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Testimony: 

Before the Committee on the Budget, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

Wednesday, July 25, 2007: 

Long-Term Fiscal Challenge: 

Additional Transparency and Controls Are Needed: 

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

GAO-07-1144T: 

Chairman Spratt, Mr. Ryan, Members of the Committee, 

I appreciate being invited to testify today as you consider the 
restoration of a statutory pay-as-you go rule(s), or PAYGO. As this 
Committee knows as well or better than any, this discussion is part of 
the broader question: How should we deal with our nation's long-term 
fiscal challenge in order to help ensure that our future is better than 
our past? 

In my testimony today, I will start with our longer-term fiscal 
challenge. Then I will turn to the process question you present at this 
hearing: the reimposition of a statutory PAYGO rule(s) as a step toward 
dealing with this challenge. Finally I will talk about moving beyond 
caps and PAYGO to some ideas on how improved transparency and process 
changes can help in the effort to put us on a more prudent and 
sustainable long-term fiscal path. 

As widely reported earlier this month, the Administration now expects 
the deficit for fiscal year 2007 to be $205 billion, down from its 
February estimate of $244 billion and last year's deficit of $248 
billion. However, because these numbers include the Social Security 
surpluses, they mask what I like to call the "operating deficit" now 
estimated to be $385 billion for fiscal year 2007. Clearly lower short- 
term deficits are better than higher short-term deficits. However, our 
real challenge is not short-term deficits, rather it's the long-term 
structural deficits and related debt burdens that could swamp our ship 
of state if we do not get serious soon. Specifically, while our near- 
term fiscal picture is better, our long-term fiscal outlook is not. 
Health care costs are still growing faster than the economy and the 
population is still aging. Indeed, what we call the long-term fiscal 
challenge is not in the distant future. The first of the baby boomers 
become eligible for early retirement under Social Security on January 
1, 2008--less than 1 year from now--and for Medicare benefits in 2011-
-just 3 years later. 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 long-term fiscal path that is getting 
worse with the passage of time. 

Herbert Stein once said that something that is not sustainable will 
stop. That, however, should not give us comfort. Clearly, it is more 
prudent to change the path than to wait until a crisis occurs. While 
restraint in the near term and efforts to balance the budget over the 
next 5 years can be positive, they are not enough. It is also important 
that we take steps to address our longer-term fiscal imbalance. 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. 

My remarks are based on our previous work on a variety of issues, 
including reports and testimonies on our nation's long-term fiscal 
challenges and budget process reform. These efforts were conducted in 
accordance with generally accepted government auditing standards. 

The Nation's Long-Term Fiscal Challenge: 

Long-term fiscal simulations by GAO, CBO, and others all show that 
despite some modest improvement in near-term deficits, we face large 
and growing structural deficits driven primarily by rising health care 
costs and known demographic trends. In fact, the long-term fiscal 
challenge is largely a health care challenge. Although Social Security 
is important because of its size, the real driver is health care 
spending. It is both large and projected to grow more rapidly in the 
future. 

GAO's current long-term simulations show ever-larger deficits resulting 
in a federal debt burden that ultimately spirals out of control. Figure 
1 shows two alternative fiscal paths. The first is "Baseline extended," 
which extends the CBO's baseline estimates beyond the 10-year 
projection period, and the second is an alternative based on recent 
trends and policy preferences. Our alternative scenario assumes action 
to return to and remain at historical levels of revenue and reflects 
somewhat higher discretionary spending and more realistic Medicare 
estimates for physician payments than does the baseline extended 
scenario.[Footnote 1] Although the timing of deficits and the resulting 
debt build up varies depending on the assumptions used, both 
simulations show that we are on an unsustainable fiscal path. 

Figure 1: Unified Surpluses and Deficits as a Share of GDP under 
Alternative Fiscal Policy Simulations: 

[See PDF for image] 

Source: GAO's April 2007 analysis. 

[End of figure] 

The bottom line is that the nation's longer-term fiscal outlook is 
daunting under any realistic policy scenario or assumptions. Continuing 
on this unsustainable fiscal path will gradually erode, if not suddenly 
damage, our economy, our standard of living, and ultimately our 
national security. Our current path also increasingly will constrain 
our ability to address emerging and unexpected budgetary needs and 
increase the burdens that will be faced by future generations. 

As I noted earlier, despite some recent improvements in short-term 
deficits, the long-term outlook is moving in the wrong direction. 
Figures 2 and 3 illustrate just how much worse the situation has 
become. Both figures show the potential fiscal outcome under our 
"Baseline extended" scenario. Figure 2 shows the fiscal outlook in 2001 
and figure 3 shows the outlook now. The contrast is dramatic. Even with 
the surpluses of 2001, we had a long-term problem, but it was more than 
40 years out. Although an economic slowdown and decisions driven by the 
attacks of 9/11 and the need to respond to natural disasters have 
contributed to the change in outlook, they do not account for the 
dramatic worsening in the long-term outlook since 2001. Subsequent tax 
cuts and the passage of the Medicare prescription drug benefit in 2003 
were major factors. 

Figure 2: Potential Fiscal Outcomes under Baseline Extended, January 
2001: Revenue and Composition of Spending as a Share of GDP: 

[See PDF for image] 

Source: GAO's January 2001 analysis. 

[A] All other spending is net of offsetting interest receipts. 

[End of figure] 

Figure 3: Potential Fiscal Outcomes under Baseline Extended, April 
2007: Revenue and Composition of Spending as a Share of GDP: 

[See PDF for image] 

Source: GAO's April 2007 analysis. 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2017 mainly due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2017, revenue as a share 
of GDP is held constant--implicitly assuming that action is taken to 
offset increased revenue from real bracket creep, the AMT, and tax- 
deferred retirement accounts. 

[End of figure] 

Figure 3 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 longer-term imbalance. 
This is even clearer under our alternative scenario based on recent 
trends and policy preferences (see fig. 4). Growth in the major 
entitlement programs--primarily health spending--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. 3) or at historical levels as 
shown in figure 4. 

Figure 4: Potential Fiscal Outcomes under Alternative Simulation, April 
2007: Revenues and Composition of Spending as a Share of GDP: 

[See PDF for image] 

Source: GAO's April 2007 analysis. 

Notes: AMT exemption amount is retained at the 2006 level through 2017 
and expiring tax provisions are extended. After 2017, revenue as a 
share of GDP returns to its historical level of18.3 percent of GDP plus 
expected revenues from deferred taxes, i.e. taxes on withdrawals from 
retirement accounts. Medicare spending is based on the Trustees April 
2007 projections adjusted for the Centers for Medicare and Medicaid 
Services alternative assumption that physician payments are not reduced 
as specified under current law. 

[End of figure] 

Rapidly rising health care costs are not simply a federal budget 
problem; they are our nation's number one fiscal challenge. Just last 
week, GAO released the results of our latest fiscal modeling efforts 
showing that state and local governments--absent policy changes--will 
also face large and growing fiscal challenges beginning within the next 
few years.[Footnote 2] As is true for the federal budget, growth in 
health-related spending--Medicaid and health insurance for state and 
local employees and retirees--is the primary driver of the fiscal 
challenges facing the state and local governments. In short, the 
fundamental fiscal challenges of all levels of government are similar 
and linked. Further, escalating health care costs are also a major 
competitiveness challenge for American businesses and a growing 
challenge for many Americans. As such, solutions to address these 
challenges should be considered in a strategic and integrated manner. 

The longer-term fiscal challenge we face is not solely a federal one-- 
it is a national one. Figure 5 shows both the federal fiscal path and 
the fiscal path for the whole of government. 

Figure 5: Federal and Combined Federal, State, and Local Surpluses and 
Deficits as a Share of GDP: 

[See PDF for image] 

Source: Historical data from National Income and Product Accounts, GAO 
analysis. 

Note: Historical data from 2000-2006, projections from 2007-2050; state 
and local balance measure is similar to the federal unified budget 
measure. 

[End of figure] 

Mandatory Spending Programs Drive the Long-term Fiscal Outlook: 

There often seems to be an imbalance between the focus of press 
coverage and public debate and what drives the longer-term outlook. 
Reporting and debate are often focused on what the Budget Enforcement 
Act (BEA) called discretionary--the one-third of the budget that goes 
through the annual appropriation process:[Footnote 3] Is funding for 
specific programs being cut or increased? Is "too much" or "too little" 
being spent in a given area? I would be the last person to say this 
isn't important. Much of what the American people think of as 
government is contained in that part of the budget. Further, as I have 
said before, I believe that reexamining "the base" is something that 
should be done periodically regardless of fiscal condition--all of us 
have a stewardship obligation over taxpayer funds. We have programs 
still in existence today that were designed 20 or more years ago--and 
the world has changed. However, I would suggest that as constraints on 
discretionary spending continue to tighten, the need to reexamine 
existing programs and activities becomes greater. 

Certainly controlling discretionary spending is important, but--as 
everyone in this room knows even with the large costs associated with 
the "Global War on Terrorism" and Iraq--discretionary spending is not 
the part of the budget that drives the long-term fiscal imbalance. As 
figure 6 shows, mandatory programmatic spending--that is mandatory 
spending excluding interest--has grown from 27 percent of the federal 
budget in 1965--the year Medicare was created--to 42 percent in 1985 to 
53 percent last year. Total mandatory spending including net interest-
-has grown from 34 percent in 1965 to 62 percent last year. Both the 
CBO baseline estimates and the President's Budget proposal show this 
spending growing even further. 

Figure 6: Federal Spending for Mandatory and Discretionary Programs: 

[See PDF for image] 

Source: Office of Management and Budget and the Congressional Budget 
Office. 

[End of figure] 

This growth--in particular rising health care spending--will have 
significant implications not only for the budget, but also for the 
economy as a whole. Figure 7 shows the total future draw on the economy 
represented by Social Security, Medicare, and Medicaid. Under the 2007 
Trustees' intermediate estimates and CBO's 2005 midrange Medicaid 
estimates, spending for these entitlement programs combined will grow 
to over 15 percent of GDP in 2030 from today's 8.9 percent. Taken 
together, it is clear that Social Security, Medicare, and Medicaid 
represent an unsustainable burden on the federal budget, our economy, 
and future generations. Ultimately, the nation will have to decide what 
level of benefits and spending it wants and how it will pay for these 
benefits. 

Figure 7: Social Security, Medicare, and Medicaid Spending as a 
Percentage of GDP: 

[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 
Office. 

Note: Social Security and Medicare projections based on the 
intermediate assumptions of the 2007 Trustees' Reports. Medicaid 
projections based on CBO's January 2007 short-term Medicaid estimates 
and CBO's December 2005 long-term Medicaid projections under mid-range 
assumptions. 

[End of figure] 

Although these three programs 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 responsibilities, 
programs, and activities that may either obligate the government to 
future spending or create an expectation for such spending. Part of 
what we owe the future is leaving enough flexibility to meet whatever 
challenges arise. So beyond dealing with the "big 3," we need to look 
at other policies that limit that flexibility--not to eliminate all of 
them but to at least be aware of them and make a conscious decision to 
reform them in a manner that will be responsible, equitable, and 
sustainable. 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. 

Last year the U.S. government's major reported liabilities, social 
insurance commitments, and other fiscal exposures continued 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. Absent meaningful 
reforms, these amounts will continue to grow every second of every 
minute of every day due to continuing deficits, known demographic 
trends and compounding interest costs. While it is hard to make sense 
of what "trillions" means, one way to think of these numbers is that if 
we wanted to put aside today enough to cover these promises, it would 
take $170,000 for each and every American, including newborns, or 
approximately $440,000 per American household. Considering that median 
household income is about $46,000, the household burden is about 9.5 
times median income. 

Just two weeks ago the Office of Management and Budget released its mid-
session budget update--showing further improvement in this year's 
budget deficit. This "good news," however, did not signal any 
improvement in the long-term outlook. The problem isn't this year's 
deficit--or even the deficit in 2012. The problem is that we are on an 
imprudent and unsustainable path. 

Budget Controls Step 1: Stop Digging: 

When I appeared before this Committee in January[Footnote 4] I noted 
that I have previously urged a restitution of the statutory budget 
controls--including meaningful caps on discretionary spending and PAYGO 
on both the tax and spending sides of the ledger. Given the focus of 
this hearing, let me elaborate. 

BEA--of which PAYGO was a part--had a number of strengths its 
predecessor, Gramm-Rudman-Hollings, lacked.[Footnote 5] Consistent with 
good practice in designing incentives, it focused on what Congress and 
the administration could control--spending and tax decisions-- rather 
than on outcomes driven by external changes. In addition, enforcement 
was targeted--further encouraging compliance with the discretionary 
caps and PAYGO rules. There is broad consensus among observers and 
analysts who focus on the budget that the controls contained in the 
Budget Enforcement Act constrained spending for much of the 1990s. 
However, since the BEA was focused on deficit reduction, its 
effectiveness deteriorated with the achievement of near-term surpluses. 
Although the BEA statutory PAYGO rules were extended twice, they 
expired in 2002. 

Earlier this year, both the Senate and the House adopted rules 
reinstating PAYGO discipline on both sides of the ledger. Then why 
should we consider restoration of statutory PAYGO? The obvious answer 
ties to enforcement and duration: it may be easier to waive a rule than 
ignore a law, and a law can carry a penalty designed to encourage 
compliance. I will defer to Director Orszag and some of the technical 
experts on the next panel as to the details of how any sequester or 
enforcement mechanism should be designed. However, I will note that it 
should be unpleasant enough to encourage compliance but not so 
draconian as to be implausible. The goal of any penalty should be to 
encourage compliance, not to encourage avoidance or merely impose the 
penalty. 

As I have said before, when you are in a hole, the first thing to do is 
stop digging. Discretionary caps and PAYGO are designed to stop the 
digging. There are two reasons to impose PAYGO on both the direct 
spending and the revenue side of the budget. The first is obvious--both 
affect the bottom line. The second--and perhaps as important--is that 
applying PAYGO only to spending is likely to lead to more programs 
being designed as tax preferences. Tax preferences are like a form of 
back door spending. As a result, they need to be subject to additional 
transparency and controls as well. We have previously reported[Footnote 
6] on these tax expenditures, which are often aimed at policy goals 
similar to those of federal spending programs. Revenues forgone through 
tax expenditures--unless offset by increased taxes or lower spending-- 
increase the unified budget deficit and federal borrowing from the 
public (or reduce the unified budget surplus available to reduce debt 
held by the public). Unlike discretionary spending programs, which are 
subject to periodic reauthorization and annual appropriation, tax 
expenditures are--like entitlement programs--permanent law and 
generally not subject to a recurring legislative process that would 
ensure systematic annual or periodic review. BEA's statutory PAYGO 
regime applied to both mandatory spending and revenues--and so limited 
the ability to create or expand either spending entitlements or tax 
expenditures unless offsetting funds could be raised. Since tax 
provisions are not as visible in the budget as spending programs, there 
is already some incentive to use tax provisions rather than spending 
programs to accomplish programmatic ends; imposing controls on spending 
programs but not on tax provisions would only increase this incentive. 
It would be an unfortunate consequence if the restoration of the PAYGO 
rule were to lead to an increase in the portion of the budget on 
automatic pilot and therefore reduce both transparency and control. 

Moving Beyond PAYGO: Process and Presentational Changes to Increase 
Transparency and Focus on Long-Term Consequences: 

The PAYGO requirement prevented legislation that lowered revenue, 
created new mandatory programs, or otherwise increased direct spending 
from increasing the deficit unless offset by other legislative actions. 
While PAYGO constrained the creation or legislative expansion of direct 
spending programs and tax cuts, it accepted the existing provisions of 
law as given. It was not designed to trigger--and it did not trigger-- 
any examination of "the base." Furthermore, cost increases in existing 
mandatory programs were exempt from control under PAYGO and could be 
ignored. However, constraining legislative actions that increase the 
cost of entitlements, mandatories, and tax expenditures is not enough. 
Looking ahead, the budget process will need to go beyond limiting 
expansions. Existing programs cannot be permitted to be on autopilot 
and grow to an unlimited extent. Since the spending for any given 
entitlement or other mandatory program is a function of the interaction 
between eligibility rules and the benefit formula--either or both of 
which may incorporate exogenous factors such as economic downturns--the 
way to change the path of spending for any of these programs is to 
change their rules or formulas. In January of last year, we issued a 
report on "triggers"--some measure that when reached or exceeded, would 
prompt a response connected to that program.[Footnote 7] By identifying 
significant increases in the spending path of a mandatory program 
relatively early and acting to constrain it, Congress may avert much 
larger and potentially disruptive financial challenges and program 
changes in the future. A similar approach could be applied to those tax 
expenditures that operate in many ways like mandatory spending 
programs. Some years ago, Mr. Chairman, you had suggested a kind of 
"look back" trigger--a requirement that the President and the Congress 
monitor the path of existing entitlements and make an explicit 
determination about whether to accept growing costs or to take action 
to change the path. 

I know it comes as no surprise to anyone in this room that I believe we 
need to increase the understanding of and focus on the longer term in 
our policy and budget debates. When I was here in January I spoke about 
some ideas I had been discussing with a number of Members of the House 
and Senate as well as other interested and concerned citizens and 
groups. Since then--at the request of some Members--I have had those 
ideas put into legislative language as a basis for discussion. Today 
I'd like to elaborate a little on some of those ideas. They fall into 
three broad categories: increased information and reporting by the 
executive branch--both in the President's budget proposal and in other 
statements for the public; more information for the Congress, and an 
annual GAO report. I will discuss each in turn. A summary of the 
proposal appears in appendix I. 

I. Executive Branch Reporting & Information: 

A. Increased Information in the President's Budget Proposals: 

* Annual Report on Fiscal Exposures: The transparency of existing 
commitments would be improved by requiring OMB to report annually on 
existing fiscal exposures--including a concise list, description and 
cost information.[Footnote 8] As I noted before, these exposures range 
from explicit liabilities to implicit promises embedded in the 
structure of current programs. This should be provided as supplementary 
information in the President's budget along with information on the 
long-term costs of major tax expenditures. As appropriate and possible, 
showing tax expenditures, related spending programs and related credit 
programs that address the same policy area would facilitate oversight 
and reexamination by the Congress. 

* Information over a longer time horizon: (1) The President's budget 
should include an estimate of the impact of any major spending or tax 
proposals on these fiscal exposures and on the long-term fiscal 
outlook; (2) The budget should provide year-by-year data for 10 fiscal 
years rather than the current 5; and (3) The President's budget should 
include a statement of his budgetary goals for the next decade. 

B. Executive Branch Reporting and Information--Summary Annual Report 
and Statement of Fiscal Sustainability: 

* Summary Annual Report: One of the things I am proudest of from my 
tenure as a public trustee for Social Security and Medicare is the 
creation of a Summary Report to accompany the annual Trustees report. 
This summary report presents key information in a way more accessible 
to the press and lay reader. I believe it has contributed to improved 
understanding about the condition of these programs. As the Comptroller 
General I sign the audit report on the Consolidated Financial 
Statements of the U.S. Government (CFS). Despite the fact that we must 
disclaim our opinion on the statements I believe they contain important 
information. The report is, however, too thick and very hard to read. I 
believe the Department of the Treasury (Treasury) should publish a 
summary financial report derived from the information in the audited 
CFS and the Comptroller General's audit report on it within 15 days of 
the issuance of that audit report. 

* Every four years the Treasury should do more--it should prepare and 
publish a fiscal sustainability report including information and an 
assessment of the long-term fiscal sustainability of our current 
spending and revenue path. A number of other Organization for Economic 
Co-operation and Development (OECD) countries have begun to do fiscal 
sustainability reports as a way of looking ahead. Such a report permits 
the public and policymakers to look at the full range of government 
commitments rather than focusing only on new proposals. 

II. Additional Information for the Congress: 

* If Congress is to balance short-term claims and long-term costs it 
must have information about the long-term cost implications of 
proposals that would result in a significant increase or decrease in 
revenues or spending. I recognize that estimates over a multi-decade 
period cannot be as precise as short-term estimates and that some 
programs are harder to cost out than Social Security. However, 
information about the path should be made available. For example, do 
costs double every decade? 

III. GAO Report: 

* As the independent auditor of the federal government's Consolidated 
Financial Statements and an agency of the legislative branch without a 
day-to-day responsibility in the budget process, I believe GAO is in an 
excellent position to pull together periodic financial and fiscal 
information in a summary report similar to the fiscal stewardship 
report I issued January 31 of this year. If Congress does impose 
additional transparency requirements on the Executive Branch, then we 
are in a good position to look over how those requirements were 
implemented and to suggest what changes, if any, might be made. 

Meeting the Long-Term Fiscal Challenge Requires Truth, Transparency, 
Cooperation and Compromise--and Action Should not be Delayed Further: 

I think we all know that there is no easy way out of the large and 
growing longer-term fiscal challenge we face. Economic growth is 
essential, but we cannot grow our way out of the problem. Based on 
reasonable assumptions the math does not come close to working. I have 
said that the first thing to do is stop digging--and the restoration of 
credible discretionary caps and PAYGO on both the spending and tax side 
of the ledger can help with that. Important as they are, however, they 
are not enough. 

Fundamental reform of existing entitlement programs will be necessary 
to change the path of those programs. The fact that the long-term 
outlook is driven primarily by health care costs does not mean that the 
rest of the budget should be exempt from scrutiny. We have the 
opportunity to bring our government and its programs in line with 21st 
century realities.[Footnote 9] Those who believe we can solve this 
problem solely by cutting spending or raising taxes are not being 
realistic. The truth is we will also need to reform entitlement 
programs, re-prioritize and re-engineer other direct spending programs, 
and engage in comprehensive tax reform that generates additional 
revenue as a percent of the economy (compared to current and historical 
levels) in order to get the job done. 

Concluding Remarks: 

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 key 
Concord officials 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 to develop a multi-
dimensional solution to our longer-term fiscal challenge-- resonates 
with the audiences. 

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, discuss possible options 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 "Global War on Terrorism", exiting from Iraq, 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; how it should do it; and how we should pay for it without 
unduly mortgaging the future of our country, children, and 
grandchildren. This is a great nation, probably the greatest in 
history. 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 country, 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 clock is ticking and time is working 
against us. The time for action is now. 

Chairman Spratt, Mr. Ryan, 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 effort. 

Scope and Methodology: 

My remarks are based largely on previous reports and testimonies, such 
as Long-Term Budget Outlook: Deficits Matter--Saving Our Future 
Requires Tough Choices Today (GAO-07-389T) and Budget Process: Better 
Transparency, Controls, Triggers, and Default Mechanisms Would Help to 
Address Our Large and Growing Long-term Fiscal Challenge (GAO-06-761T). 
We updated these testimonies with the results from our most recent long-
term simulations in The Nation's Long-Term Fiscal Outlook: April 2007 
Update (GAO-07-983R). 

Contact and Acknowledgments: 

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

[End of section] 

Appendix I: Transparency in Accounting and Budgeting: Legislative 
Recommendations of the Comptroller General: 

Supplemental Reporting in the President's Annual Budget Submission: 

Produce as supporting information to the budget an annual Statement 
of Fiscal Exposures, including: 

* a concise list, dollar estimates, and descriptions of exposures, 
including--: 

- information from Consolidated Financial Statements of the U.S. 
Government on total liabilities, contingencies, commitments, and net 
present value of social insurance program payments, and: 

- long-term cost (> 40 years) of major tax expenditures, presented 
together with related spending or credit programs in the same policy 
area , if appropriate: 

* dollar estimate of the effect on these exposures of all major 
spending or tax proposals: 

* an assessment of methodologies and data used to produce such cost 
estimates: 

* a graphic presentation of the dollar amounts of exposures presented 
as percentage of GDP for each year covered: 

Budget horizon expanded to cover 10 fiscal years: 

President shall include in the budget a statement of the President's 
budgetary goals for a 10-year period in terms of surplus or deficit and 
in terms of surplus or deficit as a percentage of GDP: 

Summary Financial Report for the General Public: 

Pursuant to OMB form and content guidance, Treasury shall annually 
publish a summary financial report on the U.S. Government derived from 
the information in the audited annual Consolidated Financial Statements 
of the U.S. Government. 

* Report shall be in format and of length, content and sophistication 
for general American public: 

* Report shall include condensed summary of CG's audit report on the 
CFS: 

First annual report due no later than January 30, 2008 [Note: This 
requires an amendment to GMRA (31 USC 331(e)(1)) to make audited CFS 
due by January 15 each year and an amendment to the Accountability for 
Tax Dollars Act (31 USC 3515(a)) to make agency financial statements 
due by November 30 each year.] 

Statement of Fiscal Sustainability: 

Pursuant to OMB form and content guidance, Treasury to prepare and 
make public every four years an assessment of the long-term 
sustainability of all major federal programs and activities. Statement 
of Fiscal Sustainability shall include: 

* PV of projected receipts and outlays of federal programs and 
activities for 75-year and infinite horizons, including separate 
reporting for social insurance programs: 

* Statement of annual cash flows for programs and activities: 

* Reconciliation of changes from prior period Statement: 

* Presentation of information using different measures of 
sustainability and estimates of financial burden on different age 
cohorts and other demographics: 

* Explanation of assumptions used and sensitivity analyses: 

First Statement of Fiscal Sustainability due no later than March 31, 
2008: 

Additional Cost Information on Legislative Proposals before Adoption: 

Before a Member of the House or Senate calls up for consideration on 
the floor of either House a bill or joint resolution or an amendment 
thereto that contains a proposal that would result in a significant 
increase or decrease in revenues or in mandatory spending, that Member 
shall obtain from CBO a statement of the long-term costs of such bill, 
joint resolution, or amendment. 

* CBO and Budget committees to jointly define "significant" for each 
Congress: 

* "Long-term costs" are those financial costs over at least a 40-year 
period: 

The statement from CBO shall be provided to the Members of either 
House, as applicable, and shall be published in the Congressional 
Record: 

GAO Report on the Financial Condition of the U.S. Government: 

The Comptroller General shall annually report to the Congress his 
assessment of the financial condition of the U.S. Government. Report 
shall include analyses of--: 

* the Consolidated Financial Statement (CFS) and the Summary Financial 
Report: 

* results of GAO's latest long-term fiscal simulations: 

* the President's Statement of Fiscal Exposures: 

* the adequacy of information regarding long-term cost implications of 
existing and proposed policies: 

* the Statement of Fiscal Sustainability: 

* statutorily-required CBO and JCT reports for the prior fiscal year: 

First annual report due no later than January 31, 2009: 

FOOTNOTES 

[1] Additional information about the GAO model and its assumptions, 
data, and charts can be found at 
Hyperlink, http://www.gao.gov/special.pubs/longterm/. 

[2] See GAO, State and Local Governments: Persistent Fiscal Challenges 
Will Likely Emerge within the Next Decade GAO-07-1080SP (Washington, 
D.C.: July 18, 2007). 

[3] See 2 U.S.C.  900(c)(7). 

[4] GAO, Long-Term Budget Outlook: Deficits Matter-Saving Our Future 
Requires Tough Choices Today, GAO-07-389T (Washington, D.C.: Jan. 23, 
2007) (Testimony before the House Committee on the Budget). 

[5] Budget Enforcement Act of 1990, Pub. L. No. 101-508, title XIII, 
104 Stat. 1388, 1388-573 (Nov. 5, 1990); Balanced Budget and Emergency 
Deficit Control Act of 1985, Pub. L. No. 99-177, title II, 99 Stat. 
1037, 1038 (Dec. 12, 1985). 

[6] GAO, Government Performance and Accountability: Tax Expenditures 
Represent a Substantial Federal Commitment and Need to Be Reexamined, 
GAO-05-690 (Washington D.C.: Sept. 23, 2005). 

[7] GAO, Mandatory Spending: Using Budget Triggers to Constrain Growth, 
GAO-06-276 (Washington, D.C.: Jan. 31, 2006). 

[8] For more information on fiscal exposures, see GAO, Fiscal 
Exposures: Improving the Budgetary Focus on Long-Term Costs and 
Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003). 

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

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