Budget Issues:

Long-Term Fiscal Outlook

T-AIMD/OCE-98-83: Published: Feb 25, 1998. Publicly Released: Feb 25, 1998.

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Paul L. Posner
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contact@gao.gov

 

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GAO discussed its work on long-term budget issues, focusing on the: (1) results of GAO's simulations updated to incorporate the Congressional Budget Office's (CBO) new budget projections; and (2) programmatic composition and design of federal spending--for which policymakers need to consider the long-term fiscal and spending implications of the government's commitments.

GAO noted that: (1) long-term simulations are useful for comparing outcomes of alternative fiscal policies within a common economic framework; (2) while long-term simulations provide a useful perspective that is often lacking in budget debates, they should be interpreted carefully; (3) since GAO's October 1997 report was issued, CBO's 10-year budget projections have shown continued improvement in the short term; (4) CBO now projects that the budget is already virtually in balance and that, in a few years, there could be a period of budget surpluses on a unified budget basis; (5) the dramatic drop in the deficit and the expected budget surpluses for the near future have changed the fiscal policy climate; (6) while GAO's no action path remains an unsustainable policy over the long term, it does include a period of budget surpluses over the next 15 years, consistent with CBO's current baseline; (7) GAO presents two alternatives to the no action simulation; (8) under the no surplus scenario, the deficit would reach 10 percent of the gross domestic product (GDP) 8 years earlier than the no action plan; (9) the maintain balance simulation is an example of a sustainable fiscal path under which government activities can be maintained without a continual rise in the debt as a share of GDP; (10) to some degree, the long-term fiscal policy of the nation is determined by the spending or revenue paths inherent in the design of federal programs; (11) without adequate information about the long-term cost implications of specific program designs, fiscal policy may not follow the expected path; (12) just as the current long-term projections are driven by a combination of demographics and the design of Social Security and federal health care programs, so future projections may also be affected by the long-term costs of other programs; (13) the broad range of long-term federal commitments complicates the challenge of integrating more complete information on their expected future cost into the budget process; and (14) the diverse nature of these commitments, combined with the varying quality and amount of information available outside the budget process, suggests that across-the-board changes in budget reporting or process may not be the most effective way to proceed.

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