Making Tough Choices

GAO-07-1239CG: Published: Sep 8, 2007. Publicly Released: Sep 8, 2007.

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This speech was given by the Comptroller General before the AARP Life@50+ 2007 Event and Expo in Boston, Massachusetts, on September 8, 2007. As Comptroller General of the United States and head of the GAO, I and my fellow GAO colleagues are in the truth, transparency, and accountability business. Importantly, at GAO, we are professionals and not politicians. Therefore, I'm here today to tell you the truth about several important issues. Furthermore, in the past six years alone, our nation's total liabilities and unfunded commitments for Social Security and Medicare have grown from about $20 trillion to over $50 trillion, of which about $8 trillion relates to the new Medicare prescription drug bill. State and local governments also face long-range fiscal challenges due to Medicaid, unfunded retiree health plans, underfunded pension plans, and deferred maintenance costs on key infrastructure. Therefore, our real fiscal challenge is national versus just federal in nature. More recent budget trends are also telling. In 1966 Medicare and Medicaid represented only about 1 percent of the federal budget. In 2006 they represented 19 percent and their portion of the federal budget is on the rise. In addition, Medicaid represents the fastest growing cost for most states. While the Social Security, Medicare, and Medicaid programs are important and will not go away, they do not relate to functions that are expressly reserved for the federal government under the Constitution. The plain but simple truth is that a status quo path for our federal government is imprudent, unsustainable, and arguably immoral. As George Washington once said, we should avoid "ungenerously throwing upon posterity the burden that we ourselves ought to bear." These are timeless words of wisdom that more policymakers should both hear and heed. Given these facts, we need to start making tough choices sooner versus later if we want to keep America great and make sure that our future is better than our past. After all, that's what leadership and stewardship are all about.

The truth is, irrespective of the costs associated with Iraq and the Global War on Terrorism, the federal government faces large and growing structural deficits in future years due primarily to known demographic trends and rising health care costs. We are increasingly relying on foreign investors to finance our debt since Americans are great spenders but poor savers. Being able to borrow from these foreign players helps us in the short term. However, relying on them to the extent that we have will serve to increase our fiscal risk and reduce our international influence over time. In fiscal year 2006 only 38 percent of the federal government related to so-called discretionary spending and the rest of the budget was on autopilot. Believe it or not, discretionary spending includes things like national defense, homeland security, our judicial system, foreign relations, the nation's treasury functions, the Congress, and the Executive Office of the President. The truth is, we are mortgaging the future of our country, children and grandchildren, and it's scheduled to get worse in the future when the baby boomers retire in big numbers. Believe it or not, the first baby boomer becomes eligible for early retirement under Social Security in less than four months, and just three years later baby boomers will be eligible for Medicare. We need to bring back tough budget controls, tougher than the ones we had in the past. We need to improve transparency in connection with current financial reporting and budget processes. We also need to engage in several key reform efforts, including comprehensive Social Security reform, health care reform, and tax reform, just to name a few. It may take a capable, credible, and bipartisan commission for us to be able to accomplish this last item. With regard to Social Security, we can and should reform Social Security in a way that does not harm current retirees or those nearing retirement while making the overall program solvent, sustainable, and secure for future generations. With regard to health care, we must recognize that we will need to engage in comprehensive reform of our entire health care system over time and in installments. In the final analysis, we ultimately need to achieve four key objectives. First, we need to ensure that all Americans have access to "basic and essential" health care as a fundamental right of citizenship. Second, we need to place a cap as to how much of the federal budget will be allocated to health care in order to prevent excessive debt levels and/or tax burdens in the future. Third, we need to leverage technology and design and implement evidence-based practice standards to improve quality, enhance consistency, control costs, and reduce litigation. Fourth, we need to incorporate appropriate incentives and accountability mechanisms for individuals to improve their individual health and wellness. Finally, we need to engage in comprehensive tax reform that will improve the equity, efficiency, and credibility of the federal system. At the same time, our tax system needs to generate enough revenue to pay our current bills and deliver on our promises without doing serious damage to our economic growth or international competitive posture. In the end, we will need to generate more revenues as a percentage of the economy than has historically been the case. However, there is no way we can or should rely primarily on additional revenues to solve our long-range fiscal challenge. Entitlement reform and spending constraint will also be essential for us to succeed.

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