By 2020, 90 cents of every dollar will go to entitlements and debt interest

Introduction

Long-term simulations of government debt offer a cold, harsh look at the federal economic situation, according to the Government Accountability Office.

The GAO included two models, one which extends current baseline estimates and an alternative simulation which extends tax provisions until 2021. Both simulations demonstrate how spending is primarily driven by rising health care costs and aging populations, which increase Social Security and Medicare costs.

Last year, Social Security ran its first cash deficit in 25 years, and will continue to run a deficit in the future, according to projections by the Congressional Budget Office.

“Federal health care spending continues to grow faster that the GDP,” the report said. The health care law includes provisions to control the growth of health care costs, but the CBO and the Centers for Medicare and Medicaid Services have expressed concern about whether these cost-control measures are sustainable. For example, payment rates for certain Medicare services will be reduced by relying on economy-wide productivity gains.

The simulations also reveal the greater portion of spending that will need to be financed through borrowing. By 2030, net interest payments on public debt will reach almost 8 percent of the GDP, which would make it the largest single expenditure in the budget.

“Absent policy changes, our simulations indicate that the federal government faces a rapid and unsustainable growth in debt,” the GAO said. “Delaying action increases the magnitude of the changes needed and hence the probability that the changes will be more drastic and therefore more disruptive to individuals and the economy as whole.”

The GAO recommends lawmakers create a short-term plan to phase in changes gradually. “With the passage of time, the window for people to develop and implement such a plan narrows,” the GAO warned.

FAST FACT: Based on GAO simulations, by 2020, about 89 cents of every dollar of federal revenue will be spent on interest costs, Social Security, Medicare, and Medicaid.

Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities.

HEALTH CARE

MISC.

• CMS increased on-site audits of Medicare Part D sponsors last year, but still does not have figures for 2010 expenses. The 2010 audit of improper payments for the rest of Medicare were released earlier this month. The prescription drug program cost $51 billion in 2009. (GAO)
• The Internal Revenue Service runs taxpayer assistance centers to provide face-to-face assistance for preparing tax returns and understanding tax laws. The location of the centers has not kept pace with changes in the population and demographics. As a result, only 28 percent of Americans live within 30 minutes of a center. (TIGTA)