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Before the Committee on the Budget, U.S. Senate: 

United States Government Accountability Office: 


For Release on Delivery Expected at 10:30 a.m. EST: 

Thursday, January 11, 2007: 

Long-Term Budget Outlook: 

Saving Our Future Requires Tough Choices Today: 

Statement of David M. Walker: 
Comptroller General of the United States: 


Chairman Conrad, Senator Gregg, Members of the Committee: 

I appreciate this invitation to talk with you about our nation's long- 
term fiscal outlook and the challenge it presents. Your decision to 
begin this Congress with a hearing on this important issue demonstrates 
the seriousness with which this Committee views this challenge and your 
commitment to begin to address it. 

The picture I will lay out for you today is not a pretty one and it's 
getting worse with the passage of time. But this nation has met 
difficult challenges--including challenges to its very existence--in 
the past and I'm confident that we can do so again. This is a great 
nation with much to be proud of and much to be thankful for. But today 
we are failing in one of our most important stewardship 
responsibilities--our duty to pass on a country better positioned to 
deal with the challenges of the future than the one we were given. As 
members of this Committee know, continuing on our current fiscal path 
would gradually erode, if not suddenly damage, our economy, our 
standard of living, and ultimately even our domestic tranquility and 
our national security. 

My "bottom line" message today is no surprise to members of this 

* Our current financial condition is worse than advertised. 

* Our long-term fiscal outlook is both imprudent and unsustainable. 

* Improvements in information and processes are needed and can help. 

* Meeting our long-term fiscal challenge will require tough choices, bi-
partisan cooperation and compromise. 

* The time for action is now! 

As widely reported, the $248 billion fiscal year 2006 unified budget 
deficit was lower than originally forecast and lower than last year's 
deficit of $318 billion. While this improvement in the 1-year fiscal 
picture is better than a worsening in that picture, it did not 
fundamentally change our long-term fiscal outlook. In fact, the U.S. 
government's total reported liabilities, net social insurance 
commitments, and other fiscal exposures continue to grow and now total 
approximately $50 trillion, representing approximately four times the 
nation's total output, or gross domestic product (GDP) in fiscal year 
2006, up from about $20 trillion, or two times GDP in fiscal year 2000. 

The overall picture of the long-term fiscal outlook is not news to this 
committee. However, the long-term challenge is fast becoming a short- 
term one as the first of the baby boomers become eligible for early 
retirement under Social Security on January 1, 2008--less than one 
year--and for Medicare benefits in 2011--less than 4 years from now. 
The budget and economic implications of the baby boom generation's 
retirement have already become a factor in Congressional Budget 
Office's (CBO) 10-year baseline projections and will only intensify as 
the baby boomers age. Simply put, our nation is on an imprudent and 
unsustainable fiscal path. Herbert Stein once said that something that 
is not sustainable will stop. That, however, should not give us 
comfort. It is more prudent to change the path than to wait until a 
crisis occurs. 

And that brings me to my next point. While restraint in the near term 
and efforts to balance the budget over the next 5 years can be 
positive, it is important that actions to achieve this also address the 
long-term fiscal outlook. The real problem is not the near-term 
deficit--it is the long-term fiscal outlook. It is important to look 
beyond year 5 or even year 10. Both the budget and the budget process 
need more transparency over and focus on the long-term implications of 
current and proposed spending and tax policies. I will suggest a number 
of things that I believe will help in this area in this testimony. 

Our Fiscal and Financial Condition Is Worse Than Advertised: 

Our government produces two types of measures--budget and financial-- 
which further break down into three different numbers that can be seen 
as indicators of our current financial condition: the unified budget 
deficit, the on-budget deficit and the net operating cost or accrual 
deficit. No one of these alone is enough--we should look at all of 
them. The most commonly reported measure is the unified budget deficit. 
This is a largely cash-based number that represents the difference 
between revenues and outlays for the government as a whole. It is an 
important measure since it is indicative of the government's draw on 
today's credit markets--and its claim on today's economy. This measure, 
however, masks the difference between Social Security's cash flows and 
those for the rest of the budget. Therefore we also need to look 
beneath the unified deficit at the on-budget deficit--what I like to 
call the "operating deficit." And, finally, we should be looking at the 
financial statements' report of net operating cost--the accrual-based 

The difference between the on-budget deficit and the unified budget 
deficit is the surplus in Social Security and the U.S. Postal Service. 
Excluding consideration of the $185 billion surplus in Social 
Security's cash flows and a $1 billion surplus in the Postal Service, 
the on-budget deficit was $434 billion in 2006. Figure 1 shows 
graphically how the on-budget deficit and the off-budget surplus have 
related and combine to lead to the unified deficit. Since the Social 
Security trust fund invests any receipts not needed to pay benefits in 
Treasury securities, this surplus reduces the amount the Treasury must 
borrow from the public. As I will note later, this pattern of cash 
flows is important--and it is projected to come to and end just 10 
years from now. 

Figure 1: Surplus or Deficit as a Share of GDP, Fiscal Years 1962-2006: 

[See PDF for image] 

Sources: Office of Management and Budget, Department of the Treasury, 
and Congressional Budget Office. 

[End of figure] 

The third number, net operating cost, is the amount by which costs 
exceed revenue and it is reported in the federal government's financial 
statements, which are prepared using generally accepted accounting 
principles. Costs are recorded on an accrual basis--namely, in the 
period when goods are used or services are performed as opposed to when 
the resulting cash payments are made. However, most revenues, on the 
other hand, are recorded on the modified cash basis--that is, they are 
recorded when collected. The net operating cost can be thought of as 
the accrual deficit. The accrual measure primarily provides more 
information on the longer-term implications of today's policy decisions 
and operations by showing certain costs incurred today but not payable 
for years to come, such as civilian and military pensions and retiree 
health care.[Footnote 1] 

All three of these numbers are informative. However, neither accrual 
nor cash measures alone provide a full picture of the government's 
fiscal condition or the cost of government. Used together, they present 
complementary information and provide a more comprehensive picture of 
the government's financial condition today and fiscal position over 
time. For example, the unified budget deficit provides information on 
borrowing needs and current cash flow. The accrual deficit provides 
information on the current cost of government, but it does not provide 
information on how much the government has to borrow in the current 
year to finance government activities. Also, while accrual deficits 
provide more information on the longer-term consequences of current 
government activities, they do not include the longer-term cost 
associated with social insurance programs like Social Security and 
Medicare. In addition, they are not designed to provide information 
about the timing of payments and receipts, which can be very important. 
Therefore, just as investors need income statements, statements of cash 
flow, and balance sheets to understand a business's financial 
condition, both cash and accrual measures are important for 
understanding the government's financial condition.[Footnote 2] Table 1 
below shows the three measures for fiscal year 2005 and fiscal year 

Table 1: Fiscal Year 2005 and 2006 Deficits and Net Operating Cost: 

Dollars in billions. 

On-budget deficit; 
Fiscal year 2005: ($494); 
Fiscal year 2006: ($434). 

Unified deficit; 
Fiscal year 2005: (318); 
Fiscal year 2006: (248). 

Net operating cost[A]; 
Fiscal year 2005: (760); 
Fiscal year 2006: (450). 

Sources: Office of Management and Budget and Department of the 

[A] Fiscal year 2005 net operating cost included a significant negative 
actuarial adjustment and 2006 included a significant positive 
adjustment primarily due to changes in interest rate assumptions. 

[End of table] 

Although looking at both the cash and accrual measures provides a more 
complete picture of the government's fiscal stance today and over time 
than looking at either alone, even these together do not tell us the 
full story. For example, all of these show an improvement between 
fiscal year 2005 and fiscal year 2006. However, the fundamental drivers 
of our long-term challenge are largely the same. To understand the long-
term implications of our current path requires more than a single 
year's snapshot. In this regard, the long-term outlook has worsened 
significantly in the last several years. That is why for more than a 
decade GAO has been running simulations to tell this longer-term story. 

The Long-term Fiscal Outlook: 

Long-term fiscal simulations by GAO, CBO and others all show that we 
face large and growing structural deficits driven primarily by rising 
health care costs and known demographic trends. GAO runs simulations 
under two sets of assumptions. One takes the legislatively-mandated 
baseline from CBO for the first 10 years and then keeps discretionary 
spending and revenues constant as a share of GDP while letting Social 
Security, Medicare, and Medicaid grow as projected by the Trustees and 
CBO under midrange assumptions.[Footnote 3] The other perhaps more 
realistic scenario based on the Administration's announced policy 
preferences modifies this baseline by letting discretionary spending 
grow with the economy and extending all expiring tax 
provisions.[Footnote 4] As figure 2 shows, deficits spiral out of 
control under either scenario. We will be updating these figures with 
the release of the new CBO baseline later this month, but even with the 
lower deficit in 2006, the long-term picture will remain daunting. 

Figure 2: Unified Surpluses and Deficits as a Share of GDP under 
Alternative Fiscal Policy Simulations: 

[See PDF for image] 

Source: GAO's August 2006 analysis. 

Note: Assume currently scheduled Social Security benefits are paid in 
full throughout the simulation period. 

[End of figure] 

Looking more closely at each scenario gives a fuller understanding of 
what the impact of continuing these trends would have on what 
government does. And looking back to 2001 also shows us how much worse 
the situation has become. As I noted, despite some recent improvements 
in short-term deficits, the long-term outlook is moving in the wrong 

Figures 3 and 4 show the composition of spending under our "Baseline 
Extended" scenario in 2001 and 2006. Even with short-term surpluses, we 
had a long-term problem in 2001, but it was more than 40 years out. 
Certainly an economic slowdown and budget decisions driven by the 
attacks of 9/11 and the need to respond to natural disasters have 
contributed to the change in outlook. However, these items alone do not 
account for the dramatic worsening. Tax cuts also contributed but the 
single largest contributor to the deterioration of our long-term 
outlook was the passage of the Medicare Prescription Drug Bill in 2003. 

Figure 3: Composition of Spending as a Share of GDP under Baseline 
Extended, January 2001: 

[See PDF for image] 

Source: GAO's January 2001 analysis. 

Note: All other spending is net of offsetting interest receipts in 2015-

[End of figure] 

Figure 4: Composition of Spending as a Share of GDP under Baseline 
Extended, August 2006: 

[See PDF for image] 

Source: GAO's August 2006 analysis. 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2016 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the alternative minimum tax, and (3) 
increased revenue from tax-deferred retirement accounts. After 2016, 
revenue as a share of GDP is held constant. 

[End of figure] 

Figure 4 illustrates today's cold hard truth, that neither slowing the 
growth in discretionary spending nor allowing the tax provisions to 
expire--nor both together--would eliminate the imbalance. This is even 
clearer under the more realistic scenario as shown in figure 5. 
Estimated growth in the major entitlement programs results in an 
unsustainable fiscal future regardless of whether one assumes future 
revenue will be somewhat above historical levels as a share of the 
economy as in the first simulation (fig. 4) or lower as shown in figure 

Figure 5: Composition of Spending as a Share of GDP Assuming 
Discretionary Spending Grows with GDP after 2006 and All Expiring Tax 
Provisions Are Extended: 

[See PDF for image] 

Source: GAO's August 2006 analysis. 

[End of figure] 

Both these simulations illustrate that without policy changes on the 
spending and/or revenue side of the budget, the growth in spending on 
federal retirement and health entitlements will encumber an escalating 
share of the government's resources. A government that in our 
children's lifetimes does nothing more than pay interest on its debt 
and mail checks to retirees and some of their health providers is 

Although Social Security is a major part of the fiscal challenge, 
contrary to popular perception, it is far from our biggest challenge. 
While today Social Security spending exceeds federal spending for 
Medicare and Medicaid that will change. Over the past several decades, 
health care spending on average has grown much faster than the economy, 
absorbing increasing shares of the nation's resources, and this rapid 
growth is projected to continue. CBO estimates that Medicare and 
Medicaid spending will reach 6.3 percent of GDP in 2016, up from 4.6 
this year (2007), while spending for Social Security will only reach 
4.7 percent of GDP in 2016 up from 4.2 percent this year. For this 
reason and others, rising health care costs pose a fiscal challenge not 
just to the federal budget but also to states, American business, and 
our society as a whole. 

While there is always some uncertainty in long-term projections, two 
things are certain: the population is aging and the baby boom 
generation is nearly at retirement age. The aging population and rising 
health care spending will have significant implications not only for 
the budget but also for the economy as a whole. Figure 6 shows the 
total future draw on the economy represented by Social Security, 
Medicare, and Medicaid. Under the 2006 Trustees' intermediate estimates 
and CBO's long-term Medicaid estimates, federal spending for these 
entitlement programs combined will grow to 15.5 percent of GDP in 2030 
from today's 9 percent. It is clear that taken together, Social 
Security, Medicare, and Medicaid under current law represent an 
unsustainable burden on future generations. 

Figure 6: Social Security, Medicare, and Medicaid Spending: 

[See PDF for image] 

Source: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration, Office of the Actuary, Centers 
for Medicare and Medicaid Services, and the Congressional Budget 

Notes: Social Security and Medicare projections based on the 
intermediate assumptions of the 2006 Trustees' Reports. Medicaid 
projections based on CBO's August 2006 short-term Medicaid estimates 
and CBO's December 2005 long-term Medicaid projections under midrange 

[End of figure] 

While Social Security, Medicare and Medicaid dominate the long-term 
outlook, they are not the only federal programs or activities that bind 
the future. The federal government undertakes a wide range of programs, 
responsibilities, and activities that obligate it to future spending or 
create an expectation for spending and potentially limit long-term 
budget flexibility. GAO has described the range and measurement of such 
fiscal exposures--from explicit liabilities such as environmental 
cleanup requirements to the more implicit obligations presented by life-
cycle costs of capital acquisition or disaster assistance. 

As shown in figure 7, despite improvement in both the fiscal year 2006 
reported net operating cost and the cash-based budget deficit, the U.S. 
government's major reported liabilities, social insurance commitments, 
and other fiscal exposures continue to grow. They now total 
approximately $50 trillion--about four times the nation's total output 
(GDP) in fiscal year 2006--up from about $20 trillion, or two times GDP 
in fiscal year 2000. We all know that it is hard to make sense of what 
"trillions" means. One way to think about it is: if we wanted to put 
aside today enough to cover these promises, it would take $170,000 for 
each and every American or approximately $440,000 per American 
household. Clearly, despite recent progress on our short-term deficits, 
we have been moving in the wrong direction in connection with our long- 
range imbalance in recent years. 

Figure 7: Major Reported Fiscal Exposures (Dollars in Trillions): 

[See PDF for image] 

Source: Department of Treasury. 

Notes: Data from 2000 and 2006 Financial Report of the United States 
Government. Estimates for Social Security and Medicare are at present 
value as of January 1 of each year and all other data are as of 
September 30. Totals and percent increases may not add due to rounding. 

[End of figure] 

Process and Presentational Changes to Increase Transparency and Focus 
on Long-term Consequences Can Help: 

Since at its heart the budget debate is about the allocation of limited 
resources, the budget process can and should play a key role in helping 
to address our long-term fiscal challenge and the broader challenge of 
modernizing government for the 21st century. I have said that 
Washington suffers from myopia and tunnel vision. This can be 
especially true in the budget debate in which we focus on one program 
at a time and the deficit for a single year or possibly the costs over 
5 years without asking about the bigger picture and whether the long 
term is getting better or worse. We at GAO are in the transparency and 
accountability business. Therefore it should come as no surprise that I 
believe we need to increase the understanding of and focus on the long 
term in our policy and budget debates. To that end--as I noted earlier-
-I have been talking with a number of members of the Senate and the 
House as well as various groups concerned about this issue concerning a 
number of steps that might help. I've attached a summary of some of 
these ideas to this statement. Let me highlight several critical 
elements here. 

* The President's budget proposal should again cover 10 years. This is 
especially important given that some policies--both spending and tax-- 
cost significantly more (or lose significantly more revenue) in the 
second 5 years than in the first. In addition, the budget should 
disclose the impact of major tax or spending proposals on the short, 
medium and long term. 

* The executive branch should also provide information on fiscal 
exposures--both spending programs and tax expenditures--that is, the 
long-term budget costs represented by currently individual programs, 
policies or activities as well as the total. 

* The budget process needs to pay more attention to the long-term 
implication of the choices being debated. For example, elected 
representatives should be provided with more explicit information on 
the long-term costs of any major tax or spending proposal before it is 
voted upon. It is sobering to recall that during the debate over adding 
prescription drug coverage to Medicare, a great deal of attention was 
paid to whether the 10-year cost was over or under $400 billion. Not 
widely publicized--and certainly not surfaced in the debate--was that 
the present value of the long-term cost of this legislation was about 
$8 trillion! 

Of course, when you are in a hole, the first thing to do is stop 
digging. I have urged reinstitution of the statutory controls--both 
meaningful caps on discretionary spending and pay-as-you-go (PAYGO) on 
both the tax and spending sides of the ledger--that expired in 2002. 
Given the severity of our current challenge, Congress may wish to look 
beyond the return to PAYGO and discretionary caps. Mandatory spending 
cannot remain on autopilot. We have suggested that Congress might wish 
to design "triggers" for mandatory programs--some measure that would 
prompt action when the spending path increased significantly. In 
addition, Congress may wish to look at rules to govern the use of 
"emergency supplementals." However, as everyone in this committee 
knows, these steps alone will not solve the problem. That is why 
building in more consideration of the long-term impact of decisions is 

Meeting the Long-Term Fiscal Challenge Requires Cooperation and 
Compromise--and Action Should Not Be Delayed: 

The government can help ease future fiscal burdens through spending 
reductions, revenue actions, or both that reduce debt held by the 
public and enhance the pool of economic resources available for private 
investment and long-term growth. Economic growth is essential, but we 
will not be able to simply grow our way out of the problem. The numbers 
speak loudly: our projected fiscal gap is simply too great. To "grow 
our way out" of the current long-term fiscal gap would require 
sustained economic growth far beyond that experienced in U.S. economic 
history since World War II. 

While the appropriate level of revenues will be part of the debate 
about our fiscal future, making no changes to Social Security, 
Medicare, Medicaid, and other drivers of the long-term fiscal gap would 
require ever increasing tax levels--and that seems both inappropriate 
and implausible. Accordingly, substantive reform of Social Security and 
our major health programs remains critical to recapturing our future 
fiscal flexibility. Similarly, given demographic and health care cost 
trends, the size of the spending cuts necessary to hold revenues at 
today's share of GDP seems inadequate and implausible. Waiting only 
makes matters worse. GAO's simulations show that if no action is taken, 
balancing the budget in 2040 could require actions as large as cutting 
total federal spending by 60 percent or raising federal taxes to 2 
times today's level. There are no "easy answers" and everything must be 
on the table. 

Although the long-term outlook is driven by Social Security and health 
care costs, this does not mean the rest of the budget can be exempt 
from scrutiny. Many tax expenditures operate like entitlement programs-
-but with even less scrutiny. Other programs and activities were 
designed for a very different time. To recapture our fiscal flexibility 
and bring our government and its programs in line with 21ST century 
realities requires a fundamental reexamination of major spending and 
tax policies and priorities.[Footnote 5] Ultimately this reexamination 
will entail a national discussion about what Americans want from their 
government and how much they are willing to pay for those things. This 
discussion will not be easy, but it is critical. 

For many years those of us who talk about the need to put Social 
Security on a sustainable course and to reform Medicare have talked 
about the benefits of early action. Acting sooner rather than later can 
turn compound interest from an enemy to an ally. Acting sooner rather 
than later permits changes to be phased in more gradually and gives 
those affected time to adjust to the changes. Delay does not avoid 
action--it just makes the steps that have to be taken more dramatic and 
potentially harder. Unfortunately, there has already been too much 
delay. And now the future is upon us. 

Next year members of the baby boom generation start to leave the labor 
force. Reflecting this demographic shift, CBO projects the average 
annual growth rate of real GDP will decline from 3.1 percent in 2008 to 
2.6 percent in the period 2012-2016. This slowing of economic growth 
will come just as spending on Social Security, Medicare and Medicaid 
will begin to accelerate--accounting for 56 percent of all federal 
spending by 2016 compared to 43 percent in 2006. 

As I noted earlier, today Social Security's cash surplus helps offset 
the deficit in the rest of the budget, but growth in Social Security 
spending is expected to increase from an estimated 4.8 percent in 2008 
to 6.5 percent in 2016. The result, as shown in figure 8, is that the 
Social Security surpluses begin a permanent decline in 2009. At that 
time the rest of the budget will begin to feel the squeeze since the 
capacity of Social Security surpluses to offset deficits in the rest of 
the budget will begin to shrink. In 2017 Social Security will no longer 
run a cash surplus and will begin adding to the deficit. That year 
Social Security will need to redeem the special securities it holds in 
order to pay benefits. Treasury will honor those claims--the United 
States has never defaulted. But there is no free money. The funds to 
redeem those securities will have to come from higher taxes, lower 
spending on other programs, higher borrowing from the public, or a 
combination of all three. 

Figure 8: Projected Cash Surpluses and Deficits in the Combined Social 
Security Trust Fund: 

[See PDF for image] 

Source: GAO analysis of data from the Office of the Chief Actuary, 
Social Security Administration. 

Note: Projections based on the intermediate assumptions of the 2006 
Trustees' Reports. The consumer price index is used to adjust from 
current to constant dollars. 

[End of figure] 

Concluding Remarks: 

It is a hopeful sign that we are here today. By beginning the year not 
with a discussion of the current year's budget but with a focus on the 
long term, this committee is showing the kind of leadership needed to 
tackle this challenge. 

I have long believed that the American people can accept difficult 
decisions as long as they understand why such choices are necessary. 
They need to be given the facts about the fiscal outlook: what it is, 
what drives it, and what it will take to address it. As most of you 
know, I have been investing a good deal of time in the Fiscal Wake-Up 
Tour (FWUT) led by the Concord Coalition. Scholars from both the 
Brookings Institution and the Heritage Foundation join with me and 
Concord in laying out the facts and discussing the possible ways 
forward. In our experience, having these people with quite different 
policy views agree on the nature, scale and importance of the issue-- 
and on the need to sit down and work together--resonates with the 
audiences. Although the major participants have been Concord, GAO, 
Brookings and Heritage, others include such organizations as the 
Committee for Economic Development (CED); the American Institute of 
Certified Public Accountants (AICPA); the Association of Government 
Accountants (AGA); the National Association of State Auditors, 
Comptrollers and Treasurers (NASACT); and AARP. The FWUT also has 
received the active support and involvement of community leaders, local 
colleges and universities, the media, the business community and both 
former and current elected officials. We have been to 17 cities to- 
date. The discussion has been broadcast on public television stations 
in Atlanta and Philadelphia. Just this morning I returned from an event 
at the John Glenn School of Public Affairs at Ohio State University in 
Columbus, Ohio, in which OMB Director Portman and former Senator Glenn 

The specific policy choices made to address this fiscal challenge are 
the purview of elected officials. The policy debate will reflect 
differing views of the role of government and differing priorities for 
our country. What the FWUT can do--and what I will continue to do--is 
lay out the facts, debunk various myths and prepare the way for tough 
choices by elected officials. If the American people understand that 
there is no magic bullet--if they understand that: 

* we cannot grow our way out this problem; 

* eliminating earmarks will not solve the problem; 

* wiping out fraud, waste and abuse will not solve the problem; 

* ending the war or cutting way back on defense will not solve the 
problem; and: 

* letting the recent tax cuts expire will not solve this problem. 

Then they can engage with you in a discussion about what government 
should do and how. 

This is a great nation. We have faced many challenges in the past and 
we have met them. It is a mistake to underestimate the commitment of 
the American people to their children and grandchildren; to 
underestimate their willingness and ability to hear the truth and 
support the decisions necessary to deal with this challenge. We owe it 
to our country, children and grandchildren to address our fiscal and 
other key sustainability challenges. The time for action is now. 

Mr. Chairman, Senator Gregg, members of the Committee, let me repeat my 
appreciation for your commitment and concern in this matter. We at GAO 
stand ready to assist you in this important endeavor. 

Contacts and Acknowledgments: 

For further information on this testimony, please contact Susan J. 
Irving at (202) 512-9142 or Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this testimony. Individuals making key contributions 
to this testimony include Jay McTigue, Assistant Director, and Melissa 

[End of section] 

Appendix I: Ideas for Improving the Transparency of Long-term Costs and 
the Attention Paid to These Costs before Decisions Are Made: 

Supplemental Reporting in the President's Annual Budget Submission: 

* Produce an annual Statement of Fiscal Exposures, including a concise 
list and description of exposures, cost estimates where possible, and 
an assessment of methodologies and data used to produce such cost 

* Increase the transparency of tax expenditures by including them in 
the annual Fiscal Exposures Statement and, where possible, also showing 
them along with spending and credit programs in the same policy area. 

* Provide information on the impact of major tax or spending proposals 
on short-term, midterm, and long-term fiscal exposures and on the path 
of surplus/deficit and debt as percent of gross domestic product (GDP) 
over 10-year and longer-term horizons (and assuming no sunset if sunset 
is part of the proposal). 

* Cover 10 years in the budget. 

* Consider requiring the President to include in his annual budget 
submission a long-term fiscal goal (e.g., balance, surplus, or deficit 
as percent of GDP). 

Additional Executive Branch Reports: 

* Prepare and publish a Summary Annual Report or Citizen's Summary that 
summarizes, in a clear, concise, plain English, and transparent manner, 
key financial and performance information included in the Consolidated 
Financial Report. 

* Prepare and publish a report on long-range fiscal sustainability 
every 2 to 4 years. 

Additional Cost Information on Proposals before Adoption: 

* Require improved disclosure--at the time proposals are debated but 
before they are adopted--of the long-term costs of individual mandatory 
spending and tax proposals over a certain size and for which costs will 
ramp up over time. 

GAO Reports: 

An annual report or reports by GAO including comments on the 
Consolidated Financial Statement (CFS), results of the latest long-term 
fiscal simulations, comments on the adequacy of information regarding 
long-term cost implications of existing and proposed policies in the 
previous year as well as any other significant financial and fiscal 

Other Areas in Which GAO Has Suggested That Congress Might Consider 
Changing the Budget Treatment: 

* Use accrual budgeting for the following areas where cash basis 
obligations do not adequately represent the government's commitment: 

- employee pension programs (pre-Federal Employee Retirement System 

- retiree health programs, and: 

- federal insurance programs, such as the Pension Benefit Guaranty 
Corporation and crop insurance. 

* Explore techniques for expanding accrual budgeting to: 

- environmental cleanup and: 

- social insurance--could consider deferring recognition of social 
insurance receipts until they are used to make payments in the future 
(this was suggested in GAO's accrual budgeting report as an idea to 
explore, possibly with a commission designed to explore budget 


[1] For a discussion of how the accrual and cash deficits relate to 
each other see GAO, Understanding Similarities and Differences between 
Accrual and Cash Deficits, GAO-07-117SP (Washington, D.C.: December 
2006) and forthcoming update. 

[2] GAO is responsible for auditing the financial statements included 
in the Financial Report, but we have been unable to express an opinion 
on them for ten years because the federal government could not 
demonstrate the reliability of significant portions of the financial 
statements, especially in connection with the Department of Defense. 
Accordingly, amounts taken from the Financial Report may not be 

[3] Social Security and Medicare spending is based on the May 2006 
Trustees' intermediate projections. Medicaid spending is based on CBO's 
December 2005 long-term projections under midrange assumptions. 

[4] Additional information about the GAO model, its assumptions, data, 
and charts can be found at [Hyperlink,]. 

[5] GAO, 21ST Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: February 2005) and 
Suggested Areas for Oversight for the 110th Congress, GAO-07-235R 
(Washington, D.C.: Nov. 17, 2006). 

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