From the U.S. Government Accountability Office, www.gao.gov

Transcript for: The Federal Government's Long-Term Fiscal Outlook

Audio interview by GAO staff with Susan Irving, Director, Strategic
Issues

Related GAO Work: GAO-12-28SP: The Federal Government's Long-Term Fiscal
Outlook, Fall 2011 Update

Released on: October 24, 2011

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[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the Government Accountability Office. It's October 24,
2011. GAO has released its latest long-term fiscal outlook for the
federal government. A group led by Susan Irving, a director in GAO's
Strategic Issues team, recently updated GAO's long-term fiscal
simulations to help provide a better sense of the challenges we are
likely to face in coming years. GAO's Jeremy Cluchey sat down with Susan
to learn more.

[ Jeremy Cluchey: ] What are some of the major pressures affecting the
United States' fiscal situation as we look out over the long term?

[ Susan Irving: ] Well, demographics is one of them, we are an aging
population. Within that, the Social Security, which on its own terms has
an imbalance, but the bigger one is health care--federal health
programs--both because of demographics, that is, Medicare is targeted to
the elderly and a significant portion of Medicaid is used for nursing
home costs, but also because in the economy as a whole health care costs
are growing faster than the economy, so therefore consuming a greater
and greater share of our output.

[ Jeremy Cluchey: ] How does this latest installment of GAO's reporting
on the government's fiscal outlook differ from the previous update?

[ Susan Irving: ] The lines look slightly better. That's largely because
of the Budget Control Act, and in our simulations we assume that the
effects of that act are continued throughout the simulation period. Now
this year, it was a little more complicated because we had to deal with
the Budget Control Act, which establishes discretionary spending caps
for the first 10 years--[inaudible] that part was easy. But it created
something called the Joint Select Committee on Deficit Reduction,
colloquially referred to as the super committee, and tasked it with
finding between $1.2 and $1.5 trillion of deficit reduction over the
next 10 years...or more. There are enforcement procedures to kick in if
they do not achieve 1.2 or if they do but it is not enacted. But the
super committee is not instructed about whether it should use taxes, do
something with Social Security and Medicare, or do it all on the
discretionary spending side, and it's not GAO's place to assume. So we
just take that off the bottom line; we assume not only that another 1.2
trillion comes off the deficit between 2012 and 2021 but that the
austerity is sustained throughout the projection period.

[ Jeremy Cluchey: ] What sorts of actions would be necessary to address
and potentially even mitigate the fiscal imbalance represented by the
simulations in this report?

[ Susan Irving: ] Well, there are a couple of characteristics that will
be necessary for any decision to do that. One is changes that are
lasting. One-year discretionary caps won't do it, a onetime cut in
benefits won't do it, a onetime...a 1-year surtax won't do it. You
really need something that will be integrated into the structure of the
budget and will grow. Given the weakness of the economy, you really
probably want something that starts smaller and gets bigger. You're
going to have to look at, at least, the three big parts of the gap:
Social Security, federal health programs, and revenues. You don't have
to tackle all three analytically but you do have to look at them,
because if you wanted to leave Social Security and the health programs
the way they are now and they way we've gotten used to over time having
[inaudible] Social Security and Medicare, you would need significantly
more revenue. If you wish to keep revenue either at today's historic
low, you would need to dramatically change what people have become used
as the role of the federal government.

[ Jeremy Cluchey: ] For taxpayers who are concerned about the nation's
long-term fiscal health, maybe now more than ever, what's the bottom
line of this report?

[ Susan Irving: ] I think the bottom line of this report is recognizing
that the economy is very weak today, the fact remains that the structure
of our budget, the design of our spending programs and the design of our
taxes, leads to a...takes us to rapidly rising debt as a share of the
economy and that is unsustainable. That in order to return to a
sustainable ratio of debt to GDP, there will be changes in tax and/or
spending policy or both that are not pleasant but are important for the
continued health of the economy and for the next generations.

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[ Narrator: ] To learn more, visit GAO's website at gao.gov and be sure
to tune in to the next edition of GAO's Watchdog Report for more from
the congressional watchdog, the Government Accountability Office.