Management’s Discussion & Analysis

An Unsustainable Fiscal Path

An important purpose of the Financial Report is to help citizens understand current fiscal policy and the importance and magnitude of policy reforms necessary to make it sustainable. This Financial Report includes the SLTFP and a related note disclosure (Note 24). The Statements display the PV of 75-year projections of the federal government’s receipts and non-interest spending¹⁷ for FY 2024 and FY 2023.

Fiscal Sustainability

A sustainable fiscal policy is defined in this Financial Report 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. This Financial Report presents data, including debt, as a percent of GDP to help readers assess whether current fiscal policy is sustainable. The debt-to-GDP ratio was approximately 98 percent at the end of FY 2024, up slightly from approximately 97 percent at the end of FY 2023. The long-term fiscal projections in this Financial Report are based on the same economic and demographic assumptions that underlie the 2024 SOSI, which is as of January 1, 2024. As discussed below, if current policy is left unchanged and based on this Financial Report’s assumptions, the debt-to-GDP ratio is projected to exceed 200 percent by 2049 and reach 535 percent in 2099. By comparison, under the 2023 projections, the debt-to-GDP ratio exceeded 200 percent two years earlier in 2047 and reached 531 percent in 2098. Preventing the debt-to-GDP ratio from rising over the next 75 years is estimated to require some combination of spending reductions and revenue increases that amounts to 4.3 percent PV of GDP over the period. While this estimate of the “75-year fiscal gap” is highly uncertain, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

Delaying action to reduce the fiscal gap increases the magnitude of spending and/or revenue changes necessary to stabilize the debt-to-GDP ratio as shown in Table 6 below.

The estimates of the cost of policy delay assume policy does not affect GDP or other economic variables. 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.

The projections discussed here assume current policy¹⁸ remains unchanged, and hence, are neither forecasts nor predictions. Nevertheless, the projections demonstrate that policy changes must be enacted to move towards fiscal sustainability.

The Primary Deficit, Interest, and Debt

The primary deficit – the difference between non-interest spending and receipts – is the determinant of the debt-to-GDP ratio over which the government has the greatest control (the other determinants include interest rates and growth in GDP). Chart 8 shows receipts, non-interest spending, and the difference – the primary deficit – expressed as a share of GDP. The primary deficit-to-GDP ratio spiked during 2009 through 2012 due to the 2008-09 financial crisis and the ensuing severe recession, and rose again in 2020 due to the COVID-19 pandemic and ensuing economic downturn. Increased spending and temporary tax reductions enacted to stimulate the economy and support recovery contributed to elevated primary deficits over both periods, resulting in sharp increases in the ratio of debt to GDP. The debt-to-GDP ratio rose from 39 percent at the end of 2008 to 70 percent at the end of 2012 and then from 79 percent at the end of 2019 to approximately 100 percent at the end of 2020.

The primary deficit-to-GDP ratio in 2024 was 3.3 percent, a decrease of 0.5 percentage points from the primary deficit-to-GDP ratio reported for 2023 in last year’s Financial Report, due to higher receipts, partially offset by higher non-interest spending. The primary deficit-to-GDP ratio is projected to average 3.1 percent over the next 10 years, based on the technical assumptions in this Financial Report, and projected changes in receipts and outlays. After 2034, increased spending for Social Security and health programs due to the aging of the population, is projected to result in increasing primary deficit ratios that peak at 4.0 percent of GDP in 2045. Primary deficits as a share of GDP gradually decrease beyond that point and reach 2.8 percent of GDP in 2099, 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 American Recovery and Reinvestment Act and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The share subsequently increased to almost 18.0 percent of GDP by 2015, before falling to nearly 16.0 percent in 2020, following the enactment of the TCJA (P.L. 115-97) and COVID-19 pandemic-induced economic downturn.

Download the chart's data source here in CSV format

Receipts were 17.1 percent of GDP in 2024, an increase of 0.6 percentage points relative to the share of GDP reported for 2023 in last year’s Financial Report. Receipts are projected to fall slightly to 16.8 percent of GDP in 2025 and gradually increase to 18.7 percent of GDP in 2034. After 2034, receipts grow slightly more rapidly than GDP over the projection period as increases in real (i.e., inflation-adjusted) incomes cause more taxpayers and a larger share of income to fall into the higher individual income tax brackets.¹⁹

On the spending side, the non-interest spending share of GDP was 20.4 percent in 2024, 0.1 percentage points above the share of GDP reported for 2023, last year’s Financial Report, which was 20.3 percent. The ratio of non-interest spending to GDP is projected to rise gradually, reaching 23.8 percent of GDP in 2079. The ratio of non-interest spending to GDP then declines to 23.3 percent in 2099, the end of the projection period. These increases are principally due to faster growth in Social Security, Medicare, and Medicaid spending (see Chart 8). The aging of the population, among other factors, is projected to increase the spending shares of GDP of Social Security and Medicare by about 0.6 and 1.4 percentage points, respectively, from 2025 to 2040. After 2040, the Social Security and Medicare spending shares of GDP continue to increase in most years, albeit at a slower rate, due to projected increases in health care costs and population aging, before declining toward the end of the projection period.

On a PV basis, deficit projections reported in this year’s Financial Report decreased in both present-value terms and as a percent of the current 75-year PV of GDP. As shown in the SLTFP, this year’s estimate of the 75-year PV imbalance of receipts less non-interest spending is 3.6 percent of the current 75-year PV of GDP ($72.7 trillion), compared with 3.8 percent ($73.2 trillion) as was projected in last year’s Financial Report. As discussed in Note 24, these decreases are attributable to the net effect of the following factors:

• The largest factor affecting the projections is the update to economic and demographic assumptions that decreases the fiscal imbalance by 0.3 percentage points ($4.8 trillion). Contributing to this improvement in the imbalance are higher wages that increase receipts and higher GDP levels that reduce spending as a percentage of GDP. The 75-year PV of GDP for this year’s projections is $2,002.6 trillion, greater than last year’s $1,919.1 trillion.
• The second largest factor affecting the projections is due to updated budget data that increases the fiscal imbalance by 0.1 percentage points ($2.5 trillion). This change stems from actual budget results for FY 2024 and baseline estimates published in the FY 2025 President’s Budget. This deterioration in the fiscal position is largely a result of a higher 75-year PV of discretionary spending on non-defense programs due in part to adjustments to accord with FY 2024 appropriations. In addition, actual budget results for FY 2024 contribute to an increase in the fiscal imbalance by raising the 75-year PV of spending for Medicaid and mandatory spending on programs other than Social Security and Medicare. Partially offsetting those changes is a higher 75-year PV of individual income tax receipts, which represent a larger share of wages and salaries relative to the previous year’s projections.
• The third largest factor affecting the projected imbalance is the change in reporting period–the effect of shifting calculations from 2024 through 2098 to 2025 through 2099. The update increases the imbalance of the 75-year PV of receipts less non-interest spending by $1.4 trillion, which has a negligible effect on the 75-year PV of GDP.
• The fourth largest factor affecting the projections is a technical update to the model’s assumptions for growth in enrollees for health insurance marketplace subsidies. The technical update increases the 75-year fiscal imbalance by $0.6 trillion and has a trivial impact on the projections as a share of the 75-year PV of GDP.
• The smallest factor affecting the projections is the effect of new Social Security, Medicare, and Medicaid program-specific actuarial assumptions, which decrease the fiscal imbalance by $0.3 trillion and negligibly affect the imbalance as of the 75-year PV of GDP.²⁰

The net effect of these changes equal to the penultimate row in the SLTFP, shows that this year’s estimate of the overall 75-year PV of receipts less non-interest spending is negative 3.6 percent of the 75-year PV of GDP (negative $72.7 trillion, as compared to a GDP of $2,002.6 trillion).

One of the most important assumptions underlying the projections is that current federal policy does not change. The projections are therefore neither forecasts nor predictions, and do not consider large infrequent events such as natural disasters, military engagements, or economic crises. By definition, they do not build in future changes to policy. If policy changes are enacted, perhaps in response to projections like those presented here, then actual fiscal outcomes will be different than those projected.

Another important assumption is the future growth of health care costs. As discussed in Note 25, 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 lowered payment rate updates for Medicare hospital and physician payments whose long-term effectiveness of which is not yet clear. The Medicare spending projections in the long-term fiscal projections are based on the projections in the 2024 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 25, the Medicare projections are subject to much uncertainty about the ultimate effects of these provisions to reduce health care cost growth. Certain features of current law may result in some challenges for the Medicare program including physician payments, payment rate updates for most non-physician categories, and productivity adjustments. Payment rate updates for most non-physician categories of Medicare providers are reduced by the growth in economy-wide private nonfarm business total factor productivity although these health providers have historically achieved lower levels of productivity growth. Should payment rates prove to be inadequate for any service, beneficiaries’ access to and the quality of Medicare benefits would deteriorate over time, or future legislation would need to be enacted that would likely increase program costs beyond those projected under current law. For the long-term fiscal projections, that uncertainty also affects the projections for Medicaid and exchange subsidies, because the cost per beneficiary in these programs is assumed to grow at the same reduced rate as Medicare cost growth per beneficiary. Other key assumptions, as discussed in greater detail in Note 24—Long-Term Fiscal Projections, include the following:

• Social Security spending and payroll taxes are based on future spending and payroll taxes projected in the 2024 Social Security Trustees Report, adjusted for presentational differences and converted to a fiscal year basis.
• Projected Medicare spending and Medicare Part A payroll taxes are based on Medicare spending and payroll taxes in the Medicare Trustees Report, adjusted for presentational differences and converted to a fiscal year basis.
• Medicaid spending projections start with the NHE projections which are based on recent trends in Medicaid spending, and the demographic, economic, and health cost growth assumptions in the Medicare Trustees Report. NHE projections, which end in 2032, are adjusted to accord with the actual Medicaid spending in FY 2024. After 2032, the number of beneficiaries is projected to grow at the same rate as total population. Medicaid cost per beneficiary after 2032 is assumed to transition over a four-year period to growth at the same rate as Medicare benefits per beneficiary.
• Other mandatory spending includes federal employee retirement, veterans’ disability benefits, and means-tested entitlements other than Medicaid. Current mandatory spending components that are judged permanent under current policy are assumed to increase by the rate of growth in nominal GDP starting in 2025, implying that such spending will remain constant as a percent of GDP.²¹
• Defense and non-defense discretionary spending in 2025 follows the FRA (P.L. 118-5) caps with adjustments to accord with FY 2024 appropriations. Discretionary spending in 2025 also reflects previously enacted appropriations that are exempted from FRA caps. After 2025, discretionary spending grows with GDP.
• Interest spending is determined by projected interest rates and the level of outstanding debt held by the public. The long-run interest rate assumptions accord with those in the 2024 Social Security Trustees Report. The average interest rate over this year’s projection period is 4.5 percent, approximately the same as in the 2023 Financial Report. Debt at the end of each year is projected by adding that year’s deficit and other financing requirements to the debt at the end of the previous year.
• Receipts (other than Social Security and Medicare payroll taxes) is comprised of individual income taxes, corporate income taxes and other receipts.
• Individual income taxes are based on the share of individual income taxes of salaries and wages in the current law baseline projection in the FY 2025 President’s Budget, and the salaries and wages projections from the Social Security 2024 Trustees Report. That baseline accords with the tendency of effective tax rates to increase as growth in income per capita outpaces inflation (also known as “bracket creep”) and the expiration dates of individual income and estate and gift tax provisions of the TCJA. Individual income taxes are projected to increase gradually from 21 percent of wages and salaries in 2025, to 30 percent of wages and salaries in 2099 as real taxable incomes rise over time and an increasing share of total income is taxed in the higher tax brackets.
• Corporation tax receipts as a percent of GDP reflect the economic and budget assumptions used in developing the FY 2025 President’s Budget ten-year baseline budgetary estimates through the first ten projection years, after which they are projected to grow at the same rate as nominal GDP. Corporation tax receipts fall from 1.6 percent of GDP in 2025 to 1.3 percent of GDP in 2034, where they stay for the remainder of the projection period.
• Other receipts, including excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts, also reflect the FY 2025 President’s Budget baseline levels as a share of GDP throughout the budget window, and grow with GDP outside of the budget window. The ratio of other receipts, to GDP is estimated to increase from 1.0 percent in 2025 to 1.2 percent by 2030 where it remains through the projection period.

Download the chart's data source here in CSV format

The primary deficit-to-GDP projections in Chart 8, projections for interest rates, and projections for GDP together determine the debt-to-GDP ratio projections shown in Chart 9. That ratio was approximately 98 percent at the end of FY 2024 and under current policy is projected to be approximately 100 percent in 2025, exceed 200 percent by 2049 and reach 535 percent by 2099. The change in debt held by the public from one year to the next generally represents the budget deficit, the difference between total spending and total receipts. The debt-to-GDP ratio rises continually in great part because primary deficits lead to higher levels of debt, which lead to higher net interest expenditures, and higher net interest expenditures lead to higher debt.²² The continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable.

These debt-to-GDP projections are lower than the corresponding projections in both the 2023 and 2022 Financial Reports. For example, the last year of the 75-year projection period used in the FY 2022 Financial Report is 2097. In the FY 2024 Financial Report, the debt-to-GDP ratio for 2097 is projected to be 521 percent, which compares with 525 and 566 percent for the 2097 projection year in the FY 2023 Financial Report and the FY 2022 Financial Report, respectively.²³

The Fiscal Gap and the Cost of Delaying Policy Reform

The 75-year fiscal gap is one measure of the degree to which current policy is unsustainable. It is the amount by which primary surpluses over the next 75 years must, on average, rise above current-policy levels in order for the debt-to-GDP ratio in 2099 to remain at its level in 2024. The projections show that projected primary deficits average 3.6 percent of GDP over the next 75 years under current policy. If policies were adopted to eliminate the fiscal gap, the average primary surplus over the next 75 years would be 0.7 percent of GDP, 4.3 percentage points higher than the projected PV of receipts less non-interest spending shown in the financial statements. Hence, the 75-year fiscal gap is estimated to equal to 4.3 percent of GDP. This amount is, in turn, equivalent to 22.5 percent of 75-year PV receipts and 19.0 percent of 75-year PV non-interest spending. This estimate of the fiscal gap was slightly less than the amount estimated in the FY 2023 Financial Report.

In these projections, closing the fiscal gap requires running a positive primary surpluses, rather than simply eliminating the primary deficit. The primary reason is that the projections assume future interest rates will exceed the growth rate of nominal GDP. Achieving primary balance (that is, running a primary surplus of zero) implies that the debt grows each year by the amount of interest spending, which under these assumptions would result in debt growing faster than GDP.

Table 6 shows the cost of delaying policy reform to close the fiscal gap by comparing policy reforms that begin in three different years. Immediate reform would require increasing primary surpluses by 4.3 percent of GDP on average between 2025 and 2099 (i.e., some combination of reducing spending and increasing revenue by a combined 4.3 percent of GDP on average over the 75-year projection period). Table 6 shows that delaying policy reform forces larger and more abrupt policy reforms over shorter periods. For example, if policy reform is delayed by 10 years, closing the fiscal gap requires increasing the primary surpluses by 5.1 percent of GDP on average between 2035 and 2099. Similarly, delaying reform by 20 years requires primary surplus increases of 6.3 percent of GDP on average between 2045 and 2099. The differences between the required primary surplus increases that start in 2035 and 2045 (5.1 and 6.3 percent of GDP, respectively) and that which starts in 2025 (4.3 percent of GDP) is a measure of the additional burden that delay would impose on future generations. Future generations are harmed by policy reform delay, because the higher the primary surplus is during their lifetimes the greater the difference is between the taxes they pay and the programmatic spending from which they benefit.

Conclusion

The debt-to-GDP ratio is projected to rise over the 75-year projection period and beyond if current policy is unchanged, based on this Financial Report’s assumptions, which implies that current policy is not sustainable and must ultimately change. If policy changes are not so abrupt as to slow economic growth, then the sooner policy changes are adopted to avert these trends, the smaller the changes to revenue and/or spending that would be required to achieve sustainability over the long term. While the estimated magnitude of the fiscal gap is subject to a substantial amount of uncertainty, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.

These long-term fiscal projections and the topic of fiscal sustainability are discussed in further detail in Note 24 and the RSI section of this Financial Report. The fiscal sustainability under alternative scenarios for the growth rate of health care costs, interest rates, discretionary spending, and receipts are illustrated in the “Alternative Scenarios” section within the RSI.

Social Insurance

The long-term fiscal projections reflect government receipts and spending as a whole. The SOSI focuses on the government’s “social insurance” programs: Social Security, Medicare, Railroad Retirement, and Black Lung.²⁴ For these programs, the SOSI reports: 1) the actuarial PV of all future program revenue (mainly taxes and premiums) – excluding interest – to be received from or on behalf of current and future participants; 2) the estimated future scheduled expenditures to be paid to or on behalf of current and future participants; and 3) the difference between 1) and 2). Amounts reported in the SOSI and in the RSI section in this Financial Report are based on each program’s official actuarial calculations.

This year’s projections for Social Security and Medicare are based on the same economic and demographic assumptions that underlie the 2024 Social Security and Medicare Trustees Reports and the 2024 SOSI, while comparative information presented from last year’s report is based on the 2023 Social Security and Medicare Trustees Reports and the 2023 SOSI. Table 7 summarizes amounts reported in the SOSI, showing that net social insurance expenditures are projected to be $78.3 trillion over 75 years as of January 1, 2024 for the open group, remaining largely unchanged, decreasing by approximately $100.0 billion compared to net expenditures of $78.4 trillion projected in the FY 2023 Financial Report.²⁵

The current-law 2024 amounts reported for Medicare reflect the physician payment levels expected under the MACRA payment rules and the PPACA-mandated reductions in other Medicare payment rates, but not the payment reductions and/or delays that would result from trust fund depletion.²⁶ Similarly, current-law projections for Social Security do not reflect benefit payment reductions and/or delays that would result from fund depletion. By accounting convention, the transfers from the General Fund to Medicare Parts B and D are eliminated in the consolidation of the SOSI at the government-wide level and as such, the General Fund transfers that are used to finance Medicare Parts B and D are not included in Table 7. For the FYs 2024 and 2023 SOSI, the amounts eliminated totaled $50.2 trillion and $48.5 trillion, respectively. SOSI programs and amounts are included in the broader fiscal sustainability analysis in the previous section, although on a slightly different basis (as described in Note 24).

In addition, the Medicare projections have been significantly affected by the enactment of the IRA of 2022. This legislation has wide-ranging provisions, including those that restrain price growth and negotiate drug prices for certain Part B and Part D drugs and that redesign the Part D benefit structure to decrease beneficiary out-of-pocket costs. The law takes several years to implement, resulting in very different effects by year. The total effect of the IRA of 2022 is to reduce government expenditures for Part B, to increase expenditures for Part D through 2030, and to decrease Part D expenditures beginning in 2031.

The amounts reported in the SOSI provide perspective on the government’s long-term estimated exposures for social insurance programs. These amounts are not considered liabilities in an accounting context. Future benefit payments will be recognized as expenses and liabilities as they are incurred based on the continuation of the social insurance programs’ provisions contained in current law. The social insurance trust funds account for all related program income and expenses. Medicare and Social Security taxes, premiums, and other income are credited to the funds; fund disbursements may only be made for benefit payments and program administrative costs. Any excess revenues are invested in special nonmarketable U.S. government securities at a market rate of interest. The trust funds represent the accumulated value, including interest, of all prior program surpluses, and provide automatic funding authority to pay cover future benefits.

Table may scroll on smaller screens

Table 8 identifies the principal reasons for the changes in projected social insurance amounts during 2024 and 2023. NPV-Open Group is the PV of estimated future expenditures in excess of estimated future revenue, which represents net cash outflows.

Table may scroll on smaller screens

The following briefly summarizes the significant changes for the current valuation (as of January 1, 2024) as disclosed in Note 25—Social Insurance. Note 25 is compiled from disclosures included in the financial statements of those entities administering these programs, including SSA and HHS. See Note 25 for additional information.

• Change in valuation period caused the PV of the estimated future net cash outflows to increase (became more negative) by $0.8 trillion and $1.5 trillion for Social Security and Medicare, respectively. The effect of this change on the 75-year PV of estimated future net cash flows is to replace a small negative net cash flow for 2023 with a much larger negative net cash flow for 2098.
• Changes in demographic data, assumptions, and methods caused the PV of the estimated future net cash outflows to increase (became more negative) by $1.2 trillion and $1.1 trillion for Social Security and Medicare, respectively. The most significant changes affecting these results included: 1) lowering the ultimate TFR; 2) slightly lower assumed birth rates; 3) updated mortality, historical population data, LPR immigration, and divorce data; and 4) modified fertility rate projection methods.
• Changes in economic data, assumptions, and methods caused the PV of the estimated future net cash outflows for Social Security to decrease (become less negative) by $0.4 trillion. For the current valuation, the ultimate economic assumptions are the same as those for the prior valuation. However, the starting economic value and the way these values transition to the ultimate assumptions were changed. In addition, the most significant changes included: 1) updates to educational data, which caused changes in labor force participation rates; 2) higher than assumed historical OASDI-covered employment; and 3) higher than assumed economic growth, which led to higher than assumed labor productivity over the projection period.
• Changes in law or policy: The monetary effect of the changes in law or policy on the PV of estimated future net cash outflows of the OASDI and Medicare programs was not significant at the consolidated level.
• Changes in methodology and programmatic data caused the PV of the estimated future net cash outflows to decrease (become less negative) by $1.4 trillion for Social Security. The most significant changes were: 1) lower disability incidence rate; 2) modified long-range model to improve the alignment of simulated fully insured rates with historical fully insured rates; 3) higher near-term and ultimate levels of revenue from income taxation of OASDI benefits than projected in the prior valuation; 4) adjusted sample size to project average benefit levels of retired-worker and disabled-worker beneficiaries; and 5) updates to post-entitlement benefit adjustment factors.
• Changes in economic and healthcare assumptions caused the PV of estimated future net cash outflows to decrease (become less negative) by $2.7 trillion for Medicare. The economic assumptions used in the Medicare projections are the same as those used for the OASDI (described above); and the healthcare assumptions are specific to the Medicare projections. Changes include lower Part A projected spending growth due to a policy change to exclude medical education expenses and lower projected spending for hospital and home health agency services, and lower Part D growth mainly beyond the short-range period.
• Change in projection base caused the PV of estimated future cash outflows to decrease (become less negative) by $0.2 trillion for Medicare Parts A, B, and D. Part A income was higher and expenditures were lower than estimated based on experience. Part B and Part D income and expenditures were both higher than estimated based on experience. Actual experience of the Medicare Trust Funds between January 1, 2023, and January 1, 2024, is incorporated in the current valuation and is less than projected in the prior valuation.

As reported in Note 25—Social Insurance, uncertainty remains about whether the projected cost savings and productivity improvements will be sustained in a manner consistent with the projected cost growth over time. Note 25 includes an alternative projection to illustrate the uncertainty of projected Medicare costs. As indicated earlier, GAO disclaimed opinions on the 2024, 2023, 2022, 2021, and 2020 SOSI because of these significant uncertainties. Please refer to Note 25 and SSA’s and HHS’s financial statements for additional information.

Costs as a percent of GDP of both Medicare and Social Security, which are analyzed annually in the Medicare and Social Security Trustees Reports, are projected to increase substantially through the mid-2030s because: 1) the number of beneficiaries rises rapidly as the baby-boom generation retires; and 2) the lower birth rates that have persisted since the baby boom cause slower growth of employment and GDP.²⁷ According to the Medicare Trustees Report, spending on Medicare is projected to rise from its current level of 3.8 percent of GDP in 2023 to 5.8 percent in 2048 and then rise more slowly before leveling off at around 6.2 percent in the final 25 years of the projection period.²⁸ As for Social Security, combined spending is projected to generally increase from 5.2 percent of GDP in 2024 to a peak of about 6.4 percent for 2078, and then decline to 6.1 percent by 2098. The government collects and maintains funds supporting the Social Security and Medicare programs in trust funds. A scenario in which projected funds expended exceed projected funds received, as reported in the SOSI, will cause the balances in those trust funds to deplete over time. Table 9 summarizes additional current status and projected trend information, including years of projected depletion, for the Medicare HI and Social Security Trust Funds.

Reporting on Climate Change

At the beginning of the Biden-Harris Administration, President Biden tasked agencies with leading a whole-of-government effort to address climate change through Executive Order 14008, Tackling the Climate Crisis at Home and Abroad. The Biden-Harris Administration continues to lead the most ambitious climate, conservation, and environmental justice agenda in history. With more than 300,000 buildings and 600,000 vehicles, the federal government is the nation’s largest energy consumer. The federal government is on a path towards 100 percent CFE on a net annual basis by 2030, a zero-emission vehicles fleet by 2035, and a net-zero building portfolio by 2045.

During the past three years, the federal government has signed agreements to provide Federal facilities in 16 states with 100 percent CFE by 2030. The Bipartisan Infrastructure Law and the IRA dedicate more than $50 billion to advance climate resilience strategies across every community in the U.S. Because of these two laws, roads and bridges are being elevated above projected flood zones; the grid is being made cleaner, more flexible, and more reliable; housing and buildings are being constructed and retrofitted to better withstand extreme weather; and public lands, forests, and waters are being managed to mitigate and withstand wildfires and droughts.²⁹

In coordination with the White House Council on Environmental Quality and the OMB, federal agencies updated their Climate Adaptation Plans for 2024 through 2027 to better integrate climate risk across their operations. The magnitude of challenges posed by the climate crisis was underscored in the prior year when the U.S. endured a record 28 individual billion-dollar extreme weather and climate disasters that caused more than $90 billion in aggregate damage.³⁰

Many CFO Act entities are engaged in a wide array of climate-related activities and have, per federal reporting guidance, discussed their responses to the climate crisis in their FY 2024 Agency Financial Reports. The breadth of these important efforts is expansive, and the examples immediately below from federal Agency Financial Reports discuss both the physical impacts of climate change on entities (physical risk) and the broader challenges entities face in transitioning to a lower-carbon economy (transition risk). Many entity climate adaptation and resiliency efforts emphasize the federal government's physical assets and infrastructure and discuss transition risks in the context of transitioning their infrastructure so as to reduce Greenhouse Gases emissions. Both of these risks are important and affect government operations in unique ways, as illustrated below.

The following illustrates the wide range of federal entity efforts to mitigate the risks of climate change on federal entity infrastructure:

• According to DOD’s financial statements, the Air Force has expended more than $4 billion in Natural Disaster Recovery funds for recovery from extreme weather events at Tyndall Air Force Base, Offutt Air Force Base, and Langley Air Force Base (FY 2019-2023). The Air Force is expending an estimated $2 billion to address direct typhoon impacts at Andersen Air Force Base. DOD’s Tyndall Air Force Base is working with local, state, and national partners to build an “Installation of the Future,” which includes using updated building codes that capture future conditions, and constructing living shorelines adjacent to the base to preserve water quality, enhance overall ecosystem health, and strengthen flood resilience.
• GSA is integrating localized flood risk information into its asset management systems, asset planning processes, and site acquisition guidance for GSA-controlled, federally owned buildings. In addition, GSA’s FAS has integrated climate risks and adaptation considerations into the FAS Acquisition Council review process for five critical offerings with the greatest exposure and sensitivity to climate risks: telecommunications, motor vehicles and fleet, professional services, information technology hardware, and information technology services. In FY 2024, climate risk and adaptation requirements were integrated into many government-wide acquisition vehicles as a result of the FAS review process.
• In FY 2024, DOE developed a Vulnerability Assessment and Resilience Plan that includes detailed analyses on DOE’s hazards, critical assets, and resilience solutions. DOE identified wildfire, heat waves, and extreme storm events as the most common climate impacts across the complex. DOE is also enhancing communication systems to alert employees to climate hazards in the workplace and improving air filtration standards to manage health impacts of wildfire smoke.
• DOC has devoted an entire strategic goal to addressing climate change - Address the Climate Crisis Through Mitigation, Adaptation, and Resilience Efforts, and a separate strategic objective to make the Department’s facilities and operations more sustainable and efficient. By September 30, 2025, the National Oceanic and Atmospheric Administration will improve climate resilience in coastal communities by completing 100 percent of programmatic milestones: to improve fish passage for threatened and endangered species; support coastal habitat restoration priorities of tribes and underserved communities, remove marine debris; and protect and conserve coastal and Great Lakes habitats.
• State maintains over 25,000 building assets at 287 locations overseas with a 2024 replacement value estimated at $75.2 billion. To facilitate managing the natural hazard risks to these facilities, in 2022 the Bureau of Overseas Buildings Operations created a desktop portfolio screening methodology that assesses relative risk for seven natural hazards: flooding, extreme heat, extreme wind, water stress, earthquake, tsunami, and landslide; then added volcano and wildfire in 2024.

In-line with several Biden-Harris administration executive orders, including Executive Order 14008, Tackling the Climate Crisis at Home and Abroad, and other broad performance goals, entities have made strides towards a whole-of-government approach to the climate crisis affecting the nation. This section summarizes some of the actionable plans that federal entities are putting in place, and progress that they have seen. It illustrates the broader programmatic efforts that some entities are undertaking which support the growth of America’s clean energy and clean technology industries.

• Combatting climate change is one of five key strategic goal areas at Treasury. In FY 2024, Treasury achieved its goal to develop and disseminate a climate literacy program by offering climate literacy webinars featuring subject matter experts, organizing the Department’s first Earth Week in April, distributing a monthly Sustainability Newsletter, and organizing an Employee Resource Group focused on sustainability. Also in FY 2024, Treasury issued approximately 34 guidance items (i.e., IRS Notices, Revenue Procedures and Announcements), and through the IRS administering the IRA incentives, Treasury was able to support the objective to accelerate clean energy deployment.
• DOI continues to protect, connect, and conserve federal lands and waters to provide strongholds for species and enhance community wellbeing in a changing climate. On April 4, 2024, DOI announced a $19 million investment from President Biden’s Investing in America agenda to install solar panels over irrigation canals in California, Oregon, and Utah, simultaneously decreasing evaporation of critical water supplies and advancing clean energy goals. The Charybdis is slated to be the first U.S. built and Jones Act-qualified offshore wind installation vessel. The vessel will support the CVOW commercial project, which DOI approved in October 2023. The CVOW project will provide about 2,600 megawatts of clean, reliable offshore wind energy, capable of powering over 660,000 homes.
• As part of its climate strategy, USAID is pursuing six ambitious targets with aims to achieve them by 2030, including: reducing carbon dioxide emissions by six billion metric tons; conserving, restoring, or managing 100 million hectares of natural and managed ecosystems; supporting 500 million people to be climate resilient; mobilizing $150 billion of public and private funds towards climate resiliency efforts; aligning its support with countries’ mitigation and adaptation commitments in at least 80 countries by 2024; and supporting partners to achieve systemic changes that increase meaningful participation and active leadership in climate action of Indigenous Peoples, local communities, women, youth, and other marginalized and/or underrepresented groups in at least 40 partner countries.
• DOT provided more than $2 billion in funding to states and communities to build a nationwide EV charging network. This initial funding will cover approximately 75,000 miles of roads. DOT has a goal of reaching a network of at least 500,000 EV chargers by 2030 so that everyone can ride and drive electric. The Joint Office of Energy and Transportation, in conjunction with DOT and DOE, will support the increased deployment of publicly available EV charging ports to 310,000 by the end of calendar year 2025.
• To address climate change, EPA has utilized the IRA to provide $27 billion in Greenhouse Gas Reduction Fund grants to accelerate clean energy and climate solutions across the country. These grants are being used to provide affordable financing for clean technology projects, support community lenders to fund clean energy projects and deliver solar energy to more than 900,000 low-income households nationwide. EPA also recently announced $300 million of the $5 billion provided under the IRA for Climate Pollution Reduction implementation grants to assist 34 tribes and territories for the first time, so they can apply greenhouse-gas reduction measures in their own communities.
• HUD has made funding available in the form of direct loans and grants to fund projects that improve energy or water efficiency, enhance indoor air quality or sustainability, implement the use of zero-emission electricity generation, low-emission building materials or processes, energy storage, or building electrification strategies, or address climate resilience, of eligible HUD-assisted multifamily properties through a program known as the Green and Resilient Retrofit Program. The program is authorized and funded by Section 30002 of the IRA and is the first HUD program to simultaneously invest in energy efficiency, greenhouse gas emissions reductions, energy generation, green and healthy housing, and climate resilience strategies specifically in HUD-assisted multifamily housing.

Readers are encouraged to review both the financial statements and Climate Adaptation Plans of the entities referenced above, as well as others for additional information about efforts being employed across the federal government to address the many risks associated with climate change.