From the U.S. Government Accountability Office, www.gao.gov Transcript for: The State of Our Nation’s Fiscal Health and the Effects of COVID-19 Description: Trillions of dollars have been used in the federal response to COVID-19. This money includes unemployment assistance and small business loans for those impacted by the pandemic, as well as funding for vaccine development and manufacturing. While this spending helped address the public health and economic emergencies, the federal response also substantially increased the nation’s debt. We’ll get an update on the nation’s fiscal health from GAO’s Sue Irving—an expert on the federal budget and debt management. Related GAO Work: GAO-21-275SP, The Nation’s Fiscal Health: After Pandemic Recovery, Focus Needed on Achieving Long-Term Fiscal Sustainability Released: March 2021 [Intro Music] [Susan Irving:] Even before the pandemic, debt was growing faster than the economy. That is, by definition, not sustainable. [Holly Hobbs:] Hi and welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office—celebrating 100 years of fact-based, nonpartisan government oversight. I’m Holly Hobbs. Trillions of dollars have been used in the federal government’s response to COVID-19. This money included unemployment assistance and small business loans for those affected by the pandemic, as well as funding for vaccine development and manufacturing. While this spending has helped address the public health and economic emergencies, the federal response has also substantially increased our nation’s debt. Today, we’ll get an update on the nation’s fiscal health (including the impacts of the federal government’s COVID response) from GAO’s Susan Irving—an expert on the federal budget and debt management. Thank you for joining us Susan! [Susan Irving:] Thanks for having me! [Holly Hobbs:] So Susan can you paint a picture for us of what the nation’s fiscal health looked like before the pandemic, and what it looks like now? [Susan Irving:] Even before the pandemic and the response to it, debt was growing faster than the economy that supports that debt. That is, by definition, not sustainable. Now this pandemic complicated this problem. It presented both the world and this country with a public health emergency and substantial economic stress. Congress and the administration responded in an unprecedented manner to tackle both the public health emergency and the economic repercussions. But it added trillions to the debt. And it means that debt held by the public is now the same size as the U.S. economy. The U.S. can handle a very large debt for some time, and for longer than many other countries. But it is still, by definition, unsustainable to have a debt path that looks like it’s going to be double the size of the economy in 30 years. [Holly Hobbs:] And why should this amount of debt matter to the average taxpayer? [Susan Irving:] You hit on the right point, which is the dollar figure for debt is not what’s important. It’s the fact that debt as a share of the economy that supports it is growing. The debt is growing faster than our economy will grow. That increased burden begins to create pressure on other areas. Right now, we benefit from very low interest rates, but with this size of debt, the miracle of compound interest works against us; and a very small increase of interest rates will drive a greater increase in how much of the money we bring in goes to pay interest. That begins then to present more risks for a financial crisis, but also suddenly, think about it, debt service, the interest on this very large debt begins to use up more and more of the revenues we currently bring in, or are projected to bring in. That then begins to put lots of pressure on other areas of spending. It could lead to a situation where policymakers feel constrained in their ability to respond to future, economic downturns, natural disasters, or other shocks. [Holly Hobbs:] What about things like Social Security or Medicare Hospital Insurance? How might those trust funds or others like them be affected if we stay on our current fiscal path? [Susan Irving:] Well, the key programs supported by trust funds face financing problems of their own. For instance, even with the recent infusion of funds to the Highway Trust fund, it will run out in 2026. The Hospital Trust Fund will be exhausted in 2022. And the Social Security Retirement Program in 2032. This doesn’t mean that there will be no benefits paid. But it does mean that not enough money will be coming in to pay currently scheduled benefits on time. [Music] [Holly Hobbs:] So it sounds like, even before the pandemic, the nation was on an unsustainable fiscal path that required immediate action and some tough decisions by policymakers to address. But that the pandemic has further complicated our fiscal outlook. Susan, what needs to happen to improve our nation’s fiscal health and outlook? [Susan Irving:] As I mentioned looking forward, we can’t keep going this way. GAO has for some years suggested that Congress think about a plan for changing this path. You can’t do this in 5 years. Congress should think about what are its medium and longer-term fiscal goals. For example, if you were going to have a debt to GDP ratio in mind as a goal, what would you like it to look like in 5 years, 10 years so that you’re looking ahead. And then find a way to link those goals to the decisions they make every year about discretionary appropriations, to decisions that need to be made about the direct spending programs—the entitlement programs that are not changed every year, and also about revenues. Congress and the American people have to be willing to live with the kind of tough choices that are going to be required. And if you think about a reasonable phasing to achieve a goal, those changes do not have to be as abrupt or as large. Another part of this plan has to be how we think about delegating the authority to borrow. Right now, we have something called the debt limit. That sounds like it should be a fiscal rule, but it’s not. It doesn’t constrain decisions that lead to debt. We don’t ever want to call into question the full faith in the credit of the United States. [Holly Hobbs:] And last question Susan, what’s the bottom line of this report? [Susan Irving:] I think the bottom line of this report is, as we come out of the public health emergency, as public health goals are attained and the economy begins to recover, we really do have to turn our attention to developing and implementing a way forward to change this fiscal path. We can’t go on this way forever. [Holly Hobbs:] That was GAO’s Susan Irving talking about our new report on the state of the nation’s fiscal health. Thank you for your time, Susan! [Susan Irving:] Thank you. [Holly Hobbs:] And thank YOU for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts. And make sure you leave a rating and review to let others know about the work we’re doing. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at GAO.gov.