the assumptions for GDP, interest rates, and 

other economic and demographic variables underlying this year’s projections are the same assumptions that underlie the most 

recent Social Security and Medicare trustees’ report projections, adjusted for historical revisions that occur annually. The use 

of discount factors consistent with the Social Security trustees’ rate allows for consistent present value calculations over 75 

years between the Statements of Long-Term Fiscal Projections and the Statements of Social Insurance. 

The following bullets summarize the key assumptions used for the categories of receipts and spending presented in the 

basic financial statement and the disclosures:

• Social Security: Projected Social Security (OASDI) spending excludes administrative expenses, which are 

classified as discretionary spending, and is based on the projected expenditures in the 2017 Social Security trustees’ 

report for benefits and for the Railroad Retirement interchange. The projections of Social Security payroll taxes and 

Social Security spending are based on future spending and for payroll taxes as are projected in the 2017 Social 

Security trustees’ report, adjusted for presentational differences and converted to a fiscal year basis. More 

information about the assumptions for Social Security cost growth can be found in Note 22 and the RSI discussion 

of Social Insurance.

• Medicare: Projected Medicare spending is also shown net of administrative expenses and is based on projected 

incurred expenditures from the 2017 Medicare trustees’ report. The projections here make some adjustments to the 

trustees’ report projections. Medicare Part B and D premiums, as well as State contributions to Part D, are subtracted 

from gross spending in measuring Part B and Part D outlays, just as they are subtracted from gross cost to yield net 

cost in the financial statements.17 Here, as in the Federal budget, premiums are treated as “negative spending” 

rather than receipts since they represent payment for a service rather than payments obtained through the 

Government’s sovereign power to tax. This is similar to the financial statement treatment of premiums as “earned” 

revenue as distinct from all other sources of revenue, such as taxes. The projections are based on Medicare spending 

in the Medicare trustees’ report, adjusted for presentational differences and converted to a fiscal year basis. 

Medicare Part A payroll taxes are projected similarly. More information about the assumptions for Medicare cost 

growth can be found in Note 22 and the Required Supplementary Information for Social Insurance. As discussed in 

Note 22, there is uncertainty about whether the reductions in health care cost growth projected in the Medicare 

trustees’ report will be fully achieved. Note 22 illustrates this uncertainty by considering Medicare cost growth 

assumptions under varying policy assumptions. 

• Medicaid: The Medicaid spending projections start with the projections from the 2016 Actuarial Report on the 

Financial Outlook for Medicaid prepared by the Office of the Actuary, Centers for Medicare & Medicaid Services 

(CMS)18. These projections are based on recent trends in Medicaid spending, the demographic, economic, and 

health cost growth assumptions in the 2016 Medicare Trustees’ Report, and projections of the effect of the ACA on 

Medicaid enrollment. The projections, which end in 2025, are adjusted to accord with the actual Medicaid 

expenditures in fiscal year 2017. After 2025, the projections assume no further change in State Medicaid coverage 

under the ACA, with the number of Medicaid beneficiaries expected to grow at the same rate as total population, 

and Medicaid costs per beneficiary assumed to grow at the same rate as Medicare benefits per beneficiary, as is 

generally consistent with the experience since 1987. Between 1987 and 2015, the average annual growth rate of 

outlays per beneficiary for Medicaid and Medicare were within 0.2 percentage point of each other. Projections of 

Medicaid spending are subject to added uncertainty related to: (1) assumed reductions in health care cost growth 

discussed above in the context of Medicare, and (2) the projected size of the Medicaid enrolled population, which 

depends on a variety of factors, including future actions by States regarding the ACA Medicaid expansion. 

• Other Mandatory Spending: Other mandatory spending, which includes Federal employee retirement, veterans’ 

disability benefits, and means-tested entitlements other than Medicaid, is projected in two steps. First, spending prior 

to the automatic spending cuts called for by the enforcement provisions of the Budget Control Act (BCA) is 

projected and, second, the effect of the BCA enforcement is projected through its statutory expiration in 2025. With 

 17 Medicare Part B and D premiums and State contributions to Part D are subtracted from the Part B and D spending displayed in the basic financial 

statement. The total 75-year present value of these subtractions is $12.4 trillion, or 0.9 percent of GDP. 18 Christopher J. Truffer, Christian J. Wolfe, and Kathryn E. Rennie, 2016 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, December 2016.
 NOTES TO THE FINANCIAL STATEMENTS 154

regard to pre-BCA spending: (a) current mandatory spending components that are judged permanent under current 

policy are assumed to increase by the rate of growth in nominal GDP starting in 2018, implying that such spending 

will remain constant as a percentage of GDP19; and (b) projected spending for insurance exchange subsidies starting 

in 2018 grows with growth in the non-elderly population and with the National Health Expenditure (NHE) projected 

per enrollee cost growth for other private health insurance for the NHE projection period (through 2026 for the fiscal 

year 2017 projections), and with growth in per enrollee health care costs as projected for the Medicare program after 

that period. As discussed in Note 22, there is uncertainty about whether the reductions in health care cost growth 

projected in the Medicare trustees’ report will be fully achieved. Projected exchange subsidy spending as a 

percentage of GDP remains below the failsafe provision in the ACA that limits this spending to 0.504 percent of 

GDP. 

• Defense and Non-defense Discretionary Spending: Through 2021, discretionary spending other than for OCO is 

dictated by the spending caps and automatic spending cuts called for by the BCA. After 2021, this spending is 

assumed to grow at the same rate as nominal GDP, and thus plateaus at a long-term level of 5.5 percent of GDP. The 

BCA reductions are projected to reduce the present value of spending by $0.3 trillion through 2021, and by an 

additional $4.6 trillion between 2022 and 2092 because of the lower base spending in 2021. Projected OCO 

spending, which is not subject to the caps, is assumed to grow from the level in the most recent year at the same rate 

as nominal GDP. To illustrate uncertainty, present value calculations under alternative discretionary growth 

scenarios are presented in the “Alternative Scenarios” RSI section.

• Receipts (Other than Social Security and Medicare Payroll Taxes): It is assumed that individual income taxes 

will equal the same share of wages and salaries as in the current law baseline projection in the Administration’s 

latest Budget. That baseline accords with current policy as defined above, including the tendency of effective tax 

rates to increase as growth in incomes per capita outpaces inflation (also known as “bracket creep”). After reaching 

about 22 percent of wages and salaries in 2024, individual income taxes increase gradually to 29 percent of wages 

and salaries in 2092 as real taxable incomes rise over time and an increasing share of total income is taxed in the 

higher tax brackets. The ratio of all other receipts combined to GDP is projected to remain at 3.6 percent of GDP, 

based on a long-run historical average. To illustrate uncertainty, present value calculations under higher and lower 

individual income tax receipts growth scenarios are presented in the “Alternative Scenarios” section.

• Debt and Interest Spending: Interest spending is determined by projected interest rates and the level of outstanding 

debt held by the public. The long-run interest rate assumptions accord with those in the 2017 Social Security 

trustees’ report.20 The average interest rate over the projection period is 5.1 percent. These rates are also used to 

convert future cash flows to present values as of the start of fiscal year 2018. Debt at the end of each year is 

projected by adding that year’s deficit and other financing requirements to the debt at the end of the previous year.

The methods described above include one significant revision from those used to produce the fiscal year 2016 

projections. As discussed under changes in long-term fiscal projections, OCO spending now grows with GDP from the level 

of outlays in the most recent fiscal year, rather than being assumed to steadily decline and fully phase out during the first 10 

years of the projection period. In the years following enactment of the BCA in 2011, appropriations for OCO – which was 

exempt from the BCA’s discretionary spending limits – were declining as operations in Afghanistan and Iraq phased down. 

In the last few years, however, appropriations for OCO have stabilized and even increased slightly. The future path of 

appropriations for OCO is uncertain, but “current policy without change” can no longer be characterized as consistent with 

phasing OCO funding out entirely.21

Departures of Current Policy from Current Law 

The long-term fiscal projections are made on the basis of current Federal policy, which in some cases is different from 

current law. The notable differences between current policy that underlies the projections and current law are: (1) projected 

spending, receipts, and borrowing levels assume raising or suspending the current statutory limit on Federal debt, (2) 

continued discretionary appropriations are assumed throughout the projection period, (3) scheduled Social Security and 

Medicare benefit payments are assumed to occur beyond the projected point of trust fund exhaustion, and (4) many 

mandatory programs with expiration dates prior to the end of the 75-year projection period are assumed to be reauthorized. 

As is true in the Medicare trustees’ report and in the Statement of Social Insurance, the projections incorporate programmatic 

changes already scheduled in law, such as the ACA productivity adjustment for non-physician Medicare services and the 

expiration of certain physician bonus payments in 2025.

 19 This assumed growth rate for other mandatory programs exceeds the growth rate in the most recent OMB and CBO 10-year budget baselines. 20 As indicated in the more detailed discussion of Social Insurance in Note 22 to the financial statements. 21 The revised assumption of continued OCO funding in these long-term fiscal projections should not be interpreted as a change in the Administrations’s 

proposed future funding levels for OCO. As with other assumptions in the long-term fiscal projections, the OCO assumption is meant to project the 

implications of current policy without change, rather than to indicate a preferences or a prediction of future budget outcomes.