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United States Government

Required Supplementary Information 

(Unaudited) For the Fiscal Years Ended

September 30, 2019, and 2018

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 sustainable. If current policy is left

unchanged, the projections show the debt-to-GDP ratio will rise from 79 percent in 2019 to 84 percent by 2022, to over 100 

percent by 2030, and to 474 percent in 2094. For comparison, under the 2018 projections, the debt-to-GDP ratio was 84 

percent in 2022, but then reached 103 percent by 2030, and 530 percent in 2093.

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 

health care reform and renegotiated trade arrangements, to more routine developments such as changes in aggregate funding 

for discretionary programs – 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 (1.9 through 2018). This deficit level led debt held by the public to increase further relative to GDP, ending 

2019 at 79 percent. The primary deficit-to-GDP ratio is projected to rise to 2.9 percent in 2020 and then shrink slightly as the 

economy grows. After 2024, 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 3.1 percent of

GDP in 2028. The primary deficit peaks at 3.9 percent of GDP in 2040, gradually decreases beyond that point as the aging of 

the population continues at a slower pace, and reaches 2.5 percent in 2094, 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 percent of 

GDP by 2015 then decreased to 16.2 percent by 2019, after enactment of the TCJA and below its 30-year average of 17.2 

percent. 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 rise gradually from 19.0 percent in 2019 to 

21.0 percent of GDP in 2029 and ends at 23.0 percent in 2094, the end of the projection period. Beginning in 2020, 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 25 years, among other factors, is projected to increase the Social Security, 

Medicare, and Medicaid spending shares of GDP by about 0.9 percentage points, 1.8 percentage points, and 0.6 percentage 

points, respectively. After 2035, 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 79 percent at the end of fiscal year 2019, and under current policy 

is projected to be 84 percent by 2022, over 100 percent by 2030, and 474 percent in 2094. The continuous rise of the debt-toGDP ratio indicates that current policy is unsustainable.
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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 spending and total receipts.1 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 1.8 percent in 2019, 

and under current policy is projected to reach 7.0 percent in 2039 and 23.2 percent in 2094. 

1 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 2092, the last year of the 75-year projection period used in the fiscal year 2017 

report. This ratio is projected to reach 461 percent in the fiscal year 2019 projections, which compares with 522 percent 

projected in the fiscal year 2018 projections and 297 percent projected in the fiscal year 2017 projections.2

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

The longer policy action to close the fiscal gap3 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 2094 equal to the 2019 ratio (79 

percent). 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 to 79 

percent of GDP in 2094. 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 2094 equal to its level in 2019 under each of the 

three timeframes. If reform begins in 2020, then it is sufficient to raise the primary surplus share of GDP by 3.8 percentage 

2 For further information on changes from the 2016 projections, see the unaudited RSI in the 2018 Financial Report. 3 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 2019 level 

of 79 percent. See Note 23 for a more complete discussion of the fiscal gap.
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points in every year between 2020 and 2094 in order for the debt-to-GDP ratio in 2094 to equal its level in 2019 (79 percent). 

This policy raises the average 2020-2094 primary surplus-to-GDP ratio from -3.2 percent to slightly over +0.6 percent.

In contrast to a reform that begins immediately, if reform begins in 2030 or 2040, then the primary surpluses must be 

raised by 4.5 percent and 5.6 percent of GDP, respectively, in order for the debt-to-GDP ratio in 2094 to equal 79 percent. 

The difference between the primary surplus increase necessary if reform begins in 2030 or 2040 and the increase necessary if 

reform begins in 2020, an additional 0.7 and 1.8 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 2019 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. 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 2019 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 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 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 

the fiscal gap.4 As indicated earlier, if reform is initiated in 2020, eliminating the fiscal gap requires that the 2020-2094 

primary surplus increase by an average of 3.8 percent of GDP in the base case. However, that figure increases to 7.3 percent 

4 The base case health cost growth rates are derived from the projections in the 2019 Medicare Trustees’ Report. These projections are summarized and 

discussed in Note 22 (see Table 1B in particular) and the “Medicare Projections” section of the unaudited RSI for the SOSI.
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of GDP if per capita health cost growth is assumed to be 1.0 percentage point higher, and 13.0 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 2020 to 2030 requires that 2030-2094 primary surpluses be higher by an average of 0.7 

percent of GDP in the base case, 1.3 percent of GDP if per capita health cost growth is 1.0 percentage point higher, and 2.4 

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. 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 2020, eliminating the fiscal gap requires that the 2020-2094 primary surplus 

increase by an average of 3.8 percent of GDP in the base case, 4.5 percent of GDP if the interest rate is 1.0 percentage point 

higher in every year, and 3.2 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 2020

to 2030 requires that 2030-2094 primary surpluses be higher by an average of 0.7 percent of GDP in the base case, 1.1 

percent of GDP if the interest rate is 1.0 percentage point higher in every year, and 0.4 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 spending (1) stays within statutory caps for 2020 and 2021 under the 2019 BBA (or 

is approximately 6.5 percent of GDP), and (2) falls to a 6.1 percent share of GDP in 2022 and grows to a 6.2 percent share in

2029, where it remains thereafter.5 The implications of two alternative scenarios are shown in Table 4. In the first alternative 

scenario, discretionary spending for 2020 and 2021 is the same as in the base case (approximately 6.5 percent of GDP), then 

it falls to 6.1 percent of GDP in 2022 and 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.) In the second alternative scenario, the rate of nominal GDP growth is applied to discretionary spending after 

2021. As shown in Table 4, if discretionary spending grows with inflation and population, eliminating the fiscal gap requires 

that the 2020-2094 primary surplus increase by an average of 1.7 percent of GDP. If discretionary spending grows with 

nominal GDP the fiscal gap increases to 4.2 percent of GDP. The cost of delaying reform is greater when discretionary 

spending levels are higher. Initiating reforms in 2030 requires that the primary surplus increase by an average of 0.7 percent 

of GDP per year in the base case, and increase by 0.8 percent of GDP if discretionary levels grow at the rate of GDP without 

any spending controls from 2021 onward. If delayed until 2040, the primary surplus must increase by an average of 1.8 

percent of GDP in the base case, and increase by 1.9 percent of GDP when spending grows at the rate of GDP without being 

subject to spending controls.

5 The base case reflects the 2020 President’s Budget, which includes the continuation of discretionary spending reductions required by the Joint Committee. 

The BCA established statutory caps on discretionary spending for fiscal years 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. After 2021, 

these projections continue this approach, assuming spending grows with nominal GDP but that such amounts are then reduced by amounts based on Joint 

Committee deficit reduction spending controls through 2029, the last year presented in the 2020 President’s Budget. After 2029, this policy is maintained 

with the annual reductions growing at the same rate as GDP. The BBA of 2019 extended the mandatory spending reductions through 2029, and this change in 

law will be reflected in next year’s Financial Report.
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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 2020, eliminating

the fiscal gap requires that the 2020-2094 primary surplus increase by an average of 3.8 percent of GDP in the base case, only 

2.7 percent of GDP if receipt growth is 0.1 percentage point higher, but 5.0 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.6 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.7 However, 

6 Reinhart, Carmen M., and Kenneth S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review, 100(2): 573-78. 7 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.8 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 2016 ranged from 6.3 percent of 

GDP to 192.2 percent of GDP.9 The U.S. is not included in this set of statistics, which underscores the difficulty in 

calculating debt ratios under consistent definitions, but the projections in this report show the 2019 debt-to-GDP ratio as 79 

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 2031. 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.

8 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. 9 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 past 12 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 steadily increase and soon far exceed historical levels, 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.
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Social Insurance

The social insurance programs consisting of Social Security, Medicare, Railroad Retirement, Black Lung, and UI were

developed to provide income security and health care coverage to citizens under specific circumstances as a responsibility of

the government. Because taxpayers rely on these programs in their long-term planning, social insurance program information

should indicate whether the current statutory provisions of the programs can be sustained, and more generally what effect

these provisions likely have on the government’s financial condition. The resources needed to run these programs are raised

through taxes and fees. Eligibility for benefits depends in part on earnings and time worked by the individuals. Social

Security benefits are generally redistributed intentionally toward lower-wage workers (i.e., benefits are progressive). In

addition, each social insurance program has a uniform set of eligibility events and schedules that apply to all participants.

Social Security and Medicare

Social Security

The OASI and DI Trust Funds were established on January 1, 1940 and August 1, 1956 respectively as separate 

accounts in the Treasury. The OASI fund pays cash retirement benefits to eligible retirees and their eligible dependents and 

survivors, and the much smaller DI fund pays cash benefits to eligible individuals who are unable to work because of medical 

conditions and certain family members of such eligible individuals. All financial operations of the OASI and DI Programs are 

handled through these respective funds. The two funds are often referred to as the combined OASDI Trust Funds. At the end 

of calendar year 2018, OASDI benefits were paid to approximately 63 million beneficiaries.

The events that trigger benefit payments are quite different however both trust funds have the same dedicated financing 

structure: taxes paid by workers, their employers, and individuals with self-employment income, based on work covered by 

the OASDI Program. Currently, employers and employees each pay 6.2 percent of taxable earnings, and the self-employed 

pay 12.4 percent of taxable earnings. Payroll taxes are levied on wages and net earnings from self-employment up to a 

specified maximum annual amount, referred to as maximum taxable earnings ($132,900 in 2019), that increases each year 

with economy-wide average wages.

Legislation passed in 1984 subjected up to half of OASDI benefits to income tax and allocated the revenue to the 

OASDI Trust Funds. In 1993 legislation increased the potentially taxed portion of benefits to 85 percent and allocated the 

additional revenue to the Medicare’s HI Trust Fund.

Medicare

The Medicare Program, created in 1965, has two separate trust funds: the HI Trust Fund (otherwise known as Medicare 

Part A) and the SMI Trust Funds (which consists of the Medicare Part B and Part D10 accounts). HI helps pay for inpatient 

hospital stays, home health care following a hospital stay, and skilled nursing facility and hospice care. SMI helps pay for 

hospital outpatient services, physician services, and assorted other services and products through Part B and for prescription 

drugs through Part D.

Though the events that trigger benefit payments are similar, HI and SMI have different dedicated financing structures. 

Similar to OASDI, HI is financed primarily by payroll contributions. Currently, employers and employees each pay 1.45 

percent of earnings, while self-employed workers pay 2.9 percent of their net earnings. Beginning in 2013, employees and 

self-employed individuals with earnings above certain thresholds pay an additional HI tax of 0.9 percent on earnings above 

those thresholds. Other income to the HI Trust Fund includes a small amount of premium income from voluntary enrollees, a 

portion of the federal income taxes that beneficiaries pay on Social Security benefits, and interest credited on Treasury 

securities held in the HI Trust Fund. These Treasury securities and related interest have no effect on the consolidated 

statement of governmentwide finances.

For SMI, direct transfers from the General Fund financed 73 percent and 71 percent of 2019 program costs for Parts B 

and D, respectively. Premiums paid by beneficiaries and, for Part D state transfers, generally financed the remainder of 

expenditures. For beneficiaries dually eligible for Medicare and Medicaid, states must pay the Part D account a portion of 

their estimated foregone drug costs for this population (referred to as state transfers). As with HI, interest received on 

10 Medicare legislation in 2003 created the new Part D account in the SMI Trust Fund to track the finances of a new prescription drug benefit that began in 

2006. As is the case for Medicare Part B, a little less than three-quarters of revenues to the Part D account will come from future transfers from the General 

Fund. Consequently, the nature of the relationship between the SMI Trust Fund and the federal budget described below is largely unaffected by the presence 

of the Part D account though the magnitude will be greater.
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Surplus 

Borrowed

Interest 

Credited

Benefit 

Taxes

Interest 

Credited

Surplus 

Borrowed

E

X

P

E

N

D

I

T

U

R

E

S

General

Government

Expenditures,

Net Interest

SMI Trust

Fund 

Account

Other

Government

Accounts

HI, OASDI

Trust Fund 

Accounts

M

E

A

N

S

O

F

F

I

N

A

N

C

I

N

G

SMI

Premiums and 

State Transfers

Income Taxes,

Benefit Taxes, 

Other Revenues,

Borrowing from

the Public

Payroll Taxes and

HI

Premiums

HI, OASDI, SMI

Benefits

Other 

Government 

Transfers

Treasury securities held in the SMI Trust Fund is credited to the fund. These Treasury securities and related interest have no

effect on the consolidated statement of governmentwide finances. See Note 22—Social Insurance, for additional information 

on Medicare program financing.

Figure 1

Social Security, Medicare, and Governmentwide Finances

Social Security, Medicare, and Governmentwide Finances

The current and future financial status of the separate OASDI, HI, and SMI Trust Funds is the focus of the Social 

Security and Medicare Trustees’ Reports, a focus that may appropriately be referred to as the “trust fund perspective.” In 

contrast, the government primarily uses the budget concept as the framework for budgetary analysis and presentation. It 

represents a comprehensive display of all federal activities, regardless of fund type or on- and off-budget status, and has a 

broader focus than the trust fund perspective that may appropriately be referred to as the “budget perspective” or the 

“governmentwide perspective.” Social Security and Medicare are among the largest expenditure categories of the U.S. 

federal budget. This section describes in detail the important relationship between the trust fund perspective and the 

governmentwide perspective.

Figure 1 is a simplified depiction of the interaction of the Social Security and Medicare Trust Funds with the rest of the 

federal budget.11 The boxes on the left show sources of funding, those in the middle represent the trust funds and other 

government accounts, which include the General Fund into which that funding flows, and the boxes on the right show 

simplified expenditure categories. The figure is intended to illustrate how the various sources of program revenue flow 

through the budget to beneficiaries. The general approach is to group revenues and expenditures that are linked specifically to 

Social Security and/or Medicare separately from those for other government programs.

11 The federal budget encompasses all government financing and is synonymous with a governmentwide perspective.
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Each of the trust funds has its own sources and types of revenue. With the exception of General Fund transfers to SMI, 

each of these revenue sources represents revenue from the public that is dedicated specifically for the respective trust fund 

and cannot be used for other purposes. In contrast, personal and corporate income taxes as well as other revenue go into the 

General Fund and are drawn down for any government program for which Congress has approved spending.12 The arrows 

from the boxes on the left represent the flow of the revenues into the trust funds and other government accounts.

The heavy line between the top two boxes in the middle of Figure 1 represents intragovernmental transfers to the SMI 

Trust Fund from other government accounts. The Medicare SMI Trust Fund is shown separately from the two Social Security 

Trust Funds (OASI and DI) and the Medicare HI Trust Fund to highlight the unique financing of SMI. Currently, SMI is the 

only one of the programs that is funded through transfers from the General Fund, which is part of the other government 

accounts (the SMI Part D account also receives transfers from the states). The direct transfers finance roughly three-fourths of 

SMI Program expenses. The transfers are automatic; their size depends on how much the program requires, not on how much 

revenue comes into the Treasury. If General Fund revenues become insufficient to cover both the mandated transfer to SMI 

and expenditures on other general government programs, Treasury has to borrow to make up the difference. In the longer run, 

if transfers to SMI increase beyond growth in general revenues—and as shown in the Medicare Trustees’ Report and Chart 5 

later in this section, they are projected to increase significantly in coming years—then Congress must either raise taxes, cut 

other government spending, reduce SMI benefits, or borrow even more.

The dotted lines between the middle boxes of Figure 1 also represent intragovernmental transfers but those transfers 

arise in the form of “borrowing/lending” between the government accounts. Interest credited to the trust funds arises when 

the excess of program income over expenses is loaned to the General Fund. The vertical lines labeled Surplus Borrowed

represent these flows from the trust funds to the other government accounts. These loans reduce the amount the General Fund 

has to borrow from the public to finance a deficit (or likewise increase the amount of debt paid off if there is a surplus). 

However, the General Fund has to credit interest on the loans from the trust fund programs, just as if it borrowed the money 

from the public. The credits lead to future obligations for the General Fund (which is part of the other government accounts). 

These transactions are indicated in Figure 1 by the vertical arrows labeled Interest Credited. The credits increase trust fund 

income exactly as much as they increase credits (future obligations) in the General Fund. From the governmentwide 

standpoint, at least in an accounting sense, these interest credits are a wash.

When the trust funds get the receipts that they loan to the General Fund, these receipts provide additional authority to 

spend on benefits and other program expenses. The General Fund, in turn, has taken on the obligation of paying interest on 

these loans every year and repaying the principal when trust fund income from other sources falls below expenditures.

How loans from the trust funds to the General Fund and later repayments of those loans affect tax income and 

expenditures of the General Fund is uncertain. Two extreme cases encompass the possibilities. At one extreme, each dollar 

the trust funds loan to the General Fund might reduce borrowing from the public by a dollar at the time the loan is extended,

in which case the General Fund could repay all trust fund loans by borrowing from the public without raising the level of 

public debt above the level that would have occurred in the absence of the loans. At the other extreme, each dollar the trust

funds loan to the General Fund might result in some combination of higher General Fund spending and lower General Fund 

revenues amounting to one dollar at the time the loans are extended, in which case General Fund loan repayments to the trust 

funds might initially be financed with borrowing from the public but must at some point be financed with a combination of 

higher General Fund taxes and lower General Fund spending than would have occurred in the absence of the loans. In this 

latter extreme, trust fund loans result in additional largess (i.e., higher spending and/or lower taxes) in General Fund 

programs at the time the loans are extended, but ultimately that additional largess is financed with additional austerity (i.e., 

lower spending and/or higher taxes) in General Fund programs at later dates. The actual impact of trust fund loans to the 

General Fund and their repayment on General Fund programs is at one of these two extremes or somewhere in between.

Actual dollar amounts roughly corresponding to the flows presented in Figure 1 are shown in the following table for 

fiscal year 2019. The table shows revenues from the public (left side of Figure 1) and expenditures to the public (right side of

Figure 1) are shown separately from transfers between government accounts (middle of Figure 1). Note that the transfers 

($333.1 billion) and interest credits ($92.1 billion) received by the trust funds appear as negative entries under “All Other” 

and are thus offsetting when summed for the total budget column. These two intragovernmental transfers are the key to the 

differences between the trust fund and budget perspectives.

From the governmentwide perspective, only revenues received from the public and state transfers and expenditures 

made to the public are important for the final balance. Trust fund revenue from the public consists of payroll taxes, benefit 

12 Other programs also have dedicated revenues in the form of taxes and fees (and other forms of receipt) and there are a large number of dedicated trust 

funds in the federal budget. Total trust fund receipts account for about 40 percent of total government receipts with the Social Security and Medicare Trust 

Funds accounting for about two-thirds of trust fund receipts. For further discussion, see the report issued by the Government Accountability Office, Federal 

Trust and Other Earmarked Funds, GAO-01-199SP, January 2001. In the figure and the discussion that follows, all other programs, including these other 

dedicated trust fund programs, are grouped under “Other Government Accounts” to simplify the description and maintain the focus on Social Security and 

Medicare.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 184

taxes, and premiums. For HI, the difference between total expenditures made to the public ($323.7 billion) and revenues 

($311.0 billion) was $12.7 billion in 2019, indicating that HI had a relatively small negative effect on the overall budget 

outcome in that year. For the SMI account, revenues from the public (primarily premiums) fell short of total expenditures 

made to the public by $329.4 billion in 2019, which resulted in a net draw on the overall budget balance in that year. For 

OASDI, the difference between total expenditures made to the public ($1,044.5 billion) and revenues from the public ($968.5 

billion) was $76.0 billion in 2019, indicating that OASDI had a negative effect on the overall budget outcome in that year. 

Combined OASDI payroll and benefit tax revenues were increased by $59.6 billion in fiscal year 2019.

The trust fund perspective is captured in the bottom section of each of the three trust fund columns. For HI, total 

expenditures exceeded total revenues by $4.5 billion in 2019, as shown at the bottom of the first column. For SMI, total 

revenues exceeded total expenditures by $5.1 billion. The total revenue for SMI is $463.2 billion ($128.7 + $334.5), which 

includes $334.5 billion transferred from the General Fund. Transfers to the SMI Program from the General Fund, amounting 

to about 72.4 percent of program costs, are obligated under current law and, therefore, appropriately viewed as revenue from 

the trust fund perspective. For OASDI, total revenues of $1,051.0 billion ($968.5 + $82.5) exceeded total expenditures of 

$1,044.5 billion by $6.5 billion. Total revenues for OASDI included $82.5 billion in transfers from the General Fund, made 

up of interest credits of $82.5 billion.
 185 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Revenues and Expenditures for Medicare and Social Security Trust Funds and the Total

Federal Budget for the Fiscal Year ended September 30, 2019

Trust Funds

(In billions of dollars) HI SMI OASDI Total All Other Total1

Payroll taxes and other public 

revenues:

Payroll and benefit taxes ..................... 305.2 - 968.5 1,273.7 - 1,273.7

Premiums........................................... 5.8 114.1 - 119.9 - 119.9

Other taxes and fees........................... - 14.6 - 14.6 2,054.0 2,068.6

Total .................................................. 311.0 128.7 968.5 1,408.2 2,054.0 3,462.2

 Total expenditures to the public2 ........ 323.7 458.1 1,044.5 1,826.3 2,620.3 4,446.6

Net results for budget perspective3..... (12.7) (329.4) (76.0) (418.1) (566.3) (984.4)

Revenues from other government 

accounts:

Transfers ........................................... 1.3 331.8 - 333.1 (333.1)

Interest credits.................................... 6.9 2.7 82.5 92.1 (92.1)

Total ................................................. 8.2 334.5 82.5 425.2 (425.2)

Net results for trust fund 

perspective3 ........................................ (4.5) 5.1 6.5 7.1 N/A N/A

1 This column is the sum of the preceding two columns and shows data for the total federal budget. The figure $984.4 was the total federal 

deficit in fiscal year 2019.

2 The OASDI figure includes $4.9 billion transferred to the RRB for benefit payments and is therefore an expenditure to the public.

3 Net results are computed as revenues less expenditures.

"N/A" indicates not applicable.

Cash Flow Projections

Background

Economic and Demographic Assumptions. The Boards of Trustees of the OASDI and Medicare Trust Funds provide in

their annual reports to Congress short-range (10-year) and long-range (75-year) actuarial estimates of each trust fund.

Because of the inherent uncertainty in estimates for 75 years into the future, the boards use three alternative sets of economic

and demographic assumptions to show a range of possibilities. The economic and demographic assumptions used for the

most recent set of intermediate projections for Social Security and Medicare are shown in the “Social Security” and

“Medicare” sections of Note 22—Social Insurance.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 186

Worker-to-Beneficiary Ratio. The expenditure projections for both the OASDI and Medicare Programs reflect the aging 

of the large baby-boom generation, born in the years 1946 to 1964, and its ultimate passing. Under the intermediate 

assumptions, cost rates (the ratio of program cost to taxable payroll) are projected to rise rapidly between 2019 and 2038, 

primarily because the number of beneficiaries rises much more rapidly than the number of covered workers as the baby-boom 

generation retires. For the most part, current workers pay for current benefits. Due to the lower fertility rates of the babyboom generation as compared to those of their parents’ generation, and the expected low fertility rates of all future 

generations, there is a relatively smaller number of persons born after the baby boom who will then finance the retirement of 

the baby-boom generation. Chart 1 shows that in 2018, every OASDI beneficiary had 2.8 workers to pay for his or her 

benefit. In 2030, however, after the last baby boomer turns 65, there will be only about 2.4 workers per beneficiary. The 

projected ratio continues to decline until there are just 2.1 workers per beneficiary by 2093. A similar demographic pattern 

confronts the Medicare Program. The number of workers per HI beneficiary declines from 3.0 in 2018 to 2.4 in 2030, and 

continues to decline throughout the projection period to 2093, when there are just 2.2 workers per HI beneficiary.

Chart 1—Number of Covered Workers per OASDI Beneficiary

1970-2093
 187 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Social Security Projections

Income and Expenditures. Chart 2 shows historical values and actuarial estimates of combined OASDI annual noninterest income and expenditures for 1970-2093. The estimates are for the open-group population of all workers and 

beneficiaries projected to be alive in each year. The expenditure projections in Chart 2 and all subsequent charts assume all 

scheduled benefits are paid regardless of whether the income and assets are available to finance them.

Chart 2—OASDI Income (Excluding Interest) and Expenditures

1970-2093

(In billions of dollars)

Annual OASDI cost has exceeded non-interest income every year beginning with 2010. It is projected that cost will 

continue to exceed non-interest income throughout the 75-year valuation period. Projected OASDI cost increases more 

rapidly than projected non-interest income through 2040 primarily because the retirement of the baby-boom generation will 

increase the number of beneficiaries much faster than the number of covered workers increases, as subsequent lower-birthrate generations replace the baby-boom generation at working ages. From 2040 to 2051, the cost rate generally declines 

because the aging baby-boom generation is gradually replaced at retirement ages by subsequent low-birth-rate generations. 

Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more 

slowly than between 2010 and 2040. Beginning in 2020, cost is projected to exceed total income, and combined OASI and DI 

Trust Fund reserves diminish until they become depleted in 2035. After trust fund reserve depletion, continuing income is 

sufficient to support expenditures at a level of 80 percent of program cost for the rest of 2035, declining to 75 percent for 

2093. To meet all OASDI cost on a timely basis, the combined OASI and DI Trust Funds will need to redeem Treasury 

securities. This redemption differs from the situation of prior years when the combined OASI and DI Trust Funds had been 

net lenders to the General Fund. Therefore, the combined OASI and DI Trust Funds will be net borrowers from the General 

Fund going forward, rather than net lenders. The government could finance increased redemptions by increasing its 

borrowing from the public, raising taxes (other than OASDI payroll taxes), and/or reducing expenditures (other than OASDI 

cost).
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 188

Income and Expenditures as a Percent of Taxable Payroll. Chart 3 shows annual non-interest income and expenditures 

expressed as percentages of taxable payroll, commonly referred to as the income rate and cost rate, respectively. Under the 

intermediate assumptions, demographic factors would by themselves cause the projected cost rate to rise rapidly for the next 

two decades before leveling off in about 2040. However, the recent recession temporarily depressed taxable earnings and 

increased the number of beneficiaries, which in turn sharply, but temporarily, increased the cost rate starting in 2009. From a

peak in 2013, the cost rate declined through 2017 under the economic recovery and thereafter returns to a gradually rising 

trend. The projected income rate is stable at about 13 percent throughout the 75-year period.

Chart 3—OASDI Income (Excluding Interest) and Expenditures

as a Percent of Taxable Payroll

1970-2093
 189 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Income and Expenditures as a Percent of GDP. Chart 4 shows estimated annual non-interest income and expenditures, 

expressed as a percent of GDP, which is the total value of goods and services produced in the U.S. This alternative 

perspective shows the size of the OASDI Program in relation to the capacity of the national economy to sustain it. In calendar 

year 2018, OASDI cost was about $1 trillion, which was about 4.9 percent of GDP. Under current law, the cost of the 

program rises rapidly to 5.9 percent by 2039, then declines to 5.8 percent by 2052, and then generally increases to 6.0 percent 

by 2093. The rapid increase from 2019 to 2035 is projected to occur as baby boomers become eligible for OASDI benefits, 

lower birth rates result in fewer workers per beneficiary, and beneficiaries continue to live longer. In 2093, expenditures are 

projected to exceed income by approximately 1.43 percent of GDP. Social Security’s non-interest income is projected to rise 

from to 4.6 percent of GDP in 2019, to 4.8 percent by 2029. Thereafter, non-interest income as a percent of GDP declines 

gradually, to about 4.6 percent by 2093, because the Trustees expect the share of employee compensation provided as noncovered fringe benefits to increase gradually.

Chart 4—OASDI Income (Excluding Interest) and Expenditures

as a Percent of GDP

1970-2093
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 190

Sensitivity Analysis. Projections of the future financial status of the OASDI program depend on many demographic and 

economic assumptions, including mortality, fertility, average wages, inflation, net immigration, and interest rates on Treasury

securities. The income will depend on how these factors affect the size and composition of the working population and the 

level and distribution of wages and earnings. Similarly, the cost will depend on how these factors affect the size and 

composition of the beneficiary population and the general level of benefits.

Because perfect long-range projections of these factors are impossible and actual experience is likely to differ from the 

estimated or assumed values of these factors, this section is included to illustrate the sensitivity of the long-range projections 

to changes in assumptions by analyzing six key assumptions: average annual reduction in death rates, total fertility rate, realwage differential, CPI change, net immigration, and real interest rate. The following table shows the present values of the 

estimated excess of OASDI cost over income for the 75-year period, using various assumptions, which are shown in 

parentheses. For this analysis, the intermediate assumptions are used as the reference point, and each selected assumption is 

varied individually. The variation used for each individual assumption reflects the levels used for that assumption in the lowcost and high-cost projections. For example, when analyzing sensitivity with respect to variation in real wages, income, and 

expenditure projections using the intermediate assumptions are compared to the outcome when projections are done by 

changing only the real wage assumption to either low-cost or high-cost alternatives.

The low-cost alternative is characterized by assumptions that improve the financial status of the program (relative to the 

intermediate assumption) such as slower improvement in mortality (beneficiaries die younger). In contrast, assumptions 

under the high-cost alternative worsen the financial outlook. All present values are calculated as of January 1, 2019 and are 

based on estimates of income and cost during the 75-year projection period 2019-2093.

The table demonstrates that if the annual reduction in death rates were changed from 0.77 percent, the intermediate 

assumption, to 0.41 percent, meaning that people die younger, the shortfall for the period of estimated OASDI income 

relative to cost would decrease to $14,147 billion from $16,764 billion; if the annual reduction were changed to 1.16 percent, 

meaning that people live longer, the shortfall would increase to $19,646 billion.

A higher fertility rate means more workers relative to beneficiaries over the projection period, thereby lowering the 

shortfall relative to the intermediate assumption. The table demonstrates that if the ultimate total fertility rate were changed 

from 2.0 children per woman, the intermediate assumption, to 1.8 children per woman, the shortfall for the period of 

estimated OASDI income relative to cost would increase to $18,539 billion from $16,764 billion; if the ultimate rate were 

changed to 2.2 children per woman, the shortfall would decrease to $14,959 billion.

The annual real-wage differential is the difference between the percentage increases in: (1) the average annual wage in 

OASDI covered employment; and (2) the average annual CPI. Higher real wage growth results in faster income growth 

relative to expenditure growth. As shown in the table, if the ultimate real-wage differential were changed from 1.21

percentage points, the intermediate assumption, to 0.60 percentage points, the shortfall for the period of estimated OASDI 

income relative to cost would increase to $19,449 billion from $16,764 billion; if the ultimate real-wage differential were 

changed from 1.21 to 1.84 percentage points, the shortfall would decrease to $12,606 billion.

The table demonstrates that if the ultimate annual increase in the CPI were changed from 2.6 percent, the intermediate 

assumption, to 2.0 percent, the shortfall for the period of estimated OASDI income relative to cost would increase to $17,320 

billion from $16,764 billion; if the ultimate annual increase in the CPI were changed to 3.2 percent, the shortfall would 

decrease to $16,235 billion. The seemingly counter-intuitive result that higher CPI increases result in decreased shortfalls 

(and vice versa) is explained by the time lag between the effects of the CPI changes on taxable payroll and on benefit

payments. The effect on taxable payroll due to a greater increase in average wages is experienced immediately, while the 

effect on benefits is experienced with a lag of about one year. For this reason, larger increases in the CPI cause earnings and

income to increase sooner and, therefore, by more each year, than benefits and cost.

Immigration generally occurs at relatively young adult ages, so there is no significant effect on beneficiaries (and, 

therefore, on benefits) in the early years of the projection period, but the effect on the numbers of workers (and, therefore, on 

payroll tax income) is immediate. Therefore, even in the early years, the present values, year by year, are generally higher (less 

negative in later years) for higher net annual immigration. However, the increased payroll taxes for a given year are eventually 

offset by benefits paid in that year to earlier immigrant cohorts. Therefore, the present values based on the three assumptions

about net annual immigration become more similar at the end of the projection period. The table shows that if the intermediate 

immigration assumptions were changed so that the average level for the 75-year period decreased from 1,265,000 persons to 

949,000 persons, the present value of the shortfall for the period of estimated OASDI income relative to cost would increase to

$17,558 billion from $16,764 billion. If, instead, the immigration assumptions were changed so that net annual immigration 

would be expected to average 1,601,000 persons, the present value of the shortfall would decrease to $15,934 billion.

Finally, the table shows the sensitivity of the shortfall to variations in the real interest rate or, in present value 

terminology, the sensitivity to alternative discount rates assuming a higher discount rate results in a lower present value. If

the ultimate real interest rate were changed from 2.5 percent, the intermediate assumption, to 2.0 percent, the shortfall for the

period of estimated OASDI income relative to cost, when measured in present-value terms would increase to $19,912 billion 
 191 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

from $16,764 billion; if the ultimate annual real interest rate were changed to 3.0 percent, the present-value shortfall would 

decrease to $14,263 billion.

Present Values of Estimated OASDI Expenditures in Excess of Income

Under Various Assumptions, 2019-2093

(Dollar values in billions; values of assumptions shown in parentheses)

Financing Shortfall Range

Assumption Low Intermediate High

Average annual reduction in death rates .................................... 14,147 16,764 19,646

(0.41) (0.77) (1.16)

Total fertility rate....................................................................... 14,959 16,764 18,539

(2.2) (2.0) (1.8)

Real-wage differential............................................................... 12,606 16,764 19,449

(1.84) (1.21) (0.60)

CPI change.............................................................................. 16,235 16,764 17,320

(3.2) (2.6) (2.0)

Net immigration1 ....................................................................... 15,934 16,764 17,558

(1,601,000) (1,265,000) (949,000)

Real interest rate...................................................................... 14,263 16,764 19,912

(3.0) (2.5) (2.0)

1 Amounts represent the average annual net immigration over the 75-year projection period.

Source: 2019 OASDI Trustees' Report and SSA.

Medicare Projections

Medicare Legislation. The projections in this year’s report are based on current law, certain features of which may 

result in some challenges for the Medicare program. Physician payment update amounts are specified for all years in the 

future, and these amounts do not vary based on underlying economic conditions, nor are they expected to keep pace with the 

average rate of physician cost increases. These rate updates could be an issue in years when levels of inflation are high and 

would be problematic when the cumulative gap between the price updates and physician costs becomes large. Payment rate 

updates for most non-physician categories of Medicare providers are reduced by the growth in economy-wide private 

nonfarm business multifactor productivity although these health providers have historically achieved lower levels of 

productivity growth. If the health sector cannot transition to more efficient models of care delivery and if the provider 

reimbursement rates paid by commercial insurers continue to be based on the same negotiated process used to date, then the 

availability, particularly with respect to physician services, and quality of health care received by Medicare beneficiaries 

would, under current law, fall over time compared to that received by those with private health insurance.

Incorporated in these projections is the sequestration of non-salary Medicare expenditures as required by the following

laws:

x BCA of 2011 (P.L. 112-25, enacted on August 2, 2011), as amended by the American Taxpayer Relief Act of 2012

(P.L. 112-240, enacted on January 2, 2013);

x Continuing Appropriations Resolution, 2014 (P.L. 113-67, enacted on December 26, 2013);
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 192

x Sections 1 and 3 of P.L. 113-82, enacted on February 15, 2014;

x Protecting Access to Medicare Act of 2014 (P.L. 113-93, enacted on April 1, 2014);

x BBA of 2015 (P.L. 114-74, enacted on November 2, 2015); and

x BBA of 2018 (P.L. 115-123, enacted on February 9, 2018).

The sequestration reduces benefit payments by 2 percent from April 1, 2013 through March 31, 2027, and by 4 percent

from April 1, 2027 through September 30, 2027. Due to sequestration, non-salary administrative expenses are reduced by an

estimated 5 to 7 percent from March 1, 2013 through September 30, 2027.

The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from 

specific provisions of the PPACA. These PPACA and MACRA provisions lower increases in Medicare payment rates to 

most categories of health care providers, but such adjustments would probably not be viable indefinitely without fundamental 

change in the current delivery system. It is conceivable that providers could improve their productivity, reduce wasteful 

expenditures, and take other steps to keep their cost growth within the bounds imposed by the Medicare price limitations. For

such efforts to be successful in the long range, however, providers would have to generate and sustain unprecedented levels 

of productivity gains—a very challenging and uncertain prospect. In view of the factors described above, it is important to 

note that Medicare’s actual future costs are highly uncertain for reasons apart from the inherent challenges in projecting

health care cost growth over time. 

Changes in Projection Methods. The projections in this year’s report, with one exception related to Part A, are based on 

current law; that is, it is assumed that laws on the books will be implemented and adhered to with respect to scheduled taxes, 

premium revenues, and payments to providers and health plans. The one exception is that the projections disregard payment 

reductions that would result from the projected depletion of the HI Trust Fund. Under current law, payments would be 

reduced to levels that could be covered by incoming tax and premium revenues when the HI Trust Fund was depleted.
 193 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Total Medicare. Chart 5 shows expenditures and current-law non-interest revenue sources for HI and SMI combined as 

a percent of GDP. Under the PPACA, beginning in 2013 the HI Trust Fund receives an additional 0.9 percent tax on earnings 

in excess of $250,000 for joint tax return filers and $200,000 for individual tax return filers. As a result of this provision, it is 

projected that payroll taxes will grow slightly faster than GDP. After 2018, HI revenue from income taxes on Social Security 

benefits will gradually increase as a share of GDP as the share of benefits subject to such taxes increases. Beginning in 2009,

as HI payroll tax receipts declined due to the recession and general revenue transfers increased, the latter income source 

became the largest single source of income to the Medicare program as a whole. General revenue transfers to the Part B 

account increased significantly in 2016, as required by the BBA of 2015 to compensate for premium revenue that was not 

received in 2016 due to the hold harmless provision, which limited the Part B premium increase for a majority of 

beneficiaries. After decreasing from 2016 to 2017, general revenues will gradually increase as a share of Medicare financing 

from 2018 through 2032 and grow to about 49 percent, stabilizing thereafter. SMI premiums will also grow in proportion to 

general revenue transfers, placing a growing burden on beneficiaries. High-income beneficiaries have paid an income-related 

premium for Part B since 2007 and for Part D since 2011. SMI general revenues equal 1.6 percent of GDP in 2018 and will 

increase to an estimated 3.0 percent in 2093 under current law.

Chart 5—Total Medicare (HI and SMI) Expenditures and Non-interest Income

as a Percent of GDP

1970-2093
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 194

0HGLFDUH3DUW$+,ņ,QFRPHDQG([SHQGLWXUHV Chart 6 shows historical and actuarial estimates of HI annual income 

(excluding interest) and expenditures for 1970-2093 in nominal dollars. The estimates are for the open-group population.

Chart 6—Medicare Part A Income (Excluding Interest) and Expenditures

1970-2093

(In billions of dollars)
 195 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Medicare, Part A Income and Expenditures as a Percent of Taxable Payroll. Chart 7 illustrates income (excluding 

interest) and expenditures as a percentage of taxable payroll over the next 75 years. The projected HI cost rates shown in the

2019 report are higher than those from the 2018 report for all years largely due to higher spending and lower taxable payroll 

in all projected years. The standard HI payroll tax rate is scheduled to remain constant at 2.9 percent (for employees and 

employers, combined). In addition, starting in 2013, high-income workers pay an additional 0.9 percent of their earnings 

above $200,000 (for single workers) or $250,000 (for married couples filing joint income tax returns). Since these income 

thresholds are not indexed, over time an increasing proportion of workers and their earnings will become subject to the 

additional HI tax rate. (By the end of the long-range projection period, an estimated 79 percent of workers would be subject 

to this tax.) Thus, HI payroll tax revenues will increase steadily as a percentage of taxable payroll. Similarly, after 2019, HI 

income from taxation of Social Security benefits will also increase faster than taxable payroll because the income thresholds

determining taxable benefits are not indexed for price inflation. The cost rate has mostly been declining since 2010 largely 

due to (1) expenditure growth that was constrained in part by low utilization and low payment updates, and (2) a rebound of 

taxable payroll growth from 2007-2009 recession levels. In 2019 and beyond, the cost rate is projected to rise primarily due 

to retirements of those in the baby-boom generation and partly due to a projected return to modest health services cost 

growth. This cost rate increase is moderated by the accumulating effect of the productivity adjustments to provider price

updates, which are estimated to reduce annual HI per capita cost growth by an average of 0.8 percent through 2028 and 1.0 

percent thereafter. The non-interest income is projected to decrease from 89 percent in 2026 to 78 percent in 2043, and then 

to increase to about 83 percent by the end of the projection period.

Chart 7—Medicare Part A Income (Excluding Interest) and Expenditures

as a Percent of Taxable Payroll

1970-2093
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 196

Medicare, Part A Income and Expenditures as a Percent of GDP. Chart 8 shows estimated annual non-interest income 

and expenditures, expressed as a percent of GDP, the total value of goods and services produced in the U.S. This alternative 

perspective shows the size of the HI Program in relation to the capacity of the national economy to sustain it. Under the 

intermediate and high-cost assumptions, the HI annual balance is negative for all years of the projection period. Under the 

intermediate assumptions, annual deficits generally increase through 2046, and then generally decline thereafter.

Chart 8—Medicare Part A Income (Excluding Interest) and Expenditures

as a Percent of GDP

1970-2093
 197 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Medicare, Parts B and D SMI. Chart 9 shows historical and actuarial estimates of Medicare Part B and Part D premiums 

(including state transfers) as well as expenditures for each of the next 75 years, in dollars. Beneficiary premiums and general

revenue contributions for both Part B and Part D are established annually to cover the expected costs for the upcoming year. 

Should actual costs exceed those anticipated when the financing is determined, future financing rates can include adjustments 

to recover the shortfall. Likewise, should actual costs be less than those anticipated, the savings would result in lower future 

financing rates. The gap between program expenditures and revenues from premiums, drug fees, and state transfers grows 

throughout the projection period. This gap will need to be filled with general revenue transfers.

Chart 9—Medicare Part B and Part D Premium and State

Transfer Income and Expenditures

1970-2093

(In billions of dollars)
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 198

Medicare Part B and Part D Premium as well as State Transfer Income and Expenditures as a Percent of GDP. Chart 

10 shows expenditures for the SMI Program over the next 75 years expressed as a percent of GDP, providing a perspective 

on the size of the SMI Program in relation to the capacity of the national economy to sustain it. SMI costs are projected to 

continue to outpace growth in GDP but at a slower rate compared to the last 10 years. Total SMI expenditures amounted to 

2.1 percent of GDP in 2018 and are projected to grow to about 3.8 percent of GDP within 25 years and to 4.2 percent by the 

end of the projection period. The relatively high growth during the period 2019-2028 is due to the continuing retirement of 

the baby-boom generation and modest increases in cost trends. Growth rates are projected to decline during the 2029-2043 

period primarily as a result of a deceleration in beneficiary population growth. For the last 50 years of the projection period, 

cost growth moderates further due to the continued deceleration in beneficiary population growth and lower health care cost 

growth rate assumptions. To match the faster growth rates for SMI expenditures, beneficiary premiums, along with general 

revenue contributions, would increase more rapidly than GDP over time but at a slower rate compared to the last 10 years. 

Average per beneficiary costs for Part B and Part D benefits are projected to increase after 2018 by about 4.4 percent 

annually. The associated beneficiary premiums—and general revenue financing—would increase by approximately the same 

rate.

Chart 10—Medicare Part B and Part D Premium and State Transfer

Income and Expenditures as a Percent of GDP

1970-2093

Medicare Sensitivity Analysis. This section illustrates the sensitivity of long-range cost and income estimates for the 

Medicare Program to changes in selected individual assumptions. As with the OASDI analysis, the intermediate assumption 

is used as a reference point, and each selected assumption is varied individually. The variation used for each individual 

assumption reflects the levels used for that assumption in the low-cost and high-cost projections (see description of 

sensitivity analysis for OASDI). All present values are calculated as of January 1, 2019 and are based on estimates of income 

and expenditures during the 75-year projection period.

The following table shows the NPV of cash flow during the 75-year projection period under three alternative 

assumptions for the annual growth rate in the aggregate cost of providing covered health care services to beneficiaries. These 

assumptions are that the ultimate annual growth rate in such costs, relative to taxable payroll, will be 1 percent slower than
 199 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

the intermediate assumptions, the same as the intermediate assumptions, and 1 percent faster than the intermediate 

assumptions. The assumptions are shown in parentheses. The table demonstrates that if the ultimate growth rate assumption 

is 1 percentage point lower than the intermediate assumption, the deficit decreases by $8,606 billion. On the other hand, if the 

ultimate growth rate assumption is 1 percentage point higher than the intermediate assumption, the deficit increases 

substantially by $13,837 billion. This assumption has a dramatic impact on projected HI cash flow. The present value of the 

net cash flow under the ultimate growth rate assumption of 1 percentage point lower than the intermediate assumption 

actually becomes a surplus due to the improved financial outlook for the HI trust fund as a result of the PPACA. Several 

factors, such as the utilization of services by beneficiaries or the relative complexity of services provided, can affect costs

without affecting tax income. As the table indicates, the financial status of the HI Trust Fund is extremely sensitive to the 

relative growth rates for health care service costs.

The fertility rate assumption has a substantial impact on projected HI cash flows. As demonstrated by the table, for an 

increase of 0.2 in the assumed ultimate fertility rate, the projected present value of the HI deficit decreases by approximately

$633 billion, and for a decrease of 0.2 in the assumed ultimate fertility rate, the projected present value of the HI deficit

increases by approximately $621 billion. Under the higher fertility rate assumptions, there will be additional workers in the 

labor force after 20 years, and many will become subject to the additional HI tax, thereby lowering the deficit proportionately

more on a present-value-dollar basis. On the other hand, under the lower fertility rate assumptions, there will be fewer 

workers in the workforce with a smaller number subject to the additional tax, in turn raising the HI deficit. It is important to

point out that if a longer projection period were used, the impact of a fertility rate change would be more pronounced.

Relative to the intermediate assumption, for an increase in the ultimate real-wage differential assumption of 0.6 

percentage points, the deficit—expressed in present-value dollars—decreases by approximately $2,586 billion. Conversely, 

for a decrease in the ultimate real-wage differential assumption of 0.6 percentage points, the deficit increases by about $1,403 

billion. When expressed in present-value dollars, faster real-wage growth results in smaller HI cash flow deficits. A higher 

real-wage differential immediately increases both HI expenditures for health care and wages for all workers. There is a full 

effect on wages and payroll taxes, but the effect on benefits is only partial, since not all health care costs are wage-related. In 

practice, faster real-wage growth always improves the financial status of the HI trust fund, regardless of whether there is a 

small or large imbalance between income and expenditures.

As the table indicates, the change in CPI inflation has an impact when the cash flow is expressed as present values. If 

the ultimate CPI-increase assumption is changed from 2.6 percent, the intermediate assumption, to 3.2 percent, the deficit 

decreases by $1,153 billion. On the other hand, if the ultimate CPI-increase is changed from 2.6 percent, the intermediate 

assumption, to 2.0 percent, the deficit increases by $1,462 billion. The projected present values of HI cash flow are relatively 

insensitive to the assumed level of general price inflation because price inflation has about the same proportionate effect on 

income as it does on costs. In present value terms, a smaller deficit results under high-inflation conditions because the present 

values of HI expenditures are not significantly different under the various CPI scenarios, but under high-inflation conditions 

the present value of HI income increases as more people become subject to the additional 0.9 percent HI tax rate required by 

the PPACA. Since the thresholds are not indexed, additional workers become subject to the additional tax more quickly under 

conditions of faster inflation, and vice versa.

Higher net immigration results in smaller HI cash flow deficits. Since immigration tends to occur most often among 

people at working ages, who work and pay taxes into the HI system, a change in the net immigration assumption affects 

revenues from payroll taxes almost immediately. However, the impact on expenditures occurs later as those individuals age 

and become beneficiaries.

The table also shows that the present value of net HI expenditures is approximately 15 percent lower if the real interest 

rate is 3.0 percent rather than 2.5 percent, and approximately 19 percent higher if the real interest rate is 2.0 percent rather 

than 2.5 percent.
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Present Values of Estimated Medicare Part A Expenditures in Excess of Income

Under Various Assumptions, 2019-2093

(Dollar values in billions; values of assumptions shown in parentheses)

Financing Shortfall Range

Assumption1 Low Intermediate High

Average annual growth in health costs2 ..................................... (3,122) 5,484 19,321

(2.8) (3.8) (4.8)

Total fertility rate3 ..................................................................... 4,851 5,484 6,105

(2.2) (2.0) (1.8)

Real wage differential .............................................................. 2,898 5,484 6,887

(1.8) (1.2) (0.6)

CPI change ............................................................................. 4,331 5,484 6,946

(3.2) (2.6) (2.0)

Net immigration4....................................................................... 5,299 5,484 5,705

(1,601,000) (1,265,000) (949,000)

Real interest rate ..................................................................... 4,664 5,484 6,534

(3.0) (2.5) (2.0)

1 The sensitivity of the projected HI net cash flow to variations in future mortality rates also is of interest. At this time, however,

relatively little is known about the relationship between improvements in life expectancy and the associated changes in health 

status and per beneficiary health expenditures. As a result, it is not possible at present to prepare meaningful estimates of the

Part A, mortality sensitivity.

2 Annual growth rate is the aggregate cost of providing covered health care services to beneficiaries. The low-cost and high-cost 

alternatives assume that costs increase 1 percent slower or faster, respectively, than the intermediate assumption, relative to

growth in taxable payroll.

3 The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she were 

to experience the birth rates by age observed in, or assumed for, the selected year and if she were to survive the entire 

childbearing period.

4 Amount represents the average annual net immigration over the 75-year projection period.

Source: CMS

The following table shows the effects of various assumptions about the growth in health care costs on the present value

of estimated SMI expenditures in excess of income. As with HI, net SMI expenditures are very sensitive to changes in the

health care cost growth assumption. For the low-cost alternative, the slower assumed growth in health costs reduces the

governmentwide resources needed for Part B from $28,798 billion to $20,665 billion and in Part D from $7,988 billion to

$5,630 billion, about a 28 percent and 30 percent difference for Part B and Part D, respectively. The high-cost assumption

increases governmentwide resources needed to $41,590 billion for Part B and to $11,757 billion for Part D, about a 44

percent and a 47 percent difference for Part B and Part D, respectively.
 201 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Present Values of Estimated Medicare Parts B and D Future Expenditures 

Less Premium Income and State Transfers Under Three Health Care Cost

Growth Assumptions, 2019-2093

(In billions of dollars)

Governmentwide Resources Needed

Low Intermediate High

Medicare Program1 (3.3) (4.3) (5.3)

Part B........................................................................................... 20,665 28,798 41,590

Part D........................................................................................... 5,630 7,988 11,757

1 Annual growth rate is the aggregate cost of providing covered health care services to beneficiaries. The low and high scenarios

assume that costs increase 1 percent slower or faster, respectively, than the intermediate assumption.

Source: CMS

Sustainability of Social Security and Medicare

75-Year Horizon

According to the 2019 Medicare Trustees’ Report, the HI Trust Fund is projected to remain solvent until 2026 and,

according to the 2019 Social Security Trustees’ Report, the OASI and DI Trust Funds are projected to have sufficient asset

reserves to pay full benefits on time until 2034 and 2052, respectively. In each case, some general revenues must be used to

satisfy the authorization of full benefit payments until the year of trust fund depletion. This occurs when the trust fund

interest income and balances accumulated during prior years are needed to pay benefits, which leads to a transfer from

general revenues to the trust funds. Moreover, under current law, General Fund transfers to the SMI Trust Fund will occur

into the indefinite future and will continue to grow with the growth in health care expenditures.

The potential magnitude of future financial obligations under these three social insurance programs is, therefore,

important from a budget perspective as well as for understanding generally the growing resource demands of the programs on

the economy. A common way to present future cash flows is in terms of their present value. This approach recognizes that a

dollar paid or collected next year is worth less than a dollar today because a dollar today could be saved and earn a year’s

worth of interest. From the 75-year budget perspective, the present value of the additional resources that would be necessary

to meet projected expenditures, for the three programs combined, is $59.0 trillion. To put this figure in perspective, it would

represent 4.2 percent of the present value of projected GDP over the same period ($1,389 trillion). These resource needs

would be in addition to the payroll taxes, benefit taxes, and premium payments. Asset redemptions and SMI general revenue

transfers represent formal budget commitments, but no provision exists for covering the HI and OASDI Trust Fund deficits

once assets are depleted.

The table below shows the magnitudes of the primary expenditures and sources of financing for the three trust funds

computed on an open-group basis for the next 75 years and expressed in present values. The data are consistent with the

SOSI included in the principal financial statements. For HI, revenues from the public are projected to fall short of total

expenditures by $5,484 billion in which is the additional amount needed in order to pay scheduled benefits over the next 75

years.13 From the trust fund perspective, the amount needed is $5,284 billion after subtracting the value of the existing trust

fund balances. For SMI, revenues from the public for Part B and D combined are estimated to be $36,786 billion less than

total expenditures for the two accounts, an amount that, from a budget perspective, will be needed to keep the SMI program

solvent for the next 75 years. From the trust fund perspective, however, total revenues and total expenditures for the SMI

Program are roughly equal due to the annual adjustment of revenue from other government accounts to meet program costs.14

For OASDI, projected revenues from the public fall short of total expenditures by $16,764 billion, and by $13,869 billion

from the trust fund perspective.

13 Interest income is not a factor in this table as dollar amounts are in present value terms. 14 The SMI Trust Fund has $88 billion of existing assets.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 202

From the governmentwide perspective, the present value of the total resources needed for the Social Security and

Medicare Programs over and above current-law funding sources (payroll taxes, benefit taxes, and premium payments from

the public) is $59,034 billion. From the trust fund perspective, which counts the trust funds ($3,199 billion) and the general

revenue transfers to the SMI Program ($36,786 billion) as dedicated funding sources, additional resources needed to fund the

programs are $19,049 billion.

Present Values of Costs Less Revenues of 75-Year Open Group Obligations

HI, SMI, and OASDI

SMI

(In billions of dollars, as of January 1, 2019) HI Part B Part D OASDI Total

Revenues from the public:

Taxes ..................................................................... 24,359 - - 70,465 94,824

Premiums and state transfers................................... - 10,854 3,244 - 14,098

Total....................................................................... 24,359 10,854 3,244 70,465 108,922

Total costs to the public ........................................... 29,843 39,652 11,232 87,229 167,956

Net results - budget perspective1 .............................. 5,484 28,798 7,988 16,764 59,034

Revenues from other government accounts ............. - 28,798 7,988 - 36,786

Trust fund balances as of 1/1/2019........................... 200 96 8 2,895 3,199

Net results - trust fund perspective1 .......................... 5,284 (96) (8) 13,869 19,049

1Net results are computed as costs less revenues and trust fund balances. Negative values are indicative of surpluses.

Source: 2019 OASDI and Medicare Trustees' Reports

Infinite Horizon

The 75-year horizon represented in the above table is consistent with the primary focus of the Social Security and

Medicare Trustees’ Reports. For the OASDI Program, for example, an additional $16.8 trillion in present value will be

needed above currently scheduled taxes to pay for scheduled benefits ($13.9 trillion from the trust fund perspective). Experts

have noted that limiting the projections to 75 years understates the magnitude of the long-range unfunded obligations because

summary measures (such as the actuarial balance and open-group unfunded obligations) reflect the full amount of taxes paid

by the next two or three generations of workers, but not the full amount of their benefits. One approach to addressing the

limitations of 75-year summary measures is to extend the projection horizon indefinitely, so that the overall results reflect the

projected costs and revenues after the first 75 years. Such extended projections can also help indicate whether the financial

imbalance would be improving or continuing to worsen beyond the normal 75-year period. The open-group infinite horizon

net obligation is the present value of all expected future program outlays less the present value of all expected future program

tax and premium revenues. Such a measure is provided in the following table for the three trust funds represented above.

From the budget or governmentwide perspective, the values in line 1 plus the values in line 4 are summed in the last line

of the table and represent the value of resources needed to finance each of the programs into the infinite future. The total

resources needed for all the programs sums to $126.4 trillion in present value terms. This need can be satisfied only through

increased borrowing, higher taxes, reduced program spending, or some combination.

The second line shows the value of the trust fund at the beginning of 2019. For the HI and OASDI Programs this

represents the extent the programs are funded from the trust fund perspective. From that perspective, when the trust fund is

subtracted, an additional $43.1 trillion is needed to sustain the OASDI program into the infinite future, while the HI program

reflects a projected surplus of $3.9 trillion over the infinite horizon. As described above, from the trust fund perspective, the

SMI Program is fully funded; from a governmentwide basis, the substantial gap that exists between premiums, state transfer

revenue, and program expenditures in the SMI Program ($61.1 trillion and $22.9 trillion for Parts B and D, respectively)

represents future general revenue obligations of the federal budget.
 203 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

In comparison to the analogous 75-year number in the table above, extending the calculations beyond 2093, captures the

full lifetime benefits, plus taxes and premiums of all current and future participants. The shorter horizon understates the total

financial needs by capturing relatively more of the revenues from current and future workers and not capturing all of the

benefits that are scheduled to be paid to them.

Present Values of Costs Less Tax, Premium and State Transfer Revenue

through the Infinite Horizon, HI, SMI, OASDI

SMI

(in trillions of dollars as of January 1, 2019) HI Part B Part D OASDI Total

Present value of future costs less future taxes, 

premiums, and state transfers for current participants

participants ................................................................ 13.0 23.8 5.8 38.1 80.7

Less current trust fund balance ................................... 0.2 0.1 - 2.9 3.2

Equals net obligations for past and current participants

participants ................................................................ 12.8 23.7 5.8 35.2 77.5

Plus net obligations for future participants .................... (16.7) 37.4 17.1 7.9 45.7

Equals net obligations through the infinite future for

all participants............................................................ (3.9) 61.1 22.9 43.1 123.2

Present values of future costs less the present

values of future income over the infinite horizon ........... (3.7) 61.2 22.9 46.0 126.4

Source: 2019 OASDI and Medicare Trustees' Reports
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 204

Railroad Retirement, Black Lung, and Unemployment Insurance

Railroad Retirement

The RRB was created in the 1930s to establish a retirement benefit program for the nation’s railroad workers. As the

Social Security Program legislated in 1935 would not give railroad workers credit for service performed prior to 1937,

legislation was enacted in 1934, 1935, and 1937 (collectively the Railroad Retirement Acts of the 1930s) to establish a

railroad retirement system separate from the Social Security Program.

As was discussed previously in this report, railroad retirement pays full retirement annuities at age 60 to railroad

workers with 30 years of service. The program pays disability annuities based on total or occupational disability. It also pays

annuities to spouses, divorced spouses, widow(er)s, remarried widow(er)s, surviving divorced spouses, children, and parents

of deceased railroad workers. Medicare covers qualified railroad retirement beneficiaries in the same way as it does Social

Security beneficiaries.

Payroll taxes paid by railroad employers and their employees provide a primary source of income for the Railroad

Retirement and Survivors’ Benefit Program. Other sources of program income include: the RRB-SSA-CMS Financial

Interchanges with the Social Security and Medicare Trust Funds, earnings on investments, federal income taxes on railroad

retirement benefits, and appropriations.

For further detail related to RRP financing and actuarial assumptions, see Note 22—Social Insurance.

Cash Flow Projections

Income and Expenditures. Railroad retirement cash flow projections are based on the intermediate set of assumptions

used in the RRB’s actuarial valuation of the program. The estimates are for the open-group population, which includes all

persons projected to participate in the RRP as railroad workers or beneficiaries during the period. Thus, the estimates include

payments from, and on behalf of, those who will be employed by the railroads during the period as well as those already

employed at the beginning of the period. They also include expenditures made to, and on behalf of, such workers during that

period. Estimated railroad retirement expenditures are expected to exceed estimated income (excluding interest and financial

interchange income), in dollars, for the entire projection period (2019-2093).

Sensitivity Analysis. The projections of the future financial status of the RRP depend on many economic and

demographic assumptions. For further information on the sensitivity of the long-range projections of the RRP and how the

projections are impacted by changes in certain key assumptions, refer to RRB’s financial statements.

Sustainability of Railroad Retirement

Consistent with SOSI the primary expenditures and sources of financing for the RRP are computed on an open-group

basis for the next 75 years and are expressed in present values as of October 1, 2018. From a governmentwide perspective,

revenues are expected to fall short of expenditures by approximately $117.8 billion, which represents the present value of

resources needed to sustain the RRP. From a trust fund perspective, when the trust fund balance ($28.3 billion) and the

financial interchange and transfers ($90.8 billion) are included, the combined balance of the NRRIT, the Railroad Retirement

Account, and the SSEB Account show a slight surplus ($1.3 billion). For further detail related to the sustainability of the

RRP, refer to RRB’s financial statements.
 205 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Black Lung

The Federal Coal Mine Health and Safety Act of 1969 created the BLDBP to provide compensation, medical, and

survivor benefits for eligible coal miners who are totally disabled due to pneumoconiosis (black lung disease) arising out of

their coal mine employment and the BLDTF provides benefit payments when no RMO can be assigned the liability.

As was stated in the note to Social Insurance earlier in this report, black lung disability benefit payments are funded by

excise taxes from coal mine operators based on the domestic sale of coal, as are the program’s administrative costs. These

taxes are collected by the IRS and transferred to the BLDTF.

P.L. 110-343, Division B-Energy Improvement and Extension Act of 2008, enacted on October 3, 2008, among other

things, restructured the BLDTF debt by refinancing the outstanding high interest rate repayable advances with low interest

rate discounted debt instruments similar in form to zero-coupon bonds, plus a one-time appropriation. This Act also allowed

that any subsequent debt issued by the BLDTF may be used to make benefit payments, other authorized expenditures, or to

repay debt and interest from the initial refinancing. For more information on BLDBP financing and actuarial assumptions,

see Note 22—Social Insurance.

Cash Flow Projections

Projected Cash Inflows and Outflows, in Constant Dollars, for the Open Group. The significant assumptions used in the

projections, in constant dollars, are the coal excise tax revenue estimates, tax rate structure, number of beneficiaries, life

expectancy, federal civilian pay raises, medical cost inflation, interest rate on new debt issued by the BLDTF, and the CPI-U

for goods and services. Effective for fiscal year 2017 reporting, DOL revised its projection period from a fixed terminus of

fiscal year 2040 to a rolling 25-year period beginning on the valuation date. In order to be consistent with Executive Branch

policy on regulations pursuant to the CPP, DOL’s estimates of future excise tax income were based on EIA projections of

future coal production that do not reflect CPP regulation; effective September 6, 2019, the CPP regulation was repealed and

the EPA issued the Affordable Clean Energy regulation. The EIA projections reflect the continuing trend of lower coal

production which would lead to lower future excise tax income. The projections, in constant dollars for the open group, made

over the 25-year period ending September 30, 2044, indicate that cash outflows for benefit payments and administrative

expenses will exceed cash inflows from excise taxes for all years in the projection period.

Sensitivity Analysis. For the projected cash inflows and outflows with sensitivity analysis, in constant dollars for the

open group, the significant assumption for medical cost inflation was increased by 1 percent. For the sensitivity analysis, the

other significant assumptions (coal excise tax revenue estimates, tax rate structure, number of beneficiaries, life expectancy,

federal civilian pay raises, interest rate on new debt issued by the BLDTF, and CPI-U for goods and services) were left

unchanged. Cash projections depend on the assumptions used and actual experience may differ materially from the

projections. These projections with sensitivity analysis, in constant dollars for the open group, made over the 25-year period

ending September 30, 2044, indicate cash outflows for benefit payments and administrative expenses will exceed cash

inflows from excise taxes for all years in the projection period. For further information on the sensitivity of the projections of

the BLDBP and how the projections are impacted by changes in assumptions, refer to DOL’s financial statements.

Sustainability of Black Lung

On September 30, 2019, total liabilities of the BLDTF exceeded assets by $5.85 billion. This net position deficit

represents the accumulated shortfall of excise taxes necessary to meet benefit payments, administrative costs, and interest

expense incurred prior to and subsequent to the debt refinancing pursuant to P.L. 110-343. Prior to the enactment of P.L. 110-

343, this shortfall was funded by repayable advances to the BLDTF, which were repayable with interest. Pursuant to P.L.

110-343, any shortfall will be financed with debt instruments similar in form to zero-coupon bonds, with a maturity date of

one year and bear interest at the Treasury 1-year rate. For further detailed information on the sustainability of the BLDBP,

refer to DOL’s financial statements.

Unemployment Insurance

The UI Program was created in 1935 to provide income assistance to unemployed workers who lose their jobs generally

through no fault of their own, and are unemployed due to a lack of suitable work. The program protects workers during

temporary periods of unemployment through the provision of unemployment compensation benefits. The program is

administered through a unique system of federal and state partnerships established in federal law but executed through

conforming state laws by state officials. The federal government provides broad policy guidance and program direction

through the oversight of DOL, while program details are established through individual state UI statutes, administered

through state UI entities.

The UI Program is financed through the collection of federal and state unemployment taxes levied on subject employers

and deposited in the UTF and federal appropriations. The fund was established to account for the receipt, investment, and
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 206

disbursement of unemployment taxes. Federal unemployment taxes are used to pay for the administrative costs of the UI

Program, including grants to each state to cover the costs of state UI operations and the federal share of extended UI benefits.

Federal unemployment taxes are also used to fund an account within the UTF to make advances to state UI accounts when a

state’s UI account balance has been exhausted and the state is unable to make benefit payments.

The UI Program provides regular and extended benefit payments to eligible unemployed workers. Regular UI program

benefits are established under state law and are payable for a period not to exceed a maximum duration. In 1970 federal law

began to require states to extend this maximum period of benefit duration by 50 percent during periods of high

unemployment. In certain circumstances, the duration of extended benefits may exceed 50% of regular duration. These

extended benefit payments are paid equally from federal and state accounts.

Cash Flow Projections

Projected Cash Inflows and Outflows, in Constant Dollars, Under Expected Economic Conditions. The significant

assumptions used in the cash flow projections of the UTF include total unemployment rates, civilian labor force levels,

percent of unemployed receiving benefits, total wages, distribution of benefit payments by state, state tax rate structures, state

taxable wage bases, interest rates on UTF investments, and the CPI-U for goods and services. Cash projections depend on the

assumptions used and actual experience may differ materially from the projections. Under expected economic conditions,

total cash inflows are projected to exceed total cash outflows through the end of the ten-year projection period ending

September 30, 2029.

Sensitivity Analyses. The effect on the accumulated UTF assets of projected total cash inflows and cash outflows of the

UTF, in constant dollars, over the ten-year period ending September 30, 2029, are demonstrated in two sensitivity analyses.

Each sensitivity analysis uses an open group, which includes current and future participants in the UI Program. Sensitivity

Analysis I assumes higher rates of unemployment and Sensitivity Analysis II assumes even higher rates of unemployment

compared to expected economic conditions. In Sensitivity Analysis I, which uses a higher unemployment rate of 5.35 percent

beginning in fiscal year 2020, net cash inflows are negative in fiscal years 2020 through 2024, but become positive in fiscal

year 2025, and continue to be positive through 2029. In Sensitivity Analysis II, net cash outflows, including interest earnings

and expenses, are projected in fiscal years 2020 through 2025, but inflows exceed outflows in fiscal years 2026 through 2029.

Net cash inflows are reestablished in fiscal year 2026 and peak in fiscal year 2028, with a drop in the unemployment rate to

below 8.0 percent in fiscal year 2025, and then steadily downward for fiscal years 2026 through 2029. The example of

expected economic conditions and two sensitivity analyses, in constant dollars, demonstrate the counter cyclical nature of the

UI Program, which experiences net cash inflows during periods of low unemployment that are depleted by net cash outflows

during periods of increased unemployment. For further detail on the sensitivity of the projections of the UI Program, refer to

DOL’s financial statements.

Sustainability of Unemployment Insurance

The ability of the UI Program to meet a participant’s future benefit payment needs depends on the availability of

accumulated taxes and earnings within the UTF. The effect of projected benefit payments on the accumulated net assets of

the UTF is measured, under an open group scenario, which includes current and future participants in the UI Program. As of

September 30, 2019, total assets within the UTF exceeded total liabilities by $87.7 billion. At the present time there is a

surplus; any surplus of tax revenues and earnings on these revenues over benefit payment expenses is available to finance

benefit payments in future periods when tax revenues may be insufficient. For more information on the sustainability of the

UI Program, refer to DOL’s financial statements.

Unemployment Trust Fund Solvency

Each state’s accumulated UTF net assets or reserve balance should provide a defined level of benefit payments over a

defined period. To be minimally solvent, a state’s reserve balance should provide for one year’s projected benefit payment

needs based on the highest levels of benefit payments experienced by the state over the last 20 years. A ratio of 1.0 or greater

indicates that the state UTF account balance is minimally solvent. States below this level are vulnerable to exhausting their

funds in a recession. States exhausting their reserve balance must borrow funds from the FUA to make benefit payments. In

fiscal year 2019, there were no FUA borrowings.

The results of DOL’s state by state analysis indicate 21 state funds plus the fund of the Virgin Islands were below the

minimal solvency ratio of 1.0 at September 30, 2019.
 207 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Deferred Maintenance and Repairs

DM&R result from maintenance not being performed on a timely basis and is the estimated cost to bring governmentowned PP&E to an acceptable condition. DM&R exclude the cost of expanding the capacity of assets or upgrading them to 

serve needs different from those originally intended. The consequences of not performing regular maintenance and repairs 

could include increased safety hazards, poor service to the public, higher costs in the future, and inefficient operations. 

Estimated DM&R costs are not accrued in the Statements of Net Cost or recognized as a liability on the Balance Sheets.

The amounts disclosed for DM&R are allowed to be measured using one of the following three methods:

x Condition assessment surveys which are periodic inspections of government-owned property to determine the 

current condition and estimated cost to bring the property to an acceptable condition.

x Life-cycle cost forecast that is an acquisition or procurement technique that considers operation, maintenance, and 

other costs in addition to the acquisition cost of assets.

x Any other method of choice that is similar to the condition assessment survey or life-cycle costing methods.

The table below of DM&R is presented as a single estimate in accordance with SFFAS No. 42, Deferred Maintenance 

and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32. These amounts were all 

measured using the condition assessment survey method. Please refer to the individual financial statements of DOD, DOI, 

VA, DOE, USDA, NASA, HHS, GSA, DHS, and DOT for detailed significant information on DM&R. 

Deferred Maintenance and Repairs as of September 30, 2019, and 2018

(In billions of dollars) 2019 2018

Asset category:

General property, plant, and equipment ...................................................................... 161.4 147.3

Heritage assets ......................................................................................................... 20.9 18.9

Stewardship land....................................................................................................... 0.5 0.4

Total deferred maintenance and repairs ................................................................... 182.8 166.6

Other Claims for Refunds

Other claims for refunds are claims filed for which specific administrative actions such as review by the courts are

required before payments can be made and unasserted claims for refund by taxpayers or importers that may or may not

become payable depending upon the resolution of subsequent events. As stated in SFFAS No. 7, Accounting for Revenue and

Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, unasserted claims for refund

such as unfiled claims for refunds or drawbacks for which no claim has been filed, are not known, therefore estimates are not

able to be determined, and are not recognized on the balance sheet. Claims filed for refunds where required administrative

actions are not yet complete as of the close of the reporting period may not be known however, the refunds, may be

reasonably estimable.

Management has estimated amounts that may be paid out as other claims for tax refunds. This estimate represents an

amount (principal and interest) that may be paid for claims pending judicial review by the federal courts or, internally, by

appeals. The total estimated payout (including principal and interest) for claims pending judicial review by the federal courts

is $7.8 billion and $11.1 billion for fiscal years 2019 and 2018, respectively. For those under appeal, the estimated payout is

$2.3 billion and $1.8 billion for fiscal years 2019 and 2018, respectively. To the extent judgments against the government for

these claims prompt other similarly situated taxpayers to file similar refund claims, these amounts could become significantly

greater.
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 208

Tax Assessments

The government is authorized and required to make inquiries, determinations, and assessments of all taxes that have not

been duly paid. Unpaid assessments result from taxpayers filing returns without sufficient payment, as well as enforcement

programs such as examination, under-reporter, substitute for return, and combined annual wage reporting. Under federal

accounting standards, unpaid assessments are categorized as taxes receivable if taxpayers agree or a court has determined the

assessments are owed. If neither of these conditions are met, the unpaid assessments are categorized as compliance

assessments. Assessments with little or no future collection potential are called write-offs. Although compliance assessments

and write-offs are not considered receivables under federal accounting standards, they represent legally enforceable claims of

the government. There is, however, a significant difference in the collection potential between compliance assessments and

receivables.

Compliance assessments and pre-assessment work in process are $77.8 billion and $67.5 billion for fiscal years 2019

and 2018, respectively. The amount of allowance for uncollectible amounts pertaining to compliance assessments cannot be

reasonably estimated, and thus the net realizable value of the pre-assessment work-in-process cannot be determined. The

amount of assessments that entities have statutory authority to collect at the end of the period but that have been written off

and excluded from accounts receivable are $106.0 billion and $115.0 billion for fiscal years 2019 and 2018, respectively.
 209 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Federal Oil and Gas Resources

The DOI is responsible for managing the nation’s oil and natural gas resources and the mineral revenues on federal

lands, both onshore and on the Outer Continental Shelf. This management process can be broken down into six essential

analysis components: pre-leasing, post-leasing and pre-production, production and post-production, revenue collection, fund

disbursement, and compliance.

Federal Oil and Gas Resources as of September 30, 2019, and 2018

Offshore Onshore Total

(In billions of dollars) 2019 2018 2019 2018 2019 2018

Oil and lease condensate.................. 30.3 20.9 18.7 11.6 49.0 32.5

Natural gas, wet after lease 

separation........................................ 2.2 1.9 17.7 11.3 19.9 13.2

Total ............................................. 32.5 22.8 36.4 22.9 68.9 45.7

The above table presents the estimated present value of future federal royalty receipts on estimated proved reserves15 as

of September 30, 2019 and 2018. The federal government’s estimated petroleum royalties have as their basis the DOE’s EIA

estimates of proved reserves. The EIA provides such estimates directly for federal offshore areas and they are adjusted to

extract the federal subset of onshore proved reserves. The federal proved reserves were then further adjusted to correspond

with the effective date of the actual production for calendar year 2017, the most recently published EIA proved reserves

report and then are projected, separately for oil and natural gas, over time to simulate a schedule of when the reserves would

be produced. Future royalties are then calculated from these production streams by applying future price estimates by the

OMB, production growth estimates from the EIA’s 2019 Annual Energy Outlook, and effective royalty rates, adjusted for

transportation allowances and other allowable deductions. The valuation method used for gas captures royalties from three

products–dry gas, wet gas, and natural gas liquids–which collectively are reported as natural gas, wet after lease separation.

The present value of these royalties are then determined by discounting the revenue stream back to the effective date at a

public discount rate assumed to be equal to the OMB’s estimates of future 30-year Treasury bill rates. The 30-year rate was

chosen because this maturity life most closely approximates the productive lives of the proved reserves estimates.

15 Per the EIA, lease condensate is a mixture consisting primarily of pentanes and heavier hydrocarbons which is recovered as a liquid from natural gas in

lease separation facilities. This category excludes natural gas plant liquids, such as butane and propane, which are recovered at downstream natural gas

processing plants or facilities. Also, per the EIA, natural gas, wet after lease separation, is the volume of natural gas remaining after removal of lease

condensate in lease and/or field separation facilities, if any, and after exclusion of nonhydrocarbon gases where they occur in sufficient quantity to render the

gas unmarketable. Natural gas liquids may be recovered from volume of natural gas, wet after lease separation, and at natural gas processing plants

(https://www.eia.gov/dnav/ng/TblDefs/ng_prod_deep_tbldef2.asp).
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 210

Estimated Federal Oil and Gas Petroleum Royalties (Proved Reserves)

As of September 30, 2019, and 2018

Average Purchase Average Royalty

Quantity (in millions) Price ($) Rate (%)

Petroleum Category 2019 2018 2019 2018 2019 2018

Oil and lease condensate (Bbl):

Offshore ......................................... 4,576.0 3,491.3 62.62 65.41 13.18 12.96

Onshore ......................................... 3,191.7 2,361.0 52.50 60.16 12.53 12.19

Total ............................................. 7,767.7 5,852.3

 

Natural gas, wet after lease 

separation (Mcf):

Offshore ......................................... 5,413.3 5,370.3 3.21 3.50 11.79 11.89

Onshore ......................................... 44,592.3 37,828.7 2.95 2.94 10.55 10.36

Total ............................................. 50,005.6 43,199.0

Bbl = barrels

Mcf = 1,000 cubic feet

The table above provides the estimated quantity, a weighted average purchase price, and a weighted average royalty rate

by category of estimated federal petroleum royalties at the end of fiscal years 2019 and 2018.16 The estimated quantities,

average purchase prices and royalty rates vary by region; the above table reflects an overall weighted average purchase price

and royalty rate, and is not presented on a regional basis, but is instead calculated based on regional averages. The prices and

royalty rates are based upon historical (or estimated) averages, excluding prior-period adjustments, if any, and are affected by

such factors as accounting adjustments and transportation allowances, resulting in effective average prices and royalty rates.

Prices are valued at the lease rather than at the market center, and differ from those used to compute the asset estimated

present values, which are forecasted and discounted based upon OMB economic assumptions. For further details on federal

oil and gas resources, refer to the financial statements of DOI. In addition to the oil and gas resources discussed above, the

federal government also owns oil and gas resources that are not currently under lease.

16 Gulf of Mexico proved reserves are royalty bearing volumes. In the Gulf of Mexico, an additional 613.0 million Bbl for fiscal year 2019 and 860.6 million

Bbl for fiscal year 2018 of proved oil reserves, and 622.8 million Mcf for fiscal year 2019 and 739.9 million Mcf for fiscal year 2018 of proved gas reserves

are not reflected in these totals as they are estimated to be producible royalty free under various royalty relief provisions. The NPV of the royalty value of the

royalty free proved reserves volumes in the Gulf of Mexico is estimated to be $4.2 billion for fiscal year 2019 and $5.4 billion for fiscal year 2018.
 211 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Federal Natural Resources Other than Oil and Gas

Federal Natural Resources Other than Oil and Gas as of September 30, 2019, and 2018

(in billions of dollars)

Natural Resource Category 2019 2018

Coal royalties .......................................................................................... 8.9 8.8

Total..................................................................................................... 8.9 8.8

The ONRR within DOI is responsible for the management and collection of revenues associated with federal coal leases

which are managed by the BLM within DOI. The ONRR achieves optimal value by ensuring that all natural resource

revenues are efficiently and accurately collected as well as disbursed to recipients in a timely manner by performing audit and

revenue compliance activities.

The Mineral Leasing Act of 1920, as amended, and the Mineral Leasing Act for Acquired Lands of 1947, as amended,

gives DOI the responsibility for coal leasing on approximately 700 million acres of federal mineral estate which includes 570

million of acres where coal development is allowed. The surface estate of these lands may be under the control of BLM, the

U.S. Forest Service (within USDA), private or state land owners, or other federal entities.

Public lands are available for coal leasing after the lands have been evaluated through a multiple-use planning process.

The Mineral Leasing Act, as amended by the Federal Coal Leasing Amendments Act of 1976, generally requires that coal be

leased competitively and that the federal government must receive a fair market value for land leased for coal development.

Once a lease is issued, federal coal leasing laws and lease terms determine the federal government’s share of production from

coal leasing operations.

DOI receives coal leasing revenues from a bonus paid at the time of the lease, an annual rent payment of $3.00 per acre,

and royalties paid on the value of the coal after it has been mined. A portion of the total federal coal royalties will be

distributed to other non-federal entities. The royalty rate for surface-mining methods is 12.50 percent and is 8.00 percent for

underground mining, and the BLM can approve reduced royalty rates based on maximum economic recovery. Regulations

that govern BLM’s coal leasing program are contained in Title 43, Groups 3000 and 3400 of the Code of Federal

Regulations.

The above table presents the estimated present value of federal coal royalties under lease contract or other long-term

arrangements as of September 30, 2019 and 2018. The federal government’s estimated coal royalties have as their basis the

DOI’s BLM estimates of recoverable reserves. The federal recoverable reserves are then further adjusted to correspond with

the effective date of the analysis and then are projected over time to simulate a schedule of when the reserves would be

produced. Future royalties are then calculated by applying future price estimates and effective royalty rates, adjusted for

transportation allowances and other allowable deductions. The present value of these royalties are then determined by

discounting the revenue stream back to the effective date at a public discount rate assumed to be equal to the OMB’s

estimates of future 30-year Treasury bill rates. The 30-year rate was chosen because this maturity life most closely

approximates the productive lives of the recoverable reserves estimates.

In addition to the coal resources discussed above, the federal government has other natural resources under lease

contract whereby the lessee is required to pay royalties on the sale of the natural resource. These natural resources include

soda ash, potash muriates of potash and langbeinite phosphate, lead concentrate, copper concentrate, and zinc concentrate.

Soda ash and potash have the largest estimated present value of future royalties. The federal government also owns coal

resources and certain other natural resources that are not currently under lease. For further details on federal natural

resources-other than oil and gas, refer to the financial statements of DOI.