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United States Government

Required Supplementary Information 

(Unaudited) For the Fiscal Years Ended

September 30, 2017, and 2016

The Sustainability of Fiscal Policy

One of the important purposes of the Financial Report is to help citizens and policymakers assess whether current fiscal 

policy is sustainable and, if it is not, the urgency and magnitude of policy reforms necessary to make fiscal policy 

sustainable. A sustainable policy is one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is 

ultimately stable or declining. 

As discussed below, the projections in this report indicate that current policy is not sustainable1.

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. For comparison, under the 2016 projections, the debt-to-GDP ratio fell about 6 percentage points between 2016 and 

2024 before commencing a steady rise, exceeding its 2016 level by 2030, exceeding 100 percent by 2039, and reaching 252 

percent in 2091.

These conclusions are rooted in the projected trends in receipts, spending, and deficits in the context of current law and 

policy, although, as described in the following pages, there is considerable uncertainty surrounding these projections. The 

projections are on the basis of policies currently in place and are neither forecasts nor predictions. Changes in policy – from 

 1

The projections in this report do not reflect the Tax Cuts and Jobs Act (P.L. 115-97), which was enacted on December 22, 2017. For more information on 

the Tax Cuts and Jobs Act, see Note 25. Subsequent Events.
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sweeping changes such as major reform of the tax system, to more routine developments such as changes in aggregate 

funding for discretionary programs – could have a significant effect on eventual fiscal outcomes.

Current Policy Projections for Primary Deficits

A key determinant of growth in the debt-to-GDP ratio and hence fiscal sustainability is the ratio of the primary deficitto-GDP. The primary deficit is the difference between non-interest spending and receipts, and the primary deficit-to-GDP 

ratio is the primary deficit expressed as a percent of GDP. As shown in Chart 1, the primary deficit-to-GDP ratio spiked 

during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe recession, as well as the increased

spending and temporary tax reductions enacted to stimulate the economy and support recovery. These elevated primary 

deficits resulted in a sharp increase in the ratio of debt to GDP, which rose from 39 percent at the end of 2008 to 70 percent at 

the end of 2012. As an economic recovery took hold, the primary deficit ratio fell, averaging 1.9 percent of GDP over 2013 

through 2017. This deficit level was still high enough that the debt held by the public increased further relative to GDP, 

ending 2017 at 76 percent. The primary deficit is projected to shrink further in the next few years as the discretionary 

spending limits called for in the Budget Control Act of 2011 (BCA) remain in effect and the economic recovery boosts tax 

receipts. After 2021, however, increased spending for Social Security and health programs due in part to the continued 

retirement of the baby boom generation is projected to result in increasing primary deficits that reach 1.1 percent of GDP in

2027. The primary deficit peaks at 2.1 percent of GDP in 2037 and 2038, gradually decreases beyond that point as the aging 

of the population continues at a slower pace, and reaches 0.6 percent in 2088 through 2092. 

Trends in the primary deficit are heavily influenced by tax receipts. The receipt share of GDP was markedly depressed 

in 2009 through 2012 because of the recession and tax reductions enacted as part of the 2009 American Recovery and 

Reinvestment Act (ARRA) and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The 

share has increased in subsequent years and was 17.2 percent in 2017, similar to its 30-year average of 17.3 percent due to 

continued economic growth and the higher tax rates enacted under the American Tax Relief Act (ATRA) of 2012. Receipts 

are projected to grow slightly more rapidly than GDP over the projection period as increases in real (i.e., inflation-adjusted) 

incomes cause more taxpayers and a larger share of income to fall into the higher individual income tax brackets. Other 

possible paths for the receipts-to-GDP ratio and the implications for projected debt held by the public are analyzed in the 

“Alternative Scenarios” section. 

On the spending side, the non-interest spending share of GDP is projected to stay at or below its current level of about 

19 percent until 2025, and to then rise gradually to 21.5 percent of GDP in 2037 and 21.8 percent of GDP in 2070 through 

2092. Slight reductions in the non-interest spending share of GDP over the next few years are mostly due to the caps on 

discretionary spending which hold growth in discretionary spending below GDP growth. The subsequent increases are 

principally due to faster growth in Medicare, Medicaid, and Social Security spending (see Chart 1). The aging of the baby 

boom generation over the next 25 years, among other factors, is projected to increase the Social Security, Medicare, and 

Medicaid spending shares of GDP by about 1.1 percentage points, 1.5 percentage points, and 0.5 percentage points, 

respectively. After 2042, the Social Security spending share of GDP remains relatively stable, while the combined Medicare 

and Medicaid spending share of GDP continues to increase, albeit at a slower rate, due to projected increases in health care 

costs.

Current Policy Projections for Debt and Interest Payments

The primary deficit projections in Chart 1, along with projections for interest rates and GDP, are the principal 

determinants of the projections for the debt-to-GDP ratio that are shown in Chart 2. That ratio was 76 percent at the end of 

fiscal year 2017, and under current policy is projected to be 74 percent in 2027, 136 percent in 2047, and 297 percent in 

2092. The continuous rise of the debt-to-GDP ratio after 2023 indicates that current policy is unsustainable.
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The change in debt held by the public from one year to the next is approximately equal to the budget deficit, the 

difference between total spending and total receipts.2 Total spending is non-interest spending plus interest spending. Chart 3 

shows that the rapid rise in total spending and the unified deficit is almost entirely due to projected interest payments on the 

growing debt. As a percent of GDP, interest spending was 1.4 percent in 2017, and under current policy is projected to reach 

5.1 percent in 2037 and 15.1 percent in 2092. 

 2 The change in debt each year is also affected by certain transactions not included in the budget deficit, such as changes in Treasury’s cash balances and the 

non-budgetary activity of Federal credit financing accounts. These transactions are assumed to hold constant at about 0.4 percent of GDP each year, with the 

same effect on debt as if the primary deficit was higher by that amount.
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Another way of viewing the change in the financial outlook in this year’s report relative to previous years’ reports is in 

terms of the projected debt-to-GDP ratio in 2090, the last year of the projection period in the FY 2015 report. This ratio is 

projected to reach 289 percent in the fiscal year 2017 projections, which compares with 249 percent projected in the fiscal 

year 2016 projections and 223 percent projected in the fiscal year 2015 projections.3

The Cost of Delay in Closing the 75-Year Fiscal Gap

The longer policy action to close the fiscal gap is delayed, the larger the post reform primary surpluses must be to 

achieve the target debt-to-GDP ratio at the end of the 75-year period. This can be illustrated by varying the years in which 

reforms closing the fiscal gap are initiated while holding the target ratio of debt to GDP in 2092 equal to the 2017 ratio (76 

percent). Three reforms are considered, each one beginning in a different year, and each one increasing the primary surplus 

relative to current policy by a fixed percent of GDP starting in the reform year. The analysis shows that the longer policy 

action is delayed, the larger the post-reform primary surplus must be to bring the debt-to-GDP ratio to 76 percent of GDP in 

2092. Future generations are harmed by delays in policy changes because delay necessitates higher primary surpluses during 

their lifetimes, and those higher primary surpluses must be achieved through some combination of lower spending and higher 

taxes and other receipts.

As previously shown in Chart 1, under current policy, primary deficits occur throughout the projection period. Table 1 

shows primary surplus changes necessary to make the debt-to-GDP ratio in 2092 equal to its level in 2017 under each of the 

three policies. If reform begins in 2018, then it is sufficient to raise the primary surplus share of GDP by 2.0 percentage 

points in every year between 2018 and 2092 in order for the debt-to-GDP ratio in 2092 to equal its level in 2017 (76 percent). 

This policy raises the average 2018-2092 primary surplus-to-GDP ratio from -1.2 percent to +0.8 percent.

 3

For further information on changes from the 2015 projections, see the Required Supplementary Information in the 2016 Financial Report.
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In contrast to a reform that begins immediately, if reform begins in 2028 or 2038, then the primary surpluses must be 

raised by 2.4 percent and 3.0 percent of GDP, respectively, in order for the debt-to-GDP ratio in 2092 to equal 76 percent. 

The difference between the primary surplus increase necessary if reform begins in 2028 and 2038 (2.4 and 3.0 percent of 

GDP, respectively) and the increase necessary if reform begins in 2018 (2.0 percent of GDP) is a measure of the additional 

burden policy delay would impose on future generations. The costs of delay are due to the additional debt that accumulates 

between 2017 and the year reform is initiated, in comparison to the scenario in which reform begins immediately. 

Alternative Scenarios 

The long-run outlook for the budget is extremely uncertain. This section illustrates this inherent uncertainty by 

presenting alternative scenarios for the growth rate of health care costs, interest rates, discretionary spending, and receipts. 

(Not considered here are the effects of alternative assumptions for long-run trends in birth rates, mortality, and immigration.) 

The population is aging rapidly and will continue to do so over the next several decades, which puts pressure on 

programs such as Social Security, Medicare, and Medicaid. A shift in projected fertility, mortality, or immigration rates could 

have important effects on the long-run projections. Higher-than-projected immigration, fertility, or mortality rates would 

improve the long-term fiscal outlook. Conversely, lower-than-projected immigration, fertility, or mortality rates would result 

in deterioration in the long-term fiscal outlook. 

Effect of Changes in Health Care Cost Growth

One of the most important assumptions underlying the projections is the future growth of health care costs. These future 

growth rates – both for health care costs in the economy generally and for federal health care programs such as Medicare, 

Medicaid, and ACA exchange subsidies – are highly uncertain. In particular, enactment of the ACA in 2010 and the 

Medicare Access and CHIP Reauthorization Act (MACRA) in 2015 established cost controls for Medicare hospital and 

physician payments whose long-term effectiveness is still to be demonstrated. The Medicare spending projections in the 

long-term fiscal projections are based on the projections in the 2017 Medicare Trustees’ Report, which assume the ACA and 

MACRA cost control measures will be effective in producing a substantial slowdown in Medicare cost growth. As discussed 

in Note 22—Social Insurance, the Medicare projections are subject to much uncertainty about the ultimate effects of these 

provisions to reduce health care cost growth. For the long-term fiscal projections, that uncertainty also affects the projections 

for Medicaid and exchange subsidies, because the cost per beneficiary in these programs is assumed to grow at the same 

reduced rate as Medicare cost growth per beneficiary. 

As an illustration of the dramatic effect of variations in health care cost growth rates, Table 2 shows the effect on the 

size of reforms necessary to close the fiscal gap of per capita health care cost growth rates that are one percentage point 

higher or two percentage points higher than the growth rates in the base projection, as well as the effect of delaying closure of 

the fiscal gap.4 As indicated earlier, if reform is initiated in 2018, eliminating the fiscal gap requires that the 2018-2092 

primary surplus increase by an average of 2.0 percent of GDP in the base case. However, that figure increases to 5.0 percent 

of GDP if per capita health cost growth is assumed to be 1 percentage point higher, and 10.0 percent of GDP if per capita 

 4 The base case health cost growth rates are derived from the projections in the 2017 Medicare trustees’ report. These projections are summarized and 

discussed in Note 22 (see Table 1B in particular) and the “Medicare Projections” section of the RSI for the SOSI.
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health cost growth is 2 percentage points higher. The cost of delaying reform is also increased if health care cost growth is 

higher, due to the fact that debt accumulates more rapidly during the period of inaction. For example, the lower part of Table 

2 shows that delaying reform initiation from 2018 to 2028 requires that 2028-2092 primary surpluses be higher by an average 

of 0.4 percent of GDP in the base case, 1.0 percent of GDP if per capita health cost growth is 1 percentage point higher, and

1.9 percent of GDP if per capita health cost growth is 2 percentage points higher. The dramatic deterioration of the long-run 

fiscal outlook caused by higher health care cost growth shows the critical importance of managing health care cost growth.

Effects of Changes in Interest Rates

A higher debt-to-GDP ratio is likely to increase the interest rate on Government debt, making it more costly for the 

Government to service its debt. Table 3 displays the effect of several alternative scenarios using different nominal (and real) 

interest rates than assumed in the base case on the size of reforms to close the fiscal gap as well as the effect of delaying 

closure of the fiscal gap. If reform is initiated in 2018, eliminating the fiscal gap requires that the 2018-2092 primary surplus 

increase by an average of 2.0 percent of GDP in the base case, 2.6 percent of GDP if the interest rate is 1.0 percentage point 

higher in every year, and 1.3 percent of GDP if the interest rate is 1.0 percentage point lower in every year. The cost of 

delaying reform is also increased if interest rates are higher, due to the fact that interest paid on debt accumulates more 

rapidly during the period of inaction. For example, the lower part of Table 3 shows that delaying reform initiation from 2018

to 2028 requires that 2028-2092 primary surpluses be higher by an average of 0.4 percent of GDP in the base case, 0.7 

percent of GDP if the interest rate is 1.0 percentage point higher in every year, and 0.2 percent of GDP if the interest rate is 

1.0 percentage point lower in every year. 
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Effects of Changes in Discretionary Spending Growth

The growth of discretionary spending has a large impact on long-term fiscal sustainability. The current base projection 

for discretionary spending assumes that discretionary spending stays within the statutory caps that apply through 2021, and 

grows with GDP after that point. The implications of two alternative scenarios are shown in Table 4. The first alternative 

scenario allows discretionary spending to grow with inflation and population after 2021 so as to hold discretionary spending 

constant on a real per capita basis. (This growth rate assumption is slower than growth with GDP but is still higher than the

standard 10-year budget baseline assumption, which assumes that discretionary spending grows with inflation but not with 

population.) The second alternative scenario sets discretionary spending from 2018 to 2021 to levels consistent with the path

established prior to the cap reductions required by the failure of the Joint Select Committee on Deficit Reduction, and then 

grows discretionary spending with GDP from that point forward. As shown in Table 4, if discretionary spending grows with 

inflation and population, eliminating the fiscal gap requires that the 2018-2092 primary surplus increase by an average of 0.3 

percent of GDP. If discretionary spending rises to the levels prior to Joint Committee sequestration and then grows with 

GDP, the fiscal gap increases from 2.0 percent of GDP to 2.4 percent of GDP. The cost of delaying reform is greater when

discretionary spending levels are higher. Initiating reforms in 2028 requires that the primary surplus increase by an average of 

0.4 percent of GDP per year in the base case, and increase by 0.5 percent of GDP if discretionary levels return to pre-Joint 

Committee sequestration levels in 2018. If delayed until 2038, the primary surplus must increase by an average of 1.0 percent 

of GDP in the base case, and increase by 1.1 percent of GDP at pre-sequestration levels.
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Effects of Changes in Individual Income Receipt Growth

The growth rate of receipts, specifically individual income taxes, is another key determinant of long-term sustainability. 

The base projections assume growth in individual income taxes over time to account primarily for the slow shift of 

individuals into higher tax brackets due to real wage growth (“real bracket creep”). This assumption approximates the longterm historical growth in individual income taxes relative to wages and salaries and is consistent with current tax code policy 

without change, as future legislation would be required to prevent real bracket creep. As an illustration of the effect of 

variations in individual income tax growth, Table 5 shows the effect on the size of reforms necessary to close the fiscal gap

and the effect of delaying closure of the fiscal gap if long-term receipt growth as a share of wages and salaries is 0.1 

percentage point higher, than the base case, as well as 0.1 percentage point lower than the base case. If reform is initiated in 

2018, eliminating the fiscal gap requires that the 2018-2092 primary surplus increase by an average of 2.0 percent of GDP in 

the base case, only 0.9 percent of GDP if receipt growth is 0.1% higher, but 3.1 percent of GDP if receipt growth is 0.1% 

lower. The cost of delaying reform is also affected if receipt growth assumptions change, much as was the case in the 

previous alternative scenarios. 
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Fiscal Projections in Context

In this report, a sustainable fiscal policy has been defined as one where the Federal debt-to-GDP ratio is stable or 

declining. However, this definition does not indicate what a sustainable debt-to-GDP ratio might be. Any particular debt ratio 

is not the ultimate goal of fiscal policy. Rather, the goals of fiscal policy are many. They include financing public goods, such 

as infrastructure and government services; promoting a strong and growing economy; and managing the debt so that it is not 

a burden on future generations. These goals are interrelated, and readers should consider how policies intended to affect one 

might depend on or affect another. 

This report shows that current policy is not sustainable. In evaluating policies that could make policy sustainable, note 

that debt may play roles in both facilitating and hindering a healthy economy. For example, Government deficit spending 

supports demand and allows economies to emerge from recessions more quickly. Debt may also be a cost-effective means of 

financing capital investment that promotes future economic growth, which may in turn make future debt levels more 

manageable. However, economic theory also suggests that high levels of debt may contribute to higher interest rates, leading 

to lower private investment and a smaller capital stock which the economy can use to grow. Unfortunately, it is unclear what 

debt-to-GDP ratio would be sufficiently high to produce these negative outcomes, or whether the key concern is the level of 

debt per se, or a trend that shows debt increasing over time. 

While several empirical studies have attempted to discern a definite relationship between debt and economic growth 

from the past experience of countries, the evidence is mixed. One study suggested that as advanced countries’ debt-to-GDP 

ratios exceeded 90 percent it had significant negative consequences for real GDP growth through rising interest rates, 

crowding out of private investment, and reduced capital formation.5 Real GDP growth is generally lower by about 1 percent 

when the countries’ debt-to-GDP ratios are above 90 percent relative to the times when they are below 90 percent.6 However, 

 5 Reinhart, Carmen M., and Kenneth S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review, 100(2): 573-78. 6 Errata: “Growth in a Time of Debt,” Carmen M. Reinhart and Kenneth S. Rogoff. Harvard University, 2013.
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after removing sample countries with very high indebtedness – those with debt-to-GDP ratios of more than 120 percent – and 

very low indebtedness – those with debt-to-GDP ratios of less than 30 percent – the negative relationship between growth 

and debt is difficult to determine. Another study reports that differences in average GDP growth in countries with debt-toGDP ratios between 30-60 percent, 60-90 percent, and 90-120 percent cannot be statistically distinguished.7 Some countries 

with high debt-to-GDP ratios have been observed to experience lower-than-average growth, while other countries with 

similarly high debt ratios have continued to enjoy robust growth. Analogously, low debt-to-GDP ratios are no guarantee of 

strong economic growth. Moreover, the direction of causality is unclear. High debt may undermine growth through increased 

interest rates and lower business confidence, or low growth may contribute to high debt by depressed tax revenues and 

increased deficit spending on social safety net programs.

Nevertheless, to put the current and projected debt-to-GDP ratios in context, it is instructive to examine how the United 

States experience compares with that of other countries. The United States Government’s debt as a percentage of GDP is 

relatively large compared with central government debt of other countries, but far from the largest among developed 

countries. Based on historical data as reported by the International Monetary Fund (IMF) for 13 select countries, the debt-toGDP ratio in 2015 ranged from 0.2 percent of GDP to 100.6 percent of GDP.8 The United States is not included in this set of 

statistics, which underscores the difficulty in calculating debt ratios under consistent definitions, but the IMF does report a 

similar debt statistic for the United States as 84 percent of GDP.9 Despite using consistent definitions where available, these 

debt measures are not strictly comparable due to differences in the share of government debt that is debt of the central 

government, how government responsibilities are shared between central and local governments, how current policies 

compare with the past policies that determine the current level of debt, and how robustly each economy grows. 

The historical experience of the U.S. may also provide some perspective. As Chart 4 shows, the debt-to-GDP ratio was 

highest in the 1940s, following the debt buildup during World War II. In the projections in this report, the U.S. would reach

the previous peak debt ratio in 2039. However, the origins of current and future Federal debt are quite different from the 

wartime debt of the 1940s, which limits the pertinence of past experience.

 7 Herndon, Thomas, Michael Ash, and Robert Pollard, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” 

Cambridge Journal of Economics, 2013. 8 Government Finance Statistics Yearbook, Main Aggregates and Balances, available at https://data.imf.org. Data is for D1 debt liabilities for the central 

government, excluding social security funds. 9

Data is for D1 debt liabilities for the central government, including social security funds. For the few countries where both central government debt ratios 

(excluding and including social security funds) are reported, the values are similar.
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As the cross-country and historical comparisons suggest, there is a very imperfect relationship between the current level 

of central government debt and the sustainability of overall government policy. Past accrual of debt is certainly important, but 

current policies and their implications for future debt accumulation are as well. 

Conclusion

The past nine years saw debt held by the public nearly double as a share of GDP, bringing it to a level not seen since 

shortly after World War II. The projections in this Financial Report indicate that if policy remains unchanged, the debt-toGDP ratio will hold roughly stable over the next decade but then begin a steady increase that soon far exceeds historical 

levels and continues throughout the projection period and beyond. This implies that current policies are not sustainable and 

must ultimately change. Subject to the important caveat that policy changes are not so abrupt that they slow economic 

growth, the sooner policies are put in place to avert these trends, the smaller are the adjustments necessary to return the 

Nation to a sustainable fiscal path, and the lower the burden of the debt will be to future generations.