# Presentation: 701972

## 
21ST CENTURY:  
Addressing Long-Term Fiscal Challenges Must Include a Re-examination of Mandatory Spending

David M. Walker
Comptroller General of the United States 
Budget Committee, House of Representatives
February 15, 2006 

**21ST CENTURY:**
- Addressing Long-Term Fiscal Challenges Must Include a Re-examination of Mandatory Spending
- David M. Walker
- Comptroller General of the United States
- Budget Committee, House of Representatives
- February 15, 2006

## Composition of Federal OutlaysProjections Assume Discretionary SpendingGrows with Inflation after 2006

**CBO’s January 2006****projections**

**Percent of total outlays**

**Discretionary**

**Mandatory**

**Net interest**

- Source:  OMB and CBO.

## Composition of Spending as a Share of GDPUnder Baseline Extended

**Composition of Spending as a Share of GDP****Under Baseline Extended**

**Revenue**

**Social Security**

**Medicare & Medicaid**

**Net Interest**

**All other spending**

**Percent of GDP**

- Notes:  In addition to the expiration of tax cuts, revenue as a share of GDP increases through 2016 due to (1) real bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) increased revenue from tax-deferred retirement accounts.  After 2016, revenue as a share of GDP is held constant.
- Source:  GAO’s January 2006 analysis.

## Composition of Spending as a Share of GDPAssuming Discretionary Spending Grows with GDP after 2006 and All Expiring Tax Provisions are Extended

**Revenue**

**Social Security**

**Medicare & Medicaid**

**Net Interest**

**All other spending**

**Percent of GDP**

- Note:  This includes certain tax provisions that expired at the end of 2005, such as the increased AMT exemption amount.
- Source:  GAO’s January 2006 analysis.

## Social Security, Medicare, and Medicaid Spending as a Percent of GDP

**Percent of GDP**

**Social Security**

**Medicaid**

**Medicare**

- Source:  GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration, Office of the Actuary, Centers for Medicare and Medicaid Services, and the Congressional Budget Office.
- Note:  Social Security and Medicare projections based on the intermediate assumptions of the 2005 Trustees’ Reports.  Medicaid projections based on CBO’s January 2006 short-term Medicaid estimates and CBO’s December 2005 long-term Medicaid projections under mid-range assumptions.

**Notes:**
Today social security & medicare add to the surplus--they take in more than they spend

cash deficit reached in 2017;  at that point drain on system

options

## Health Care Is the Nation’s Top Tax Expenditure in Fiscal Year 2005

**Estimated dollars in billions**

- Note: “Tax expenditures” refers to the special tax provisions that are contained in the federal income taxes on individuals and corporations. OMB does not include forgone revenue from other federal taxes such as Social Security and Medicare payroll taxes.
- *If the payroll tax exclusion were also counted here, the total tax expenditure for employer contributions for health insurance premiums would be about 50 percent higher or $177.6 billion.
- **This is the revenue loss and does not include associated outlays of $14.6 billion.
- Source: Office of Management and Budget (OMB), *Analytical Perspectives, Budget of the United States Government, Fiscal Year  2007.*

## Conceptual Differences between Hard and Soft Responses

## Selected Reforms Aimed at Moderating Health Care Spending 

**Develop a set of national practice standards to help avoid unnecessary care, improve outcomes, and reduce litigation.**
**Encourage case management approaches for people with expensive acute and chronic conditions to improve the quality and efficiency of care delivered and avoid inappropriate care.**
**Foster the use of information technology to increase consistency, transparency, and accountability in health care.**
**Emphasize prevention and wellness care, including nutrition.**
**Leverage the government’s purchasing power to control costs for prescription drugs and other health care services.**
**Revise certain federal tax preferences for health care to encourage the more efficient use of appropriate care.**
**Create an insurance market that adequately pools risk and offers alternative levels of coverage. **
**Limit spending growth for government-sponsored health care programs (e.g., percentage of the budget and/or the economy).**
**Develop a core set of basic and essential services with supplemental coverage being available as an option but at a cost. Use the Federal Employees Health Benefits Program (FEHBP) model as a possible means to experiment and see the way forward.**

## The Way Forward:  Three Pronged Approach

**Re-impose Budget Controls**
- Discretionary spending caps
- PAYGO rules on both sides of the ledger
- Mandatory spending triggers
**Improve Accounting and Reporting and Metrics:**
- Enhanced financial statement presentation
- Automatic present value disclosures for legislative debate on major tax and spending bills
- Develop key national (outcome-based) indicators
**Re-examine Policies and Programs:**
- Restructure existing entitlement programs
- Reexamine the base of all other spending programs
- Review and revise existing tax policy, including tax preferences and enforcement programs
- Expand scrutiny of proposed new programs, policies, or activities

## 
21ST CENTURY:  
Addressing Long-Term Fiscal Challenges Must Include a Re-examination of Mandatory Spending

David M. Walker
Comptroller General of the United States 
Budget Committee, House of Representatives
February 15, 2006 

**21ST CENTURY:**
- Addressing Long-Term Fiscal Challenges Must Include a Re-examination of Mandatory Spending
- David M. Walker
- Comptroller General of the United States
- Budget Committee, House of Representatives
- February 15, 2006