This is the accessible text file for GAO report number GAO-07-1239CG
entitled 'Making Tough Choices' which was released on September 10, 2007.

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Presentation by the Honorable David M. Walker: 
Comptroller General of the United States:

Making Tough Choices:
AARP Life@50+2007 Event and Expo:
Boston, Massachusetts: 

September 8, 2007:

It is a pleasure to be here and to have the opportunity to address 
AARP's annual meeting as a member of this panel. I have been a member 
of AARP for about two years. More importantly, I have worked with AARP 
in several government and private sector capacities on a number of 
issues of mutual interest and concern in the past, and I expect to 
continue to do so for many more years in the future.

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.

First, the financial condition of the United States government is worse 
than advertised. Our nation's real fiscal challenge is not today's 
deficits and debt levels; it's where we are headed in the future if we 
don't start making tough choices soon.

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.

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.

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.

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.

With regard to the federal budget, the composition of the overall 
budget has changed dramatically since the founding of our republic in 
1789. For example, 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. In fact, today's 
discretionary spending includes all of the main functions of the 
federal government at the end of George Washington's second term as 
President in 1797.

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. Let me be very clear: These important social programs are 
important and they are here to stay. However, they are unsustainable in 
their present form, and the sooner we make changes, the fewer the 
changes we'll have to make in order to keep them solvent, sustainable, 
and secure for both current and future generations of Americans. 
Furthermore, the sooner we make needed changes, the more transition 
time we will have for all affected parties to adjust to them.

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 

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.

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.

What type of tough choices am I talking about? 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. In fact, we have an opportunity to 
exceed the expectations of every generation of Americans in connection 
with Social Security reform. Candidly, this should be easy and I would 
be happy to answer a question on how we can reform Social Security and 
achieve this objective during the question-and-answer portion of this 

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.

Let's face it; absent meaningful actions by our elected officials, 
higher deficits and mounting debt burdens will ultimately mean much 
higher tax levels and lower relative standards of living for our 
grandchildren. I don't know about yours, but my three grandchildren are 
way too young to vote! I care about my three grandchildren and I'm sure 
that you also care about yours. As a result, I believe that it's time 
for our elected officials to heed Washington's timeless words of wisdom 
and start treating our grandchildren the way we would want to be 

Thank you for your time and attention.

[End of section]

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U.S. Government Accountability Office: 
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