This is a speech given by the Comptroller General at the Outlook 2005 Conference before the National Press Club on February 2, 2005. As a federal official speaking at this state and local conference, it is important to note at the outset that in today's world governments, institutions, and individuals are increasingly interconnected and interdependent. This trend is occurring both internationally and domestically and among different economic and social sectors. From a federal, state, and local government perspective, this interconnection and interdependence involves a range of issues, including tax policy, education, the environment, health care, homeland security, social welfare, and transportation. I could talk about any number of intergovernmental challenges, but today I plan to brighten the lights and turn up the heat on an overarching problem that too many people seem content to put on the back burner. That problem is our nation's worsening financial condition and long-range fiscal outlook. We now confront three large and interrelated national deficits. The first is a large federal budget deficit. The second is a growing balance-of-payments deficit. And the third is an alarming personal savings deficit.

First, we need to undertake a top-to-bottom review of government programs, policies, functions, and activities to ensure their relevance for the 21st century. This includes both discretionary and mandatory spending. Today, many if not most government policies and programs are based on conditions that existed when Harry Truman or Dwight Eisenhower were President. We cannot afford to spend increasingly limited taxpayer dollars on government policies and programs that were designed to deal with the problems of the past or can't show they're that making a meaningful difference today. Congress and the President need to decide which programs and policies remain priorities, which should be overhauled, and which have outlived their usefulness. Importantly, increases in targeted earmark spending combined with across-the-board cuts are not substitutes for making tough and informed choices about the base of government. These trends can result in adding fat and protecting ineffective programs while cutting muscle from high-priority and high-performing programs. Second, we need to revisit existing tax policy and enforcement efforts. Every year, our government forgoes hundreds of billions of revenue because of existing tax preferences, significant uncollected back taxes, and tax evasion. In fact, in some years, the cost of tax preferences exceeds total discretionary spending. Our complex tax system distorts decisions to work, save, and invest--and that dampens economic growth. Complexity also creates opportunities for tax evasion through vehicles such as tax shelters. All of this raises questions about fairness with taxpayers wondering whether their friends, neighbors and business competitors are paying their fair share. Clearly, comprehensive tax reform is needed. Reform could also better position the United States to compete in today's global economy--one that is increasingly knowledge-based and subject to fast-paced technological change. It's important to recognize that the ripple effects of comprehensive tax reform will be felt at all levels of government. Third, entitlement reform is essential. We need to put Social Security and Medicare on a sound footing and make them solvent, sustainable, and secure for both current and future generations. Actually, the problems with Social Security are not that difficult to solve. In fact, we now have a window of opportunity to exceed the expectations of all Americans--whether they'll be retiring 30 days or 30 years from now. I'd be happy to tell you more about how we can do this during the question and answer period.