This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

21st Century Issues: Challenges and Opportunities: 

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

American Association of Community Colleges: 
February 6, 2006: 

The Case for Change: 

Government is on a "burning platform," and the status quo way of doing 
business is unacceptable for a variety of reasons, including: 

* Past fiscal trends and significant long-range challenges; 

* Rising public expectations for demonstrable results and enhanced 
responsiveness; 

* Selected trends and challenges having no boundaries; 

* Additional resource demands due to recent terrorism events in the 
United States; 

* Government performance/accountability and high risk challenges, 
including the lack of effective human capital strategies. 

FY2005 GAO Audit Report Emphasis of a Matter: 

"...More troubling still, the federal government's financial condition 
and long-term fiscal outlook is continuing to deteriorate...Addressing 
the nation's long-term fiscal imbalance constitutes a major 
transformational challenge that may take a generation or more to 
resolve. Given the size of the projected deficit, the U.S. government 
will not be able to grow its way out of this problem-tough choices are 
required." 

Composition of Federal Spending: 

[See PDF for image] - graphic text 

3 pie charts with 5 items each. 

1965: 
Defense: 43.0%; 
Social Security: 15.0%; 
Medicare & Medicaid: 0%; 
Net interest: 7.0%; 
All other spending: 35.0%. 

1985: 
Defense: 27.0%; 
Social Security: 20.0%; 
Medicare & Medicaid: 9.0%; 
Net interest: 14.0%; 
All other spending: 30.0%. 

2005: 
Defense: 20.0%; 
Social Security: 21.0%; 
Medicare & Medicaid: 19.0%; 
Net interest: 7.0%; 
All other spending: 32.0%. 

Source: Office of Management and Budget and Department of Treasury, 
Financial Management Service. 

[End of figure] 

Federal Spending for Mandatory and Discretionary Programs: 

[See PDF for image] - graphic text 

3 pie charts with 3 items each. 

1965: 
Discretionary: 66%; 
Mandatory: 27%; 
Net Interest: 7%. 

1985: 
Discretionary: 44%; 
Mandatory: 42%; 
Net Interest: 14%. 

2005: 
Discretionary: 39%; 
Mandatory: 54%; 
Net Interest: 7%. 

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

Note: Fiscal year 2005 data are estimated. 

[End of figure] 

Surplus or Deficit as a Share of GDP: Fiscal Years 1962-2005: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 1 line (Unified) and 44 bars. 

Fiscal year: 1962; 
On-budget: -1%; 
Off-budget: -0.2%; 
Unified: -1.3%. 

Fiscal year: 1963; 
On-budget: -0.7%; 
Off-budget: -0.1%; 
Unified: -0.8%. 

Fiscal year: 1964; 
On-budget: -1%; 
Off-budget: 0.1%; 
Unified: -0.9%. 

Fiscal year: 1965; 
On-budget: -0.2%; 
Off-budget: No data; 
Unified: -0.2%. 

Fiscal year: 1966; 
On-budget: -0.4%; 
Off-budget: -0.1%; 
Unified: -0.5%. 

Fiscal year: 1967; 
On-budget: -1.6%; 
Off-budget: 0.5%; 
Unified: -1.1%. 

Fiscal year: 1968; 
On-budget: -3.2%; 
Off-budget: 0.3%; 
Unified: -2.9%. 

Fiscal year: 1969; 
On-budget: -0.1%; 
Off-budget: 0.4%; 
Unified: 0.3%. 

Fiscal year: 1970; 
On-budget: -0.9%; 
Off-budget: 0.6%; 
Unified: -0.3%. 

Fiscal year: 1971; 
On-budget: -2.4%; 
Off-budget: 0.3%; 
Unified: -2.1%. 

Fiscal year: 1972; 
On-budget: -2.2%; 
Off-budget: 0.3%; 
Unified: -2%. 

Fiscal year: 1973; 
On-budget: -1.2%; 
Off-budget: No data; 
Unified: -1.1%. 

Fiscal year: 1974; 
On-budget: -0.6%; 
Off-budget: 0.1%; 
Unified: -0.4%. 

Fiscal year: 1975; 
On-budget: -3.5%; 
Off-budget: 0.1%; 
Unified: -3.4%. 

Fiscal year: 1976; 
On-budget: -4.1%; 
Off-budget: -0.2%; 
Unified: -4.2%. 

Fiscal year: 1977; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1978; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1979; 
On-budget: -1.5%; 
Off-budget: -0.1%; 
Unified: -1.6%. 

Fiscal year: 1980; 
On-budget: -2.7%; 
Off-budget: No data; 
Unified: -2.7%. 

Fiscal year: 1981; 
On-budget: -2.4%; 
Off-budget: -0.2%; 
Unified: -2.6%. 

Fiscal year: 1982; 
On-budget: -3.7%; 
Off-budget: -0.2%; 
Unified: -4%. 

Fiscal year: 1983; 
On-budget: -6%; 
Off-budget: No data; 
Unified: -6%. 

Fiscal year: 1984; 
On-budget: -4.8%; 
Off-budget: No data; 
Unified: -4.8%. 

Fiscal year: 1985; 
On-budget: -5.3%; 
Off-budget: 0.2%; 
Unified: -5.1%. 

Fiscal year: 1986; 
On-budget: -5.4%; 
Off-budget: 0.4%; 
Unified: -5%. 

Fiscal year: 1987; 
On-budget: -3.6%; 
Off-budget: 0.4%; 
Unified: -3.2%. 

Fiscal year: 1988; 
On-budget: -3.9%; 
Off-budget: 0.8%; 
Unified: -3.1%. 

Fiscal year: 1989; 
On-budget: -3.8%; 
Off-budget: 1%; 
Unified: -2.8%. 

Fiscal year: 1990; 
On-budget: -4.8%; 
Off-budget: 1%; 
Unified: -3.9%. 

Fiscal year: 1991; 
On-budget: -5.4%; 
Off-budget: 0.9%; 
Unified: -4.5%. 

Fiscal year: 1992; 
On-budget: -5.5%; 
Off-budget: 0.8%; 
Unified: -4.7%. 

Fiscal year: 1993; 
On-budget: -4.6%; 
Off-budget: 0.7%; 
Unified: -3.9%. 

Fiscal year: 1994; 
On-budget: -3.7%; 
Off-budget: 0.8%; 
Unified: -2.9%. 

Fiscal year: 1995; 
On-budget: -3.1%; 
Off-budget: 0.9%; 
Unified: -2.2%. 

Fiscal year: 1996; 
On-budget: -2.3%; 
Off-budget: 0.9%; 
Unified: -1.4%. 

Fiscal year: 1997; 
On-budget: -1.3%; 
Off-budget: 1%; 
Unified: -0.3%. 

Fiscal year: 1998; 
On-budget: -0.3%; 
Off-budget: 1.1%; 
Unified: 0.8%. 

Fiscal year: 1999; 
On-budget: No data; 
Off-budget: 1.4%; 
Unified: 1.4%. 

Fiscal year: 2000; 
On-budget: 0.9%; 
Off-budget: 1.5%; 
Unified: 2.4%. 

Fiscal year: 2001; 
On-budget: -0.3%; 
Off-budget: 1.6%; 
Unified: 1.3%. 

Fiscal year: 2002; 
On-budget: -3.1%; 
Off-budget: 1.5%; 
Unified: -1.5%. 

Fiscal year: 2003; 
On-budget: -4.9%; 
Off-budget: 1.5%; 
Unified: -3.5%. 

Fiscal year: 2004; 
On-budget: -4.9%; 
Off-budget: 1.3%; 
Unified: -3.6%. 

Fiscal year: 2005; 
On-budget: -4%; 
Off-budget: 1.3%; 
Unified: -2.6%. 

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

[End of figure] 

Fiscal Year 2004 and 2005 Deficits and Net Operating Costs: 

Dollars in billions. 

On-Budget Deficit; 
Fiscal Year 2004: ($567); 
Fiscal Year 2005: ($494). 

Off-Budget Surplus*; 
Fiscal Year 2004: $155; 
Fiscal Year 2005: $175. 

Unified Deficit; 
Fiscal Year 2004: ($412); 
Fiscal Year 2005: ($319). 

Net Operating Cost; 
Fiscal Year 2004: ($616); 
Fiscal Year 2005: ($760). 

* Includes $151 billion in fiscal year 2004 and $173 billion in fiscal 
year 2005 in Social Security surpluses and $4 billion in fiscal year 
2004 and $2 billion in fiscal year 2005 in Postal Service surpluses. 

[End of table] 

Estimated Fiscal Exposures (in $ trillions): 

Explicit liabilities (Publicly held debt, military & civilian pensions 
& retiree health, other); 
2000: $6.9; 
2005: $9.9. 

Commitments & Contingencies: e.g., PBGC, undelivered orders; 
2000: $0.5; 
2005: $0.9. 

Implicit exposures; 
2000: $13.0; 
2005: $35.6. 

Implicit exposures: Future Social Security benefits; 
2000: $3.8; 
2005: $5.7. 

Implicit exposures: Future Medicare Part A benefits; 
2000: $2.7; 
2005: $8.8. 

Implicit exposures: Medicare Part B benefits; 
2000: $6.5; 
2005: $12.4. 

Implicit exposures: Medicare Part D benefits; 
2005: $8.7. 

Total; 
2000: $20.4; 
2005: $46.4. 

Sources: Consolidated Financial Statements. 

Note: Estimates for Social Security and Medicare are PV as of January 1 
of each year as reported in the Consolidated Financial Statements and 
all other data are as of September 30. 

[End of table] 

How Big is Our Growing Fiscal Burden? 

Total Fiscal Exposures; 
2000: $20.4 trillion; 
2005: $46.4 trillion; 

Burden: Per Person; 
2000: $72,000; 
2005: $156,000. 

Burden: Per Full-time Worker; 
2000: $165,000; 
2005: $375,000. 

Burden: Per Household; 
2000: $189,000; 
2005: $411,000. 

Source: GAO analysis. 

[End of table] 

Composition of Spending as a Share of GDP Under Baseline Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.4%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 1.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.3%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2030; 
Net interest: 2.8%; 
Social Security: 6.4%; 
Medicare & Medicaid: 8%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2040; 
Net interest: 5.7%; 
Social Security: 6.9%; 
Medicare & Medicaid: 9.7%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2015 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2015, revenue as a share of GDP 
is held constant. 

Source: GAO’s August 2005 analysis. 

[End of figure] 

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP after 2005 and All Expiring Tax Provisions are 
Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.4%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 2.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.3%; 
All other spending: 9.9%; 
Revenue: 17.4. 

2030; 
Net interest: 8%; 
Social Security: 6.7%; 
Medicare & Medicaid: 8%; 
All other spending: 9.9%; 
Revenue: 17.4%. 

2040; 
Net interest: 15.8%; 
Social Security: 7.7%; 
Medicare & Medicaid: 9.7%; 
All other spending: 9.9%; 
Revenue: 17.4%. 

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2015 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2015, revenue as a share 
of GDP is held constant. 

Source: GAO's August 2005 analysis. 

[End of figure] 

Current Fiscal Policy Is Unsustainable: 

The “Status Quo” is Not an Option: 

* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs. 

* GAO’s simulations show that balancing the budget in 2040 could 
require actions as large as: 

- Cutting total federal spending by about 60 percent or
- Raising taxes to about 2.5 times today's level. 

Faster Economic Growth Can Help, but It Cannot Solve the Problem: 

* Closing the current long-term fiscal gap based on responsible 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years. 

* During the 1990s, the economy grew at an average 3.2 percent per 
year. 

* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required. 

The Way Forward: Three Pronged Approach: 

* Re-impose budget controls and enhance legislative process. 

* Improve accounting and reporting and metrics. 

* Re-examine, re-prioritize and re-engineer the base of current federal 
spending programs and tax policies. 

Action, Education, and Debate Are Required Now: 

The Sooner We Get Started, the Better: 

* The miracle of compounding is currently working against us; 
* Less change would be needed, and there would be more time to make 
adjustments; 
* Our demographic changes will serve to make reform more difficult over 
time. 

Need Public Education, Discussion, and Debate: 

The role of government in the 21st Century; 
* Which programs and policies should be changed and how; 
* How government should be financed. 

21st Century Challenges Report: 

Provides background, framework, and questions to assist in reexamining 
the base. 

Covers entitlements & other mandatory spending, discretionary spending, 
and tax policies and programs. 

Based on GAO's work for the Congress. 

Issued February 16, 2005. 

Twelve Reexamination Areas: 

Mission Areas: 

* Defense; 
* Education & Employment; 
* Financial Regulation & Housing; 
* Health Care; 
* Homeland Security; 
* International Affairs; 
* Natural Resources, Energy & Environment; 
* Retirement & Disability; 
* Science & Technology; 
* Transportation. 

Crosscutting Areas: 

* Improving Governance; 
* Reexamining the Tax System. 

Illustrative 21st Century Questions: 

National Defense: 

* How should the historical allocation of resources across services and 
programs be changed to reflect the results of a forward-looking 
comprehensive threat/risk assessment as part of DOD's capabilities-
based approach to determining defense needs? 

Homeland Security: 

* What criteria should be used to target federal funding for homeland 
security in order maximize results and mitigate risk within available 
resource levels? 

Health Care: 

* How can industry standards for acceptable care be established and 
payment reforms be designed to bring about reductions in unwarranted 
medical practice variation? 

Retirement and Disability Policy: 

* How can federal disability programs, and their eligibility criteria, 
be brought into line with the current state of science, medicine, 
technology, and labor market conditions? 

Natural Resources, Energy, & the Environment: 

* To what extent are federal energy policies and incentive structures 
adequately preparing the nation, to satisfy its energy needs over the 
long term? 

International Affairs: 

* Do we need to reexamine the U.S. force structure used for nation 
building and peacekeeping activities by the United Nations, NATO, and 
other international institutions? 

Education & Employment: 

* How can the United States balance immigration policies--such as 
worker and student visa programs--to address employers' need for 
particular skills, the nation's need to maintain global leadership in 
areas such as science and higher education, and the nation's homeland 
security requirements? 

Transportation: 

* How narrowly or broadly should the federal role and interest in the 
nation's transportation system be defined? 

Financial Regulation & Housing: 

* To what extent do the tools and incentives increase spending on 
housing rather than promote affordable housing? 

Scientific & Technological Innovation: 

* How can the United States better develop a world-class technical and 
scientific domestic workforce that is not as dependent on large inflows 
of international students and researchers? 

Governance: 

* Is the federal government effectively informed by a key national 
indicator system about the position and progress of the nation as a 
whole as a guide to helping set agency and program goals and 
priorities? 

Tax System: 

* Which tax incentives need to be reconsidered because they fail to 
achieve the objectives intended by the Congress, their costs outweigh 
their benefits, they duplicate other programs, or other more cost-
effective means exist for achieving their objectives? 

Educators Must Deliver the Tools to Address 21st Century Challenges: 

* Re-focus curricula; 

* Pursue key areas of research; 

* Incorporate outside speakers; 

* Develop classroom exercises; 

* Promote relevant dissertation topics; 

* Raise awareness through op-eds and articles; 

* Participate in Town Hall meetings and other public fora. 

Addressing 21st Century Challenges: An Educator’s Toolbox: 

* 21st Century Challenges; 

* High Risk Series; 

* GAO Strategic Plan; 

* Understanding the Tax Reform Debate; 

* Social Security Reform: Answers to Key Questions; 

* Comptroller General’s Health Care Forum; 

* Motor Fuels: Understanding the Factors That Influence the Retail 
Price of Gasoline; 

* Federal Debt: Answers to Frequently Asked Questions. 

Key Ingredients Needed for These Challenging and Changing Times: 

* Courage; 

* Integrity; 

* Creativity; 

* Stewardship. 

[End of slide presentation] 

GAO's Mission: 

The Government Accountability Office, the investigative arm of 
Congress, exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading. 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548: 

To order by Phone: 

Voice: (202) 512-6000: 

TDD: (202) 512-2537: 

Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov 

Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 

Jeff Nelligan, managing director, 

NelliganJ@gao.gov 

(202) 512-4800 

U.S. Government Accountability Office, 

441 G Street NW, Room 7149 

Washington, D.C. 20548: