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United States Government

Required Supplementary Information 

(Unaudited) For the Fiscal Years Ended

September 30, 2020, and 2019

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

is ultimately stable or declining. The debt-to-GDP ratio reached 100 percent at the end of FY 2020. The long-term fiscal 

projections in this report are based on the same economic and demographic assumptions that underlie the 2020 Social 

Security and Medicare Trustees’ Reports, and those assumptions were developed prior to the COVID-19 pandemic and 

economic downturn. At this time, management cannot reasonably estimate the potential effects of COVID-19 on the 

projections or other sustainability measures, which could be significant. 

As discussed below, the projections based on this report’s assumptions indicate that current policy is not sustainable. If 

current policy is left unchanged, the projections show the debt-to-GDP ratio will rise to 124 percent in 2030, and to 623 

percent in 2095. For comparison, under the 2019 projections, the debt-to-GDP ratio was over 100 percent by 2030, and then 

reached 474 percent in 2094.

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 –

including investments in infrastructure and the nation’s workforce, and efforts to mitigate the impact of climate change and

improve caregiving services to build a more resilient and sustainable economy – could have a significant effect on eventual 

fiscal outcomes.
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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 2.1 percent of GDP over 2013 

through 2019 The primary deficit-to-GDP ratio spiked again in 2020, rising to 13.3 percent of GDP due to increased 

spending to address the COVID-19 pandemic and downturn. 

The primary deficit-to-GDP ratio is projected to fall to 6.0 percent in 2021 and then shrink to 2.9 percent by 2023 as the 

economy grows and spending from legislation enacted in response to the COVID-19 pandemic decreases.1 After 2023, 

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 4.4 percent of GDP in 2030. The primary 

deficit peaks at 5.4 percent of GDP in 2042, then gradually decreases beyond that point as the aging of the population 

continues at a slower pace, and reaches 4.3 percent in 2095, the last year of the projection period. 

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 ARRA and the Tax Relief, 

Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The share subsequently increased to 18.0 percent 

of GDP by 2015 before falling below the 30-year average of 17.1 percent in 2018, after enactment of the TCJA. Receipts 

were 16.3 percent of GDP in 2020. Receipts are projected to decrease to 15.4 percent of GDP in 2021, then rise to 17.6 

percent of GDP in 2023 before falling again to 17.1 percent of GDP in 2024, primarily due to changes in individual income 

tax receipts. After 2024, receipts 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, which was 29.6 percent in 2020, is projected to fall to 

20.5 percent in 2024. After 2024, the non-interest spending share of GDP is projected to rise gradually from 20.8 percent in 

2025 to 23.5 percent of GDP in 2078, and then declines gradually to 23.3 percent in 2095, the end of the projection period. 

Beginning in 2025, these 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 20 years, among other factors, is projected to increase the 

Social Security and Medicare spending shares of GDP by about 0.9 percentage points and 1.6 percentage points, respectively. 

The spending share of GDP for Medicaid stays roughly the same over that period. After 2040, the Social Security and 

Medicaid spending shares of GDP remain relatively stable, while the Medicare spending share of GDP continues to increase, 

albeit at a slower rate, due to projected increases in health care costs and population aging.

Current Policy Projections for Debt and Interest Payments

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

for the debt-to-GDP ratio shown in Chart 2. That ratio was 100 percent at the end of FY 2020, and under current policy and 

based on this report’s assumptions is projected to reach 623 percent in 2095. The continuous rise of the debt-to-GDP ratio 

indicates that current policy is unsustainable.

1 Legislation enacted in response to the COVID-19 pandemic includes: the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020

(P.L.116-123); the Families First Coronavirus Response Act (P.L.116-127); the CARES Act (P.L.116-136); and the Paycheck Protection Program and 

Health Care Enhancement Act (P.L.116-139). The Consolidated Appropriations Act, 2021 (P.L.116-270), which contains additional stimulus provisions, 

was signed into law on December 27, 2020 and is not reflected in the 2020 long-term fiscal projections.
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As a general approximation, the change in debt held by the public from one year to the next is the budget deficit, the 

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

shows that the rapid rise in total spending and the unified deficit (total receipts less total spending) is almost entirely due to 

projected net interest, which results from the growing debt. As a percent of GDP, interest spending was 1.6 percent in 2020, 

and under current policy is projected to reach 4.0 percent in 2030, 8.0 percent in 2039, and 28.2 percent in 2095. 

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 0.3 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 2093, the last year of the 75-year projection period used in the FY 2018 report. 

This ratio is projected based on this report’s assumptions to reach 605 percent in the FY 2020 projections, which compares 

with 467 percent projected in the FY 2019 projections and 530 percent projected in the FY 2018 projections.3

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

The longer policy action to close the fiscal gap4 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 2095 equal to the 2020 ratio. Three 

timeframes for 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 in 2095 equal to its level 

in 2020. Future generations are burdened 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 revenue.

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 2095 equal to its level in 2020 under each of the 

three timeframes. If reform begins in 2021, then it is sufficient to raise the primary surplus share of GDP by 5.4 percentage 

3 For additional information on changes from the 2018 projections, see the unaudited RSI in the 2019 Financial Report. 4 The fiscal gap reflects how much the primary surplus (receipts less non-interest spending) must increase to maintain the debt-to-GDP ratio at the 2020 

level. See Note 24 for a more complete discussion of the fiscal gap.
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points in every year between 2021 and 2095 in order for the debt-to-GDP ratio in 2095 to equal its level in 2020. This policy 

raises the average 2021-2095 primary surplus-to-GDP ratio from -4.8 percent to +0.6 percent.

In contrast to a reform that begins immediately, if reform begins in 2031 or 2041, then the primary surpluses must be 

raised by 6.4 percent and 7.8 percent of GDP, respectively, in order for the debt-to-GDP ratio in 2095 to equal its level in 

2020. The difference between the primary surplus increase necessary if reform begins in 2031 or 2041 and the increase 

necessary if reform begins in 2021, an additional 0.9 and 2.4 percentage points, respectively, 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 the end of 2020 and the year reform is initiated, in comparison to the scenario in which reform begins immediately. 

Alternative Scenarios 

The long-run projections are highly uncertain. The uncertainty in this year’s projections is further increased by the 

COVID-19 pandemic, the effects of which are not considered in the economic and demographic assumptions underlying the

projections. The length of the pandemic and long-term effects on health care costs are also uncertain. See Note 24 for 

additional information about the assumptions used in the projections.

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

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 2020 Medicare Trustees’ Report, which assume the PPACA and MACRA cost control measures will be effective in 

producing a substantial slowdown in Medicare cost growth. As discussed in Note 23—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 grows 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 
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the fiscal gap.5 As indicated earlier, if reform is initiated in 2021, eliminating the fiscal gap requires that the 2021-2095 

primary surplus increase by an average of 5.4 percent of GDP in the base case. However, that figure increases to 8.8 percent 

of GDP if per capita health cost growth is assumed to be 1.0 percentage point higher, and 14.7 percent of GDP if per capita 

health cost growth is 2.0 percentage points higher. The cost of delaying reform is also increased if health care cost growth is 

higher because debt accumulates more rapidly during the period of inaction. For example, the lower part of Table 2 shows 

that delaying reform initiation from 2021 to 2031 requires that 2031-2095 primary surpluses be higher by an average of 0.9 

percent of GDP in the base case, 1.5 percent of GDP if per capita health cost growth is 1.0 percentage point higher, and 2.6 

percent of GDP if per capita health cost growth is 2.0 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 costlier for the 

government to service its debt than if the debt-to-GDP ratio were lower. 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 2021, eliminating the fiscal gap 

requires that the 2021-2095 primary surplus increase by an average of 5.4 percent of GDP in the base case, 7.0 percent of 

GDP if the interest rate is 2.0 percentage points higher in every year, and 6.2 percent of GDP if the interest rate is 1.0 

percentage point higher in every year. The required increase in the 2021-2095 primary surplus decreases to an average of 4.6 

percent of GDP if the interest rate is 1.0 percentage point lower in every year and 3.8 percent of GDP if the interest rate is 2.0 

percentage points 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 2021 to 2031 requires that 2031-2095 primary surpluses be higher by an average 

of 0.9 percent of GDP in the base case, 2.2 percent of GDP if the interest rate is 2.0 percentage points higher in every year, 

and 1.5 percent of GDP if the interest rate is 1.0 percentage point higher in every year. The required increase in the 2031-

2095 primary surplus is higher by an average of 0.6 percent of GDP if the interest rate is 1.0 percentage point lower in every 

year and 0.3 percent of GDP if the interest rate is 2.0 percentage points lower in every year.

5 The base case health cost growth rates are derived from the projections in the 2020 Medicare Trustees’ Report. These projections are summarized and 

discussed in Note 23 and the “Medicare Projections” section of the unaudited RSI for the SOSI.
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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 spending stays within statutory caps for 2021 under the 2019 BBA, and then grows 

with nominal GDP after 2021.6 Then, the discretionary spending effects of legislation enacted as of September 30, 2020 in 

response to COVID-19 are added through 2030 based on CBO estimates. Under the base projection, discretionary spending is 

approximately 7.1 percent of GDP in 2021, falls to 6.6 percent of GDP in 2022, and then gradually decreases to a 6.4 percent 

share of GDP by 2026, where it remains thereafter. The implications of an alternative scenario are shown in Table 4. In the 

alternative scenario, discretionary spending for 2021 is the same as in the base case (approximately 7.1 percent of GDP) and 

then grows with inflation and population 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.) As in the base case, the 

discretionary spending effects of COVID-19 response legislation are reflected through 2030 based on CBO estimates. As 

shown in Table 4, if discretionary spending grows with nominal GDP, eliminating the fiscal gap requires that the 2021-2095 

primary surplus increase by an average of 5.4 percent of GDP. If discretionary spending grows with inflation and population, 

the fiscal gap is 3.2 percent of GDP. The cost of delaying reform is greater when discretionary spending levels are higher. 

Initiating reforms in 2031 requires that the primary surplus increase by an average of 0.9 percent of GDP per year in the base 

case and by an average of 0.6 percent of GDP if discretionary levels grow with inflation and population from 2021 onward. If 

delayed until 2041, the primary surplus must increase by an average of 2.4 percent of GDP in the base case and by an average 

of 1.4 percent of GDP when spending grows with inflation and population.

6 The base case reflects the FY 2021 President’s Budget, which includes no adjustments to discretionary spending for reductions required by the Joint 

Committee. The BCA established statutory caps on discretionary spending for FYs 2012 through 2021, and established the Joint Committee, which was 

tasked with identifying $1.2 trillion in deficit reduction. The failure of the Joint Committee to propose, and Congress to enact, legislation sufficient to reduce 

the deficit triggered automatic spending reductions through adjustments to the discretionary spending caps and sequestration of mandatory spending. The 

enactment of BBA of 2019, which adjusted the 2020 and 2021 caps, effectively cancelled spending reductions for 2021.
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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 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 2021, eliminating 

the fiscal gap requires that the 2021-2095 primary surplus increase by an average of 5.4 percent of GDP in the base case, 4.3 

percent of GDP if receipt growth is 0.1 percentage point higher, and 6.5 percent of GDP if receipt growth is 0.1 percentage 

point 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 over the projection period. 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.7 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.8 However, 

after removing sample countries with very high indebtedness – those with debt-to-GDP ratios of more than 120 percent – and 

7 Reinhart, Carmen M., and Kenneth S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review, 100(2): 573-78. 8 Errata: “Growth in a Time of Debt,” Carmen M. Reinhart and Kenneth S. Rogoff. Harvard University, 2013.
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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.9 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 U.S. 

experience compares with that of other countries. The U.S. government’s debt as a percent 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 IMF for 28 advanced economies, the debt-to-GDP ratio in 2018 ranged from 5.5 percent of 

GDP to 197.1 percent of GDP.10 The U.S. is not included in this set of statistics, which underscores the difficulty in 

calculating debt ratios under consistent definitions, but the 2020 debt-to-GDP ratio for the U.S. Government was 100 percent. 

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 2025. 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.

9 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. 10 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, for Advanced Economies.
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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 projections in this Financial Report indicate that if policy remains unchanged, the debt-to-GDP ratio will steadily 

increase throughout the projection period and beyond based on this report’s assumptions, which implies current policy is 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.