To understand the state of the union we must understand the financial state of the union. Fortunately, for the first time in years the Financial Report of the US Government was issued (February 17) before the State of the Union address.
Hopefully, the President will mention the important information included in this year’s report. Here are the top ten quotes from the report he should include in his speech:
- “The government deducts tax and other revenues from net cost (with some adjustments) to derive its FY 2021 “bottom line” net operating cost of $3.1 trillion.”
- “A sustainable fiscal policy is defined as one where the debt-to-GDP ratio is stable or declining over the long term. The projections based on the assumptions in this Financial Report indicate that current policy is not sustainable.”
- “Actual budget results for FY 2021 lead to higher 75-year PV [present value] of spending for mandatory programs other than Social Security, Medicare, and Medicaid. Budgetary estimates result in higher 75-year PVs for individual income tax receipts and outlays for non-defense discretionary programs.”
- “The 75-year fiscal gap under current policy is estimated at 6.2 percent of GDP, which is 32.4 percent of the 75-year PV [present value] of projected receipts and 25.0 percent of the 75-year PV of non-interest spending.” Sheila’s note: This means that to balance receipts to spending over the next 75-years taxes and other revenue would have to increase by 32.4% or spending would have to decrease by 25%.
- “The debt-to-GDP ratio was about 100 percent at the end of FY 2021. Under current policy and based on this report’s assumptions, it is projected to reach 701 percent by 2096. The projected continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable.”
- “Delaying fiscal adjustments for too long raises the risk that growing federal debt would increase interest rates, which would, in turn, reduce investment and ultimately economic growth.”
- “If changes in fiscal policy are not so abrupt as to slow economic growth and those policy changes are adopted earlier, then the required changes to revenue and/or spending will be smaller to return the government to a sustainable fiscal path.”
- “According to the 2021 Medicare Trustees’ Report, the HI Trust Fund is projected to remain solvent until 2026 and, according to the 2021 Social Security Trustees’ Report, the OASI and DI Trust Fund is projected to have sufficient reserves to pay full benefits on time until 2033 and 2057, 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.”
- “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. From the 75-year budget perspective, the PV of the additional resources that would be necessary to meet projected expenditures, for the three programs combined, is $71.0 trillion.”
- “Certain material weaknesses in internal control over financial reporting and other limitations resulted in conditions that prevented us (the auditors from GAO) from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2021, and 2020. About 30 percent of the federal government’s reported total assets as of September 30, 2021, and approximately 18 percent of the federal government’s reported net cost for fiscal year 2021 relate to significant federal entities that received a disclaimer of opinion or qualified opinion.” Sheila’s note: A disclaimer of opinion means that the financial report flunked its audit for reasons such as the auditors’ work was limited, for instance, when auditors cannot access particular financial data and/or the auditors have other doubts about the reports.