Mark Warshawsky highlights bad news for America’s long-term fiscal picture.
Last week, the Treasury Department released, with no fanfare and little attention, the 2025 Financial Report (FR) of the US Government. Using an accrual accounting basis, rather than the cash basis used in the conventional budget, the FR shows a net operating cost of negative $2.1 trillion in fiscal year 2025, compared to the cash deficit of $1.8 trillion (5.9 percent of GDP). The difference owes to the inclusion of accrued retirement, disability, and health benefits for federal employees and veterans. The net cost was negative $2.4 trillion in 2024, with the improvement in 2025 mainly owing to fleeting developments: a one-time $270 billion decrease in costs because of legislative changes in student loan subsidies; a $134 billion increase in revenues from tariffs, now declared illegal by the Supreme Court and possibly subject to refund; a $130 billion increase in income taxes, mainly owing to the strong stock market; and a one-time decrease in actuarial costs of $265 billion for federal employee programs from assumption changes. Permanent and ongoing shifts, by contrast, lead to increased net costs: a $148 billion rise owing to higher Medicare and Medicaid spending, $125 billion increase in Social Security spending, and $78 billion in increased interest costs, as well as a one-time expenditure of $75 billion liquidating pandemic relief advances.
By other measures in the FR, the fiscal condition of the US Government worsened in 2025. The current net fiscal position, that is, assets (cash, inventory, loans receivable, and net property, plant and equipment) less liabilities, including debt and federal employee and veteran benefits payable, declined from negative $39.6 trillion in 2024 to negative $41.7 trillion in 2025. Looking over the next 75 years, a comparison of 2025 to 2024 projections also clearly shows worsening prospects. …
… Yet even this sobering report is based on largely optimistic assumptions.
