America's Fiscal Future

GAO-06-1037CG: Published: Mar 14, 2006. Publicly Released: Mar 14, 2006.

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This speech was given by the Comptroller General before the London School of Economics in London, England, on March 14, 2006. Today in America, both policymakers and the public need to face the facts, take a long-term perspective, and accept the need for dramatic reform and some shared sacrifice. After all, when our days on this earth are nearing an end, we should be able to look our children and our grandchildren in the eye and say we did everything we could to pass on a community, a country, and a world that's better off and better positioned for their future. Unfortunately, unless things change, the baby boom generation may be the first generation in our country to not continue this long-standing tradition. Tonight, I'm going to talk about the challenges facing the United States and Europe, many of which are shared challenges. I'm then going to talk about the United States' growing fiscal imbalance and what that may mean not just for us but also for the international community. Finally, I'm going to discuss what the United States needs to do to get its fiscal house in order. In today's world, no nation, including the United States, should try to go it alone. In fact, most developed nations now face a range of shared challenges that have no geopolitical boundaries. These challenges include such trends as the globalization of markets, enterprises, and information; changing demographics; new and emerging security threats; rapidly evolving technologies; and various quality-of-life concerns. While the United States and other countries confront many shared challenges, perhaps the most urgent issue for America is our deteriorating financial condition and worsening long-term fiscal outlook. I should point out that a long-term fiscal imbalance isn't just a U.S. problem. The first deficit we face is the federal budget deficit, which in 2005 was around $319 billion on a cash basis. The second deficit is our savings deficit. Too many Americans--from individual consumers to elected officials--are spending today as if there's no tomorrow. America's third deficit is our overall balance-of-payments deficit. America is simply spending more than it's producing. Finally, there's our fourth deficit, and it's probably the most sobering deficit of all. What I'm talking about is America's leadership deficit. Although I may be one of the few voices back in the United States leading the charge on fiscal sanity, I try to do more than just explain the problem. I also suggest concrete ways to turn things around. This includes improving overall transparency and enhancing debate regarding what the U.S. government does and how it does business.

Significantly, the elderly dependency ratios in both our countries and elsewhere in Europe are rising. An added challenge in many European countries is the prospect of falling birth rates and shrinking populations. In a nutshell, there are going to be relatively fewer full-time workers to pay taxes and contribute to social insurance programs to support growing numbers of older individuals, many of whom are going to require expensive medical care. Another shared challenge is changing security threats. With the end of the Cold War, we face new security threats, including transnational terrorist networks and rogue states armed with weapons of mass destruction. Other challenges come from technology. In recent decades, spectacular advances in technology have transformed everything from how we do business to how we communicate to how we treat and cure diseases. This has produced many benefits, including significant productivity gains in the workforce. However, because of technology, our countries are also struggling with privacy, information security, and other concerns. On a per capita basis, the United States spends about double what the United Kingdom spends on health care. Today, nearly one out of every seven dollars in the U.S. economy goes for health care. Unfortunately, it's not at all clear that we Americans are getting a very good return on our health care investment. America's health care system is plagued by growing gaps in coverage, increasing numbers of uninsured individuals, and mediocre outcomes on basic measures like medical error rates, infant mortality, and life expectancy. The widely reported number of our federal budget deficit is somewhat misleading because it fails to take into account all the expenses the federal government incurred during the year. When these costs are included, using accrued accounting concepts, the federal government's net operating cost (or accrual based deficit) was actually $760 billion--the highest ever recorded in the United States. Many Americans, like their government, are living beyond their means and are deeply in debt. This trend is particularly alarming in an aging society such as our own. Those Americans who save more will certainly live better in retirement. Those Americans who save less are rolling the dice, and given the problems plaguing our nation's social insurance and other retirement systems, the odds are stacked heavily against these individuals. Myopia and tunnel vision are now an epidemic in both government and private industry. At both ends of Pennsylvania Avenue in Washington, D.C., which runs from the White House to our Capitol building, both sides of the political aisle, and at all levels of government, there have been few champions for real and fundamental change. Instead, the government's continuing lack of fiscal discipline has made our long-term situation even worse. The government's recent spending sprees and deep tax cuts are nothing less than a body blow to overall fiscal responsibility. This should be a matter of concern to the rest of the world. The continuing health of the U.S. and other major economies helps to promote global stability and provide economic opportunities for both the developed and the developing worlds. Clearly, a crunch is coming, and all of the federal government will eventually feel its impact. Long-range simulations from my agency show that if we continue on our present path, increasingly drastic measures on spending and/or taxes will be required to balance the budget. Nothing less than a top-to-bottom review of federal activities is needed to determine which agencies are meeting their objectives and which agencies aren't. This will also help free up resources for other needs. Congress and the President need to decide which policies and programs remain priorities, which should be overhauled, and which have simply outlived their usefulness.

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