21st Century:

Addressing Long-Term Fiscal Challenges Must Include a Re-examination of Mandatory Spending

GAO-06-456T: Published: Feb 15, 2006. Publicly Released: Feb 15, 2006.

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This testimony discusses entitlement and other mandatory spending programs in light of our nation's long-term fiscal outlook and the challenges it poses for the budget and oversight processes. In our report entitled 21st Century Challenges: Reexamining the Base of the Federal Government, we presented illustrative questions for policy makers to consider as they carry out their responsibilities. These questions look across major areas of the budget and federal operations including discretionary and mandatory spending, and tax policies and programs. We hope that this report, among other things, will be used by various congressional committees as they consider which areas of government need particular attention and reconsideration. Congress will also receive more specific proposals, some of them will be presented within comprehensive agendas. Our report provides examples of the kinds of difficult choices the nation faces with regard to discretionary spending; mandatory spending, including entitlements; as well as tax policies and compliance activities.

Mandatory spending programs--like tax expenditures--are governed by eligibility rules and benefit formulas, which means that funds are spend as required to provide benefits to those who are eligible and wish to participate. Since Congress and the President must change substantive law to change the cost of these programs, they are relatively uncontrollable on an annual basis. Moreover, as we reported in a 1994 analysis, their cost cannot be controlled by the same "spending cap" mechanism used for discretionary spending. By their very nature mandatories limit budget flexibility. Mandatory spending has grown as a share of the total federal budget. Under both the Congressional Budget Office baseline estimates and the President's Budget, this spending would grow further. While the long-term fiscal outlook is driven by Medicare, Medicaid and Social Security, it does not mean that all other mandatory programs should be "given a pass." As we have noted elsewhere, reexamination of the "fit" between government programs and the needs and priorities of the nation should be an accepted practice. So in terms of budget flexibility--the freedom of each Congress and President to allocate public resources--we cannot ignore mandatory spending programs even if they do not drive the aggregate. While some might suggest that mandatory programs could be controlled by being converted to discretionary or annually appropriated programs, that seems unlikely to happen. If we look across the range of mandatories we see many programs have objectives and missions that contribute to the achievement of a range of broad-based and important public policy goals such as providing a floor of income security in retirement, fighting hunger, fostering higher education, and providing access to affordable health care. To these ends, these programs--and tax expenditures--were designed to provide benefits automatically to those who take the desired action or meet the specified eligibility criteria without subjecting them to an annual decision regarding spending or delay in the provision of benefits such a process might entail. Although mandatory spending is not amenable to "caps," that does not mean that mandatory programs should 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 the 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 those rules or formulas. We recently issued a report on "triggers"--some measure which, when reached or exceeded, would prompt a response connected to that program. 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.

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