Serving the Congress and the Nation

Forces That Will Shape 

America’s Future: 

Themes from GAO’s 

Strategic Plan

2007 – 2012

United States Government Accountability Office

This document was reissued on 

April 11, 2007, to add clarifying 

language on pages 3, 7, and 20, 

to correct typographical errors 

on pages 6, 17, 24, and 28, and to 

add page 33, Image Sources. The 

printed version of this document 

incorporates these changes.
Serving the Congress and the Nation 

GAO’s Strategic Plan Framework

Mission

GAO exists to support the Congress in meeting its constitutional

responsibilities and to help improve the performance and ensure the accountability of 

the federal government for the benefit of the American people.

Themes Goals & Objectives

Provide Timely, Quality Service to the Congress and the 

Federal Government to . . .

. . . Address Current and Emerging Challenges to the Well-being

and Financial Security of the American People related to . . .

. . . Respond to Changing Security Threats and the Challenges of 

Global Interdependence involving . . .

Help Transform the Federal Government’s Role and How It Does 

Business to Meet 21st Century Challenges by assessing . . .

Maximize the Value of GAO by Being a Model Federal Agency and 

a World-Class Professional Services Organization in the areas of . . .

Accountability	 Integrity	 Reliability

Core Values

Changing

Security Threats

Sustainability

Concerns

Economic

Growth &

Competitiveness

Global

Interdependency

Societal Change

Quality of Life

Science &

Technology Client and customer satisfaction

Strategic leadership

Institutional knowledge and experience

•

•

•

Process improvement

Employer of choice

•

•

Health care needs

Lifelong learning

Work benefits and protections

Financial security

Effective system of justice

•

•

•

•

•

Viable communities

Natural resources use and 

environmental protection

Physical infrastructure

•

•

•

Homeland security

Military capabilities and readiness

•

•

Advancement of U.S. interests

Global market forces

•

•

Roles in achieving federal 

objectives

Government transformation

•

•

Key management challenges 

and program risks

Fiscal position and financing of the 

government

•

•

Source: GAO. GAO Strategic Plan 2007–2012
GAO-07-467SP

Table of Contents

Letter from the Comptroller General .........................................................................................................1

Ensuring the Nation’s Readiness to Address Changing Security Threats......................................4

Terrorism......................................................................................................................................................4

Growing Instability, Rogue Nations, Failed States, and Nuclear Proliferation..................................4

Border and Port Security ...........................................................................................................................5

Transnational and Violent Crime..............................................................................................................5

Natural Disasters ........................................................................................................................................6

Infectious Diseases and Public Health ....................................................................................................6

Related Issues..............................................................................................................................................6

Sustainability Concerns about Government Policies and Approaches ............................................7

Fiscal Deficits and Debt Burdens .............................................................................................................7

Health Care Quality, Access, and Costs...................................................................................................8

Defense and Homeland Security Strategies ............................................................................................9

Social Insurance Commitments..............................................................................................................10

Tax Gaps.....................................................................................................................................................10

Energy, Environment, and Resource Protection..................................................................................10

Food and Water Resources ......................................................................................................................11

Related Issues............................................................................................................................................12

Maintaining Economic Growth and Competitiveness..........................................................................13

Education, Skills, and Knowledge ..........................................................................................................13

Immigration ............................................................................................................................................... 14

Tax Policy...................................................................................................................................................15

Regulatory Policy......................................................................................................................................15

Saving and Investment .............................................................................................................................16

Innovation and Change Management.....................................................................................................16

Related Issues............................................................................................................................................16

Recognizing Global Interdependency ....................................................................................................... 17

Trade........................................................................................................................................................... 17

Capital Markets ......................................................................................................................................... 17

Information ................................................................................................................................................18

Transportation...........................................................................................................................................18

Related Issues............................................................................................................................................19

Adapting to Societal Changes......................................................................................................................20

Aging and Life Spans ................................................................................................................................20

Dependency Ratios ...................................................................................................................................21

Demographic Diversity.............................................................................................................................21

Income Distribution Gaps ........................................................................................................................22

Changing Social Behaviors......................................................................................................................22

Related Issues............................................................................................................................................23
ii GAO-07-467SP

Maintaining the Quality of Life for U.S. Citizens .................................................................................24

Retirement Security..................................................................................................................................24

Employment...............................................................................................................................................24

Work and Family .......................................................................................................................................25

Urbanization and Sprawl..........................................................................................................................25

Housing.......................................................................................................................................................25

Related Issues ...........................................................................................................................................26

Managing Advancements in Science and Technology ..........................................................................27

Productivity and Economic Growth.......................................................................................................27

Information and Communications Technology ....................................................................................27

Cybersecurity and Personal Privacy......................................................................................................28

Data Quality and Reliability ....................................................................................................................29

Space Exploration.....................................................................................................................................29

Humanity and Ethics ................................................................................................................................29

Elections and Citizens’ Involvement.......................................................................................................29

Related Issues............................................................................................................................................30

Governance Implications...............................................................................................................................31

Appendix I: Interrelationships of Themes and Issues.........................................................................32

Image Sources...................................................................................................................................................33

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GAO-07-467SP 

March 2007 

I am pleased to transmit this document that describes the forces that are likely to shape our 

nation’s future, its place in the world, and the changing role of the federal government. This 

document is an integral part of GAO’s strategic plan for serving the Congress for fiscal years 

2007 through 2012. Our plan describes our proposed goals and strategies for supporting the 

Congress and the nation in facing the challenges of a rapidly changing world. In keeping with 

our commitment to update the plan every 3 years, we have identified seven key themes that 

provide the context for our plan. These themes are ensuring the nation’s readiness to face 

changing security threats; addressing a range of sustainability challenges from fiscal challenges 

to environmental challenges; maintaining economic growth and competitiveness; recognizing 

global interdependencies related to people, information, goods, and capital; adapting to societal 

changes resulting from demographic and other shifts; maintaining U.S. citizens’ quality of life; and 

managing advancements in science and technology.

The United States is a culturally diverse country whose citizens are united by their belief in liberty, 

equal opportunity, and the possibility of a better life through perseverance and hard work. The 

United States is known for its innovation, its openness to new ideas, and its desire to leave things 

better for future generations. At this point in time, our nation has relatively strong economic 

growth, low unemployment rates, moderate inflation rates, and strong capital markets. Compared 

to most nations, the United States ranks very high on measures like personal income, literacy, 

and home ownership. The United States is also currently the only global superpower. Clearly 

our nation has much to be proud of and thankful for. However, the United States faces a range of 

major sustainability challenges that need urgent attention in such areas as government financing, 

defense and homeland security, Iraq, immigration, education, energy, environment, foreign 

policy, health care, and our nation’s critical infrastructure. Many of these challenges transcend 

geopolitical and sectoral boundaries.

The world’s overall security environment has changed dramatically, from the conventional threats 

posed during the Cold War era to more unconventional and asymmetric threats. Providing for 

people’s safety and security requires attention to threats as diverse as terrorism, violent crime, 

natural disasters, and infectious diseases. The response to many of these threats depends not only 

on the action of the U.S. government but also on the cooperation of other nations and multilateral 

organizations, as well as state and local governments, the private sector, and the nonprofit sector. 

Complicating such efforts are a number of failed states allowing the trade of arms, drugs, or 

other illegal goods; the spread of infectious diseases; and the accommodation of terrorist groups. 

Meeting the nation’s defense needs in the future may prompt decision makers to reexamine 

fundamental aspects of the nation’s national security programs, such as how the Department of 

Defense (DOD) and the Department of Homeland Security (DHS) plan and budget to best mitigate 

risk within current and expected resource levels to respond to these various threats. 

Internally, the nation’s ability to provide for the safety and security of its citizens and to shape 

its society and its place in the world are endangered by current fiscal, energy, environmental, 

and other policies that are clearly unsustainable. In the future, the United States faces large and 

growing structural fiscal deficits driven largely by known demographic trends and rising health 

care costs. Unfortunately, the math just does not come close to working. In addition, our nation’s 

financing and energy supply are overly dependent on others. Further, climate change is real and 

human behavior contributes to it.

Economic growth and competition are also affected by the skills and behavior of people living in 

the United States, the policies of the U.S. government, and the ability of U.S. private and public 

Letter from the Comptroller General
GAO-07-467SP

sectors to innovate and manage change. The U.S. education system must prepare the nation’s 

workforce by providing the necessary skills and knowledge to drive innovation, productivity, and 

economic growth while enabling the United States to continue to improve its standard of living 

and competitive posture. Importantly, the saving and investment behavior of U.S. citizens affects 

the capital available to invest in research, development, and productivity enhancement. And the 

tax and regulatory policies of the federal government affect the nation’s economic growth and 

ability to compete. The U.S. economy benefits from less restrictive labor and product market 

regulation and lower tax burdens than many other countries that are members of the Organisation 

for Economic Co-operation and Development (OECD), although deregulation can present its own 

challenges and requires adequate oversight to protect the public interest.

Meanwhile, economies as well as governments and societies are becoming increasingly 

interdependent as more people, information, goods, and capital flow across increasingly porous 

borders. Indicators such as international trade and financial transactions reveal how economic 

activity has come to link nations. Both U.S. imports and exports as a share of the gross domestic 

product (GDP) more than doubled from 1970 to 2005. The United States faces the challenge of 

securing its borders to protect the safety and security of the nation without impeding the exchange 

of people, ideas, goods, and capital needed to sustain economic growth and to strengthen civil 

society. And transportation systems—highway, rail, and air—as well as U.S. immigration and 

employment policies and practices may require significant changes in response to these trends.

As the U.S. economy evolves and global interdependence grows, U.S. society is rapidly changing. 

The U.S. population is aging and becoming more diverse. As the population ages and the ratio 

of elderly persons and children to persons of working age increases, the sustainability of U.S. 

social insurance systems will be further threatened. Specifically, according to the 2000 census, 

the median age of the U.S. population was the highest it had ever been, and the baby boomer age 

group—people born from 1946 to 1964, inclusive—was a significant part of the population. As this 

group ages, it will have a continuing influence on society and social programs.

These societal changes add to concerns about the sustainability of the nation’s resources and 

current U.S. policies. They represent threats to safety and security and affect quality of life for 

people living in the United States and around the globe. Despite increasing productivity and 

economic growth, U.S. citizens face a gap between the haves and the have nots. Lack of affordable 

housing, urban sprawl, and growing commute times leave many U.S. citizens struggling to balance 

the daily demands of work and family. 

Science and technology offer many possibilities for improving quality of life. They hold the 

promise of future productivity gains and economic growth. However, with opportunities come 

challenges, such as ensuring cybersecurity, protecting personal privacy, and preserving tax bases 

for state and other governmental entities. The proliferation of information on the Internet, for 

example, has helped break down borders and has increased global interdependence. However, 

safeguards on the quality of information are few. At the same time, the possibilities suggested by 

advances in science and technology, especially in areas such as medicine, raise ethical and moral 

questions that our society must confront.

The United States will face an increasing need to reexamine what it does, how it does business, 

and with whom it does business. The seven themes discussed here and the issues they encompass 

will require the federal government to form strategic partnerships and alliances with state and 

local governments, as well as with the governments of other nations around the world. They 

will also require partnering for progress between levels of government, the private sector, and 

the nonprofit sector. Successful approaches to these issues will also need to focus on exercising 

foresight, addressing challenges before they become crises, maximizing value, managing risks, 

understanding the long-term and collateral impact of individual actions, and targeting resources 

and policies, while achieving real and sustainable results. Policymakers will need to transform 
GAO-07-467SP

the perspectives of the U.S. labor force and governance processes as well as apply technology to 

address public goals. 

If our nation is to be prepared for the challenges and changes that are coming, government 

transformation is essential. Nothing less than a top-to-bottom review of federal programs and 

policies is needed to determine if they are meeting their objectives. As a nation, we need to ask, 

“What is the proper role of the federal government in the 21st century, and how should it be 

organized, executed, managed, and financed?” Since at least the 1960s, the number of federal 

employees has dropped even as federal outlays have risen, partly because of technology and the 

fact that the dollars that fund federal programs are increasingly flowing to nonfederal entities. 

We need to better assess how well these entities are performing and whether they are achieving 

the desired results. The policy process needs redesign so that it can better support policymakers 

in reexamining the base of federal programs (e.g., federal entitlements, policies, and programs), 

updating budgetary priorities, and reviewing commitments as well as revenue approaches. 

In doing so, the policy process must have the capacity to provide policymakers not only with 

information to analyze the performance and results achieved by specific agencies and programs, 

but that of broad portfolios of programs and tools contributing to specific policy goals. Developing 

key outcome-based national indicators focused on the broadest levels of policy aspirations—for 

example, improving national health outcomes, reducing crime, or improving national educational 

progress—is essential to identifying and addressing broad national needs within current and 

expected resource levels. 

Such a transformation requires leadership by elected and public officials that is dedicated, 

courageous, creative, committed, constructive, cooperative, and stewardship oriented. 

The Congress and the President need to decide which policies and programs remain priorities, 

which should be overhauled, and which have simply outlived their usefulness. Appointed and 

career officials at every federal agency and program need to give careful thought to their missions 

and operations in light of current trends and future realities. To assist policymakers and managers, 

the following pages contain more detailed descriptions of these key themes and issues along with 

some of the implications for governance. While many issues are related to multiple themes, we 

discuss each issue under the theme that it most influences, and we list related issues under each 

theme. Appendix I contains a table that displays the interrelationships of the issues and themes.

If you would like to know more about specific areas of GAO’s work, you will find our strategic 

plan, which describes the performance goals, key efforts, and potential outcomes for each of our 

strategic objectives, on our Web site at www.gao.gov. Links on that Web page will also take you to 

our agency’s performance and accountability reports. If you have questions, please contact me at 

(202) 512-5500 or walkerd@gao.gov or Gene L. Dodaro, Chief Operating Officer, at (202) 512-5600 

or dodarog@gao.gov.

David M. Walker

Comptroller General

of the United States
GAO-07-467SP

Ensuring the Nation’s Readiness to Address 

Changing Security Threats

U.S. citizens today live in an uncertain and unstable 

world that is affected by threats that the United 

States cannot address alone, either as a nation or 

as a government. Protecting the security of the 

United States and the personal safety of its citizens 

encompasses many military and civilian efforts. As 

the definition of homeland security evolves, it covers efforts such as defending the nation against terrorists; securing the country’s borders; controlling 

crime, especially violent crime; preparing for and 

recovering from natural disasters; and mitigating 

public health threats. Responsibility for protecting national security, once clearly divided between 

military and civilian agencies, is being debated and 

reexamined in light of changing threats and the 

need to balance security and the protection of civil 

liberties. For example, as figure 1 indicates, in addition to the traditional threats, DOD recognizes that 

it is more likely to face nonstate entities employing 

irregular tactics, terror, and asymmetric warfare 

than states employing conventional armies operating within clearly established political boundaries.

Figure 1: Traditional, Disruptive, Irregular, 

and Catastrophic Security Challenges

Source: Department of Defense.

Post-September 11 Security Challenges

Irregular

Nonstate and state actors 

employing unconventional 

methods to counter stronger 

state opponents, such as 

terrorism and insurgency

Catastrophic

Terrorist or rogue state 

employment of weapons of 

mass destruction or methods 

producing weapons of mass 

destruction-like effects against 

U.S. interests

Traditional

States employing military 

forces in well-known forms 

of military competition and 

conflict

Disruptive

Competitors employing 

technology or methods that 

might counter or cancel out 

current military advantages

Vulnerability

Likelihood

Lower

Lower

Higher

Higher

Terrorism

The September 11, 2001, terrorist attacks dramatically changed the definition of national security 

and homeland security for the United States, with 

the focus shifting from conventional threats posed 

by the Cold War to less traditional, more diffuse 

threats. Securing a wide range of potential targets 

is a major challenge because the targets include 

government facilities; commercial and financial 

systems; cultural and historic landmarks; food, water, and power supplies; and information, transport, 

and energy networks. The challenges of counterterrorism are likely to become more elusive as concerns continue regarding the potential for terrorists 

to acquire and use chemical, biological, or nuclear 

weapons or other weapons of mass destruction. 

The rise of other nations as major powers, the 

reversal of democracy in some regions, and the 

spread of extremist ideologies increase the urgency 

with which the United States must enhance its ability to support national, homeland, and economic 

security interests. Furthermore, in regions of conflict, chaos and corruption can create a climate 

that fuels terrorism; organized crime; and illegal 

trafficking in arms and weapons of mass destruction or their precursors, in narcotics, and even in 

human beings. Any of these may constitute immediate threats to our national security that will not 

be defeated by military action alone. International 

security today and in the future requires the United 

States to establish a new set of resources; a longterm commitment; more integrated interagency responses; ongoing multilateral coordination of U.S. 

diplomatic, military, intelligence, and law enforcement efforts; and a capacity to act, adapt, and react 

quickly.

Growing Instability, Rogue 

Nations, Failed States, and 

Nuclear Proliferation

The 2004 report of the National Intelligence Council, Mapping the Global Future, notes that while no 

single country is likely to rival U.S. military power 

by 2020, more countries may be in a position to 

make the United States pay a heavy price for any 

military action it opposes. The report notes that 

the possession of chemical, biological, or nuclear 

weapons by Iran and North Korea and other nations’ possible acquisition of such weapons also 

increase the potential cost of any military action 

against them by other countries. The Department 
GAO-07-467SP

of State’s 2004–2009 strategic plan identified the 

proliferation of weapons of mass destruction, along 

with terrorists possibly acquiring them, as a preeminent threat to U.S. security. Like other nations, 

the United States is recognizing that failed or failing states—nations where governments effectively 

do not control their territory, citizens largely do not 

perceive the governments as legitimate, and citizens do not have basic public services or domestic 

security—can create breeding grounds for terrorism and illicit activities that may constitute threats 

to homeland security and core national interests. In 

addition, while the United States has been a leading contributor to international organizations, per 

capita incomes have grown only modestly in the 

developing world. According to the United Nations, 

about 2.5 billion people, or 40 percent of the world, 

live on $2 or less per day. Although China and India 

experienced significant gains in per capita income 

from 1975 through 2005, other low-income countries did not experience similar growth, and vast 

disparities remain in nations’ per capita incomes. 

Taking differences in cost of living into account, average incomes in 1975 in nations in the high-income 

group were about 14 times higher than for those in 

the low-income group. In 2004, average incomes in 

the high-income group remained 13 times higher.

Border and Port Security

Border security aims to prevent the entry of 

persons or materials that pose a potential danger 

to the United States. The U.S. government faces 

the daunting challenge of monitoring 170 ports 

of entry along 7,500 miles of land border that 

the nation shares with Canada and Mexico; 115 

ports of entry at international airports; 361 ports 

of entry at port facilities along the Atlantic, 

Pacific, Gulf, and Great Lakes coasts; as well as 

95,000 miles of coastline. Before the attacks of 

September 11, 2001, border security was focused 

on preventing the illegal entry of people and 

goods. However, the attacks of September 11

underscored the need to maintain vigilance 

against those who wish to do us harm. 

Created immediately after the attacks, the 

Transportation Security Administration now has 

about 50,000 employees to oversee the security 

of our nation’s airports and seaports as well as 

highways, railroads, buses, and mass transit 

systems. Since September 11, DHS has increased 

its workforce, assigning over 12,000 staff to 

patrol areas between ports of entry. In addition, 

at domestic and foreign ports, DHS has assigned 

about 18,000 officers to inspect travelers and 

cargo and deployed nonintrusive inspection 

technology to assist them. 

A U.S. port of entry

Source: GAO.

The Coast Guard has assessed security and 

completed port security plans at the 55 seaports 

designated as strategic and reviewed security 

plans developed by owners of 3,000 port facilities 

and over 9,000 vessels. Recently, DHS established 

the Secure Border Initiative, a comprehensive, 

multiyear, multibillion-dollar program that seeks 

to secure U.S. borders through a mix of personnel, 

tactical infrastructure, rapid response capability, 

and technology. While these initiatives may help 

ensure border security, they must be balanced with 

the essential goals of maintaining the free flow 

of people and trade along with maintaining our 

nation’s image as an open and welcoming society.

Transnational and 

Violent Crime

According to the Department of Justice, the overall 

crime rate and the rate of violent crimes declined 

from 1994 through 2005 in the United States. In 

addition, the number of violent crimes—including 

murder, rape and sexual assault, robbery, and assault—dropped to an all-time low of 21 victims per 

1,000 people in 2005. Nonetheless, compared with 

other countries, the United States still has an unusually high rate of violent crime, ranking third in 

the rate of major assaults and rapes. 

Experts have identified transnational crime as an 

emerging issue and a growing threat to national 

and global security. These illicit activities are hard 

to quantify and include nuclear and arms smuggling, terrorism, narcotics trafficking, human 

trafficking, cyber-crimes, counterfeiting, money 
GAO-07-467SP

laundering, and other financial crimes. Some 

transnational crime involves organized criminal 

enterprises that grew in the aftermath of the Cold 

War, benefiting from the weakening of government 

institutions, more open borders, and ethnic strife. 

Conservative estimates place the international 

proceeds of money laundering, for example, at from 

2 percent to 5 percent of global GDP (an estimated 

$1.2 trillion to $3.1 trillion). Within the United 

States, more than 14 million people spend, by most 

conservative estimates, over $60 billion annually 

buying illicit drugs, of which four-fifths are of foreign origin. According to a 2004 White House Office 

of National Drug Policy report, the economic cost 

of drug abuse in 2002 in the United States was estimated at $180.9 billion with major cost components 

being workplace productivity ($128.6 billion), criminal justice system and social welfare ($36.4 billion), 

and health care ($16 billion). U.S. businesses estimate counterfeiting—which has expanded beyond 

handbags and watches to a wide range of products, 

including pharmaceuticals and electronics—costs 

legitimate businesses billions annually. Further, 

such counterfeiting efforts pose dangers to the 

health and safety of consumers.

Natural Disasters

Extreme weather events have wide-ranging impacts 

on health and life. Hurricanes Katrina and Rita in 

2005 revealed the need for greater support than had 

previously been envisioned from all government 

sectors—federal, state, and local—as well as the 

military and national guard and the private and 

nonprofit sectors. These two hurricanes left more 

than 1,500 dead, affected over 90,000 square miles, 

caused more than $80 billion in damage, and forced 

mass evacuations from five states along the Gulf 

Coast, according to DHS. An estimated 600,000 

households were displaced, and 50,000 to 100,000 

households remained in temporary housing 1 year 

later. The capabilities of several federal, state, and 

local agencies were clearly overwhelmed. As events 

unfolded in the immediate aftermath and ensuing 

days after Hurricane Katrina’s final landfall, 

responders at all levels of government—many of 

them victims themselves—encountered significant 

breakdowns in such vital areas as emergency 

communications and obtaining and deploying 

essential supplies and equipment. Expected to cost 

$35 billion in insurance claims, Hurricane Katrina 

also focused the insurance industry’s attention 

on extreme weather and their links to climate. 

Concerned with patterns of extreme weather 

events becoming more intense and variable, the 

industry is collecting and analyzing data to better 

assess risk and determine what it will opt not to 

insure, which could shift risk to the government as 

insurers of last resort. 

Infectious Diseases and 

Public Health

Infectious diseases represent current and future 

threats to people in this nation and across the 

world. For example, more than 20 million people 

worldwide have died from AIDS since 1981, and 

tens of thousands of people are newly infected 

each day. In early 2003, severe acute respiratory 

syndrome (commonly known as SARS) emerged 

as a health threat as it traveled rapidly from 

China to other parts of the world, including North 

America. There is also concern about the prospect 

of a worldwide influenza epidemic, partly because 

influenza pandemics may affect people who are 

not typically at high risk. Experts estimate that 

the next pandemic could kill up to 2 million 

people in the United States and cause major social 

disruption. Public health experts have raised 

concerns about the ability of the nation’s public 

health system to respond to an influenza pandemic 

because a pandemic could overwhelmingly burden 

hospitals or outpatient medical facilities, and the 

demand for vaccines could be great.

Related Issues

Fiscal deficits and debt burdens

Defense and homeland security strategies

Food and water resources

Energy, environment, and resource protection

Immigration

Transportation

Demographic diversity

Income distribution gaps

Cybersecurity and personal privacy

Productivity and economic growth

Information and communications technology 

Space exploration

Humanity and ethics

•

•

•

•

•

•

•

•

•

•

•

•

•
GAO-07-467SP

Our nation faces a major challenge in meeting 

the needs of a growing population in light of 

historical levels of taxation as a percentage of 

the economy, increased global competition for 

natural resources, and other key trends. The 

world population of 6.54 billion in 2006 is growing 

at an annual rate of 1.14 percent, and according 

to the United Nations’ (UN) most conservative 

forecasts, is expected to peak in midcentury 

at 9 billion. According to U.S. Census Bureau 

estimates, the U.S. population hit an all-time 

high of 300 million in 2006. The population is 

expected to grow to 420 million by 2050, placing 

the United States a distant third behind India 

and China, which together will constitute onethird of the world’s population. Owing in part 

to demographic changes in the growing U.S. 

population, an urgent issue facing our nation 

is the nation’s worsening financial position and 

growing long-term fiscal imbalance. Long-term 

fiscal simulations suggest that federal deficits 

could reach unsustainable levels in as little as 

two decades. State and local governments face 

increasing future fiscal pressures as well. Funding 

health care needs, defense and homeland security, 

as well as social programs in view of the current 

tax gap plays a critical role in this equation. At the 

same time, our nation faces daunting challenges 

related to rising health care costs, unsustainable 

energy consumption, dependence on oil, global 

climate change (sometimes referred to as global 

warming), procurement of the resources needed 

for a growing and more diverse population, and 

depletion of natural resources such as oil and 

water. 

Fiscal Deficits and 

Debt Burdens

The U. S. government’s $494 billion operating 

deficit (excluding the Social Security surplus) in 

fiscal year 2005 and $434 billion in fiscal year 2006 

are daunting in the near term and are a prelude 

to a challenging long-term budget outlook. This 

outlook presents major challenges to the nation’s 

ability to respond to forces that shape its society, 

our nation’s place in the world, and the role of 

the federal government in the future. Long-term 

budget simulations also show that demographic 

trends and rising health care spending will raise 

federal deficits and debt to unsustainable levels. 

Specifically, if discretionary spending grows with 

inflation through 2017, and if current tax cuts 

expire as scheduled, spending for Social Security, 

Medicare, and Medicaid will consume more 

than three-quarters of federal revenue in 2040. 

(See fig. 2.) 

Figure 2: Potential Fiscal Outcomes under 

Baseline Extended

Source: GAO’s January 2007 analysis.

Percentage of GDP

Fiscal year

0

10

20

30

40

50

All other spending

Medicare and Medicaid

Social Security

Net interest

Revenue

2006 2015 2030 2040

Note: In addition to the expiration of tax cuts, revenue as 

a share of GDP increases through 2017 mainly because of 

(1) real bracket creep, (2) more taxpayers becoming subject 

to the alternative minimum tax, and (3) increased revenue 

from tax-deferred retirement accounts. After 2017, revenue 

as a share of GDP is held constant—implicitly assuming 

that action is taken to offset increased revenue from real 

bracket creep, the alternative minimum tax, and tax-deferred 

retirement accounts.

If all expiring tax provisions are extended and 

discretionary spending keeps pace with the 

economy, federal revenues may not be adequate 

to pay even Social Security and interest on the 

federal debt. (See fig. 3.)

Sustainability Concerns about Government 

Policies and Approaches
Figure 3: Potential Fiscal Outcomes under 

Alternative Simulation: Discretionary 

Spending Grows with GDP after 2007 and All 

Expiring Tax Provisions Are Extended

Source: GAO’s January 2007 analysis.

Percentage

Fiscal year

0

10

20

30

40

50

All other spending

Medicare and Medicaid

Social Security

Net interest

Revenue

2006 2015 2030 2040

Note: The alternative minimum tax exemption amount is 

retained at the 2006 level through 2017, and expiring tax 

provisions are extended. After 2017, revenue as a share of 

GDP is held constant—implicitly assuming that action is 

taken to offset increased revenue from real bracket creep, 

the alternative minimum tax, and tax-deferred retirement 

accounts.

Balancing the budget would require massive 

spending cuts or massive tax increases or some 

combination of the two. Simply slowing the 

growth of discretionary spending and allowing 

tax cuts to sunset would not eliminate the longterm imbalance. Although additional economic 

growth helps ease any burden, the potential fiscal 

gap is far too great to be solved through economic 

growth alone. Additionally, the United States’ 

reliance on foreign countries to finance its debt 

through their purchase of U.S. Treasury securities 

may be unsustainable in the long-term.

Health Care Quality, 

Access, and Costs

Total health care spending rose from $827 

billion to about $2.0 trillion between 1992 and 

2005 and is predicted to increase to $3.1 trillion 

in the coming decade. This price tag results, 

in part, from advances in expensive medical 

technology, including new drug therapies, and 

the increased use of high-cost services, products, 

and procedures. Consequently, health care 

expenditures consume a continually increasing 

proportion of the nation’s GDP, as shown in 

figure 4.

Figure 4: National Health Expenditures as a 

Percentage of GDP

Sources: Centers for Medicare & Medicaid Services and the Bureau of Economic 

Analysis.

0

5

10

15

20

2010

projected

1980 1990 2000

Fiscal year

Percentage

The United States leads the world in per capita 

spending for health care. Yet, many policymakers, 

industry experts, and medical practitioners 

contend that the U.S. health care system—in 

both the public and private sectors—is in crisis. 

According to surveys by the U.S. Census Bureau in 

2005, 44.8 million people in the United States, or 

one of every seven, did not have health insurance. 

While some did not have health insurance by 

personal choice, others could not obtain access 

to it. In the public sector, long-term simulations 

of the federal budget show a large and growing 

structural deficit resulting, in large part, from 

known demographic trends and rising health 

care costs, increasingly borne by the federal 

government. In the private sector, employers and 

other private purchasers of health care services 

find that the soaring cost of health insurance 

premiums poses a threat to their competitive 

position in the global market, contributing to 

company decisions to outsource jobs overseas, 

hire part-time rather than full-time workers, and 

minimize cash wage increases and pension costs. 

All of these issues argue for rethinking the design 

of the current U.S. health care system, but in 

GAO-07-467SP
doing so, policymakers must balance needs versus 

wants, while assessing both affordability and 

sustainability. 

Defense and Homeland 

Security Strategies

Striking an affordable balance between 

addressing current and future national security 

and other needs will be an ongoing challenge in 

the foreseeable future. The war on terrorism and 

in Iraq will place added demands on a defense 

and security budget that has steadily increased. 

Despite increases in regular obligation authority 

from $287 billion in fiscal year 2001 to $432 billion 

in fiscal year 2007, DOD’s overall obligation 

authority has been further expanded in recent 

years. Supplemental appropriations totaled 

about $451 billion from fiscal year 2001 through 

fiscal year 2007 to support the war on terrorism. 

As of March 2007, the Congress is considering 

a request for an additional $93.4 billion in 

supplemental appropriations for the remainder 

of fiscal year 2007. To maintain readiness and 

sustain the current military force, DOD is faced 

with identifying capabilities—including critical 

technologies needed to meet the demands of 

today’s security environment—while retaining 

U.S. military technological superiority. 

As noted in our 2007 high-risk series report, DOD 

faces significant management challenges. These 

high-risk areas relate to DOD’s major business 

operations intended to support the warfighter, 

including business systems modernization, 

financial management, the personnel security 

clearance process, supply chain management, 

support infrastructure management, weapon 

systems acquisition, contract management, and 

DOD’s overall management approach to business 

transformation. Billions of dollars have been 

wasted annually because of the lack of adequate 

transparency and appropriate accountability 

across DOD’s business areas. To address these 

challenges, DOD is in the process of transforming 

many of its business operations. However, 

its still lacks some critical elements (e.g., a 

comprehensive, integrated, and enterprisewide 

business transformation plan; sustained 

leadership; and a chief management officer) that 

are needed to ensure a sustainable transformation 

effort. While this transformation will likely take 

many years to achieve, it could free up resources 

through efficiencies and reduction in waste that 

can be better used for other purposes.

Since the U.S. military abandoned conscription 

and moved to an all-volunteer force in 1973, the 

force has become older and better educated, 

with more female and minority representation 

and more married members and members with 

children. To sustain such a high-quality force, 

DOD must recruit and retain several hundred 

thousand people each year, and its ability to do 

so is closely tied to its overall compensation 

system. Also, DOD recognizes that retention 

of some personnel can be influenced by the 

support services and benefits provided to 

dependents and retirees. Consequently, DOD’s 

overall compensation system is designed to 

provide servicemembers with cash and noncash 

benefits, like housing, education, health care, 

and retirement plans. Each year, since fiscal 

year 2002, DOD’s overall military compensation 

budget has exceeded $100 billion, and is growing. 

Furthermore, DOD’s costs to provide benefits, 

such as health care, have continued to spiral 

upward, with expanded health care to reservists 

and retirees representing the primary cost drivers 

in growing benefits costs. As the overall military 

compensation outlays continue to grow larger, 

questions arise as to DOD’s ability to sustain 

such cost growth over time. In addition, we 

have reported that DOD’s business model for the 

National Guard and Reserves is unsustainable and 

will need to be reexamined in light of their current 

roles in supporting both overseas and domestic 

operations.

In addition to defense spending, total budget 

authority—including gross discretionary funding, 

mandatory funding, and fees and trust funds—for 

DHS ranged from approximately $36 billion to 

$43 billion yearly from fiscal year 2004 to fiscal 

year 2007, excluding supplemental appropriations 

of $70 billion in fiscal year 2005 for hurricane 

relief, among other things. DHS requested about 

$46 billion in total budgetary authority for 

fiscal year 2008 excluding some offsetting fee 

collections. In GAO’s 2007 high-risk series report, 

we reported that DHS had made progress in 

addressing major transformation, management, 

and program challenges. However, DHS still has 

much to do in addressing these challenges if it 

is to effectively carry out its homeland security 

and other missions and successfully transform 

22 agencies into a single department. For example, 

GAO-07-467SP
DHS needs to further strengthen its strategic 

planning process by taking such steps as better 

integrating risk-based principles with its resource 

allocation decisions. DHS also needs to develop 

a comprehensive strategy, with a dedicated 

management integration team, to support and 

facilitate its management integration efforts.

Social Insurance 

Commitments

Current budget projections and financial 

statements do not recognize the implications of 

today’s policies or the government’s long-term 

social insurance commitments. Table 1 gives a few 

examples of the wide range of fiscal exposures the 

federal government takes on. Although our longterm budget simulations assume that currently 

scheduled Social Security and Medicare benefits 

will be paid, the federal government’s financial 

statements—consistent with current international 

standards—do not record as liabilities the 

differences between future funded and scheduled 

benefits of these social insurance commitments. 

The financial statements also do not adequately 

account for the costs of future health care benefits 

for veterans. These fiscal exposures represent 

significant commitments that future generations 

will have to address.

Tax Gaps

The collection of taxes plays a significant role 

in the nation’s fiscal health. The tax gap—the 

difference between the tax amounts taxpayers pay 

voluntarily and on time and what they should pay 

under the law—has been a long-standing problem 

in spite of many efforts to reduce it. The Internal 

Revenue Service’s most recent estimate of the 

difference between taxpayers’ timely and accurate 

payments and what they owed was $345 billion. 

The Internal Revenue Service estimates it will 

eventually recover $55 billion of this gap, resulting 

in a net tax gap of $290 billion. When some 

taxpayers fail to comply, the lost revenue shifts 

the burden of funding the nation’s commitments 

more heavily on compliant taxpayers. Reducing 

the gap would help improve the nation’s fiscal 

stability. Multiple approaches, however, including 

increasing reporting and withholding requirements, 

simplifying the tax system, providing the Internal 

Revenue Service with enforcement tools, and 

devoting additional resources to enforcement, are 

needed to reduce the gap. 

Energy, Environment, and 

Resource Protection

As the nation progresses into the 21st century, 

addressing long-term stresses on the environment 

will require modifying approaches to using 

natural resources and energy. The nation’s rich 

natural resource base has enabled it to achieve 

tremendous economic growth. However, growth 

built upon overexploitation of natural resources 

may not be sustainable because the engines of 

that growth—factories, cars and trucks, fertilizers, 

and electricity-generating plants—often adversely 

Table 1: Major Reported Long-term Fiscal Exposures, Fiscal Years 2000 and 2006

Dollars in trillions

2000 2006 

Explicit liabilities (publicly held debt, military and civilian pensions, retiree health, and other) $6.9 $10.4

Commitments and contingencies (Pension Benefit Guaranty Corporation, undelivered orders, and other) 0.5 1.3

Implicit exposures (future social insurance benefits) 13.0 38.8

 Social Security 3.8 6.4

 Medicare Part A 2.7 11.3

 Medicare Part B 6.5 13.1

 Medicare Part D — 7.9

Total $20.4 $50.5

Source: Department of the Treasury.

Notes: Estimates for Social Security and Medicare exclude trust fund balances and are 75-year open group projections 

expressed as present values as of January 1 of each year; all other data are as of September 30. Medicare Part D did not 

exist in 2000. Numbers may not total because of rounding.

10 GAO-07-467SP
affect air and water quality and can potentially 

change climate catastrophically. In this connection, 

the average global surface temperature was higher 

during the last few decades of the 20th century 

than during any comparable period of the previous 

four centuries. Continued climate change could 

hinder agriculture production, transportation, 

power generation, and the insurance sector—

industries on which U.S. economic prosperity 

depends, while also adversely affecting health, 

agriculture, forests, wildlife, water resources, and 

coastal areas. Addressing the impact of economic 

activity on the environment, an already difficult 

question, will increasingly necessitate international 

discussions and partnerships since the global 

nature of environmental problems will require 

global solutions. 

The links between energy use, environmental 

protection, and national security are at the heart 

of the sustainability issue. While the United 

States accounts for 5 percent of the world’s 

population, it consumes 25 percent of the energy 

used worldwide. The preponderance of this 

energy consumption is in the form of fossil fuels. 

In fact, the United States leads all nations in oil 

consumption. As competition for these resources 

increases from developing economies in China and 

India and the dollar declines in value, the price of 

this oil has dramatically increased with attendant 

economic consequences. While the United States 

has modest domestic supplies that are and can 

be tapped, current rates of consumption mean 

that an ever-increasing share of the oil consumed 

has been and will continue to be imported, often 

from unstable regions of the world with obvious 

national security consequences. Likewise, 

continued and growing dependence on fossil 

fuels is having increasingly deleterious and 

potentially catastrophic climatological impacts. 

The dependence on fossil fuels is most obvious 

in the transportation sector but is also evident 

in electricity production. Switching away from 

coal and increasing production of nuclear power 

to meet growing electricity demand avoids 

global warming concerns but creates a different 

environmental dilemma—storing and protecting 

large quantities of radioactive waste.

Without a vision for a sustainable energy future 

that includes conservation and alternative 

energy sources, the turmoil in energy markets, 

national security threats, and risk of increasing 

environmental harm are likely to grow more 

severe. In addition, the federal government has 

a history of selling its assets—including oil, gas, 

timber, grazing rights, and water—below fair 

market value and often even below delivery costs. 

This practice shortchanges the Treasury and 

distorts markets for these resources.

Food and Water 

Resources

The United States is still the world leader 

in agricultural exports but must adapt to a 

changing world. For example, climate is a critical 

determinant of agricultural productivity and any 

change can influence crop yields over time. Other 

potentially negative environmental effects can 

occur with pressure to reduce U.S. dependence 

on foreign energy sources. In particular, the 

rising demand for biofuels has increased crop 

prices—especially higher corn prices resulting 

from the increasing demand for ethanol—and the 

added cropland may have adverse effects, such as 

increasing soil erosion, diminishing water quality, 

and contributing to loss of wildlife habitat. Lastly, 

agricultural business and trade is more global, 

and therefore more competitive, today. The U.S. 

agricultural sector is driven by a small number of 

giant agribusinesses that trade internationally and 

very large farming operations. As the people of 

the United States become increasingly diverse, so 

too has the food the American public consumes. 

In 2006, the United States imported $64 billion in 

agricultural goods (and exported $68 billion). 

The United States also faces challenges in meeting 

future demands for clean water, as water tables 

have fallen in North America as well as on every 

other continent, and half of all streams in the 

United States have been polluted with pesticides 

and fertilizers. Population growth, particularly 

in arid regions of the country, may soon face a 

limiting obstacle—the availability of fresh water. 

In fact, water managers in 36 states expect water 

shortages in the next 10 years under even normal 

conditions. Similar conflicts over scarce water 

resources as well as the oceans’ resources can be 

seen around the world and will be exacerbated 

as demand increases with global population 

growth. Evidence of such stress can be found on 

many fronts, in addition to depleted freshwater 

supplies, deteriorating fisheries, and accelerated 

loss of biodiversity in freshwater and saltwater 

ecosystems.

GAO-07-467SP 11
Related Issues

Education, skills, and knowledge

Immigration

Tax policy

Regulatory policy

Saving and investment

Trade

Capital markets

Transportation

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Aging and life spans

Dependency ratios

Income distribution gaps

Retirement security

Urbanization and sprawl

Productivity and economic growth

Information and communications technology

Space exploration

Elections and citizens’ involvement

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•

•

•

•

•

•

12 GAO-07-467SP
Many of the issues facing the Congress and the 

nation stem from complex and evolving structures 

of domestic and global economies. The United 

States still leads the world in the size of its GDP 

and, according to a Fortune 500 survey, the 

number of multinational corporations based here. 

However, it also has the world’s largest national 

debt, trade deficit, and federal foreign debt. The 

U.S. economy has evolved from a manufacturingbased economy to one based on knowledge and 

services. According to an October 2004 Stanford 

Institute for Economic Policy Research policy 

brief, employment in manufacturing as a share 

of the labor force fell farther and faster here than 

in any other industrialized nation over the past 

4 decades.

The last few years of the 1990s saw a dramatic 

surge in productivity that resulted in rapid 

economic growth. Although this growth paused 

at the beginning of the 21st century, it has since 

resumed at a more moderate pace. Despite this 

growth, factors such as education, immigration, 

tax and regulatory policies, individual prosperity, 

and the adoption of innovative technologies 

present significant challenges to the nation’s 

economic growth and competitiveness over the 

longer term. For example, the World Economic 

Forum has stated that while the United States 

remains a center for technological development, 

it has dropped out of first place in a ranking of 

economic competitiveness, largely because of its 

public indebtedness, associated with large fiscal 

and trade deficits. 

Education, Skills, and 

Knowledge

Because intellectual assets are the underpinning 

of a knowledge-based economy, investment in 

human capital and research and development 

is fundamental to continued growth. For 

policymakers, this requires greater attention to 

educating and training children and adults. U.S. 

corporations now operate globally, competing 

with corporations based in other countries for 

skilled knowledge workers. Experts predict that 

the shortage of skilled knowledge workers globally 

will only grow more critical and will jeopardize 

U.S. economic growth and competitiveness. Also, 

both the U. S. government and the private sector 

are experiencing a shortage of workers who have 

the cultural understanding and skills, including 

language skills, to work in the global environment. 

Several social indicators illustrate the challenges 

our nation faces in preparing children for the 

changing economy and world. The Department of 

Labor projects a continued need for people trained 

for computer and mathematical occupations 

in the next decade (an increase of 29 percent, 

according to the Department of Labor). According 

to a 2003 OECD study assessing high school 

students’ knowledge and skills, the United States 

ranked between 25th and 28th in mathematics 

and between 20th and 27th in science among 

the 41 countries participating in the study (the 

ranges reflect different ranking methods and 

subject areas). These rankings point to potential 

shortfalls in skilled knowledge workers educated 

here. In addition, an academic achievement gap 

in mathematics and reading also exists between 

groups of students. In 2005, eighth grade national 

reading test scores for white students averaged 

over 20 points higher than those for African 

American and Hispanic students. Their math 

scores were on average over 30 points higher. And 

dropout rates among youth from the kindergarten 

through high school public school system 

are raising concern among policymakers and 

educators. 

The methods of preparing children for their 

futures as citizens and workers will have to be 

adapted to a rapidly changing environment in 

which workers face less job stability and changing 

pension systems. New emphasis should also be 

given to continuing education and training for 

adults, both to increase workers’ flexibility and 

to help them adapt to longer life expectancies 

that will allow them to stay in the workforce 

longer, a prospect that is significant for retirement 

policies. For example, the sufficiency of retirement 

savings will depend on the earning power of older 

workers, as well as on how long they stay in the 

labor force. 

Maintaining Economic Growth and 

Competitiveness

GAO-07-467SP 13
Immigration

Another factor that influences economic growth 

for our nation is the movement of people, which 

occurs for many reasons—permanent migration, 

temporary relocation for business or education, 

family reunification, or travel and tourism. Global 

migration is increasing. While there are various 

reasons for such migration, the opportunity 

for employment is one of the most important 

magnets attracting immigrants to countries. 

Reports indicate that migrants, particularly labor 

migrants, help to keep viable segments of certain 

labor-intensive industries, expand foreign trade, 

provide valuable language and cultural expertise 

to companies, and contribute to the economic 

vitalization of some communities. Yet these reports 

also note that immigration, particularly illegal 

immigration, may have adverse consequences, 

such as helping depress wages for low-skilled 

workers and creating net fiscal costs for some 

levels of government. Also, the economic impact 

that immigrants have on their home countries is 

profound. Money that immigrants, both legal and 

illegal, send to their countries—remittances—has 

become the second largest source of external 

finance for developing countries after foreign direct 

investment. 

According to U.S. Census Bureau estimates, 

the U.S. population added another 100 million 

people, or one-third of its population, from 1967 

through 2006. Legal immigrants and their offspring 

constitute a significant component of this increase 

with many of the estimated half a million new 

immigrant arrivals each year over the last 10 years 

being from Latin America or Asia. In addition, 

many individuals already in the United States on 

temporary visas are allowed to stay permanently 

in the United States, adding to the numbers who 

become legal permanent residents each year.

Adding to the overall population is an unknown but 

substantial number of aliens who enter illegally or 

enter legally but overstay their visas. For example, 

an estimated 40 percent of the illegal population 

are people who entered legally but overstayed their 

visas.

The U.S. Census Bureau’s March 2003 Current 

Population Survey estimated that 34 million people, 

or 12 percent of the U.S. population, were foreign 

born. While the data vary significantly by ethnic 

group, noncitizens who are foreign-born tend to 

be twice as likely to be in poverty as native and 

naturalized citizens and are also less likely to have 

graduated from high school. 

A U.S. immigration office

Source: GAO.

U.S. firms use a variety of means to obtain the 

skills they need, including visa and guest worker 

programs to bring workers into the United States 

and outsourcing and foreign direct investment to 

access workers abroad. As the global competition 

for high-skilled workers heightens, the United 

States’ strength—its ability to attract the world’s 

best and brightest—will be critical to our nation’s 

ability to sustain its global competitiveness 

and ensure future economic success. In certain 

sectors, the United States has relied on foreignborn workers. For example, in the science and 

technology sectors, almost a quarter of U.S. 

college-educated scientists and engineers are 

foreign born. According to a January 2007 Duke 

University study, immigrant entrepreneurs founded 

25.3 percent of the U.S. engineering and technology 

companies in the past decade that together were 

responsible for generating an estimated $52 billion 

in 2005 sales and creating just under 450,000 jobs 

as of 2005. Also, the study reported that foreign 

nationals contributed an estimated 24.2 percent 

of international patent applications in 2006. While 

much attention has been focused on high-skilled 

workers, policymakers also need to determine 

how best to construct guest worker programs 

that would recruit less-skilled workers, such as 

technicians and factory workers. Immigrants 

make up a sizable percentage of the labor force in 

farming, fishing, forestry, building and grounds 

cleaning, and maintenance. In seeking the skills 

that we need, the United States will need to 

effectively balance our nation’s security interests—

14 GAO-07-467SP
preventing the entry of individuals who may 

commit terrorist acts—with economic interests.

The nation also faces the challenge of deciding 

what to do about the unauthorized population of 

immigrants now living and working in the United 

States. While difficult to measure, in 2004, the 

U.S. Census Bureau estimated that the illegal population in the United States was roughly 12 million 

people. Unlike past immigrants, new immigrants 

are relocating not only to urban centers that are 

experienced in acculturating them but also to 

nonurban centers across our nation. States and local governments are on the front lines of dealing 

with the social and economic implications of immigration policy as they deal with large numbers 

of immigrants lacking language and other skills, 

requiring a wide range of social services, and seeking to assimilate into the U.S. culture. According to 

the National Conference of State Legislatures, immigration has become their policymakers’ primary 

concern, with 32 states approving in 2006 84 laws—

mostly enforcement related—from 570 introduced. 

As a nation, the United States needs to decide how 

to address the undocumented immigrant situation 

by considering, among other things, improving 

current immigration and labor law enforcement; 

using temporary guest worker programs to address 

labor shortages; providing reasoned and reasonable 

pathways to family reunification, legal permanent 

residency, and citizenship; and devising different 

methods of treatment for those who have committed criminal acts and those who have not. 

Tax Policy

In fiscal year 2006, U.S. taxpayers paid about 

$2.4 trillion in combined federal taxes, including 

income, payroll, and excise taxes. These taxes, 

along with over $240 billion in deficit borrowing, 

funded the federal government. Tax revenue 

represented about 18 percent of GDP—near the 

midpoint of the range of federal taxes as a share 

of GDP for the past 40 years. Beyond funding 

government, any tax system, including the current 

one, has profound effects on the economy as a 

whole and on individual taxpayers, for both today 

and tomorrow. 

The U.S. position in the worldwide economy has 

fundamentally changed, and the structure and 

composition of the U.S. economy has shifted, 

raising questions about whether the current 

federal tax system is well suited to the needs of the 

economy and society. U.S. workers and firms must 

now succeed in a world of fast-paced technological 

change and constantly evolving global competition. 

In addition, over the years, the federal tax system—

especially the federal income tax system—has 

become more complex, less transparent, and 

subject to frequent revision. While some complexity 

is understandable, it has become more difficult 

and more costly for taxpayers to understand and 

comply with tax requirements; opportunities for 

tax evasion have increased, through vehicles such 

as tax shelters; and the Internal Revenue Service 

finds it harder to explain and enforce the tax laws. 

Incentives for saving are a particular concern. 

Private sector savings are near historical lows and 

government savings, because of federal budget 

deficits, are negative. The imbalance between 

federal revenues and expenditures, if allowed 

to persist in the long term, will adversely affect 

economic growth. Addressing the imbalance will 

require closer scrutiny of both tax revenues and 

expenditures. 

Regulatory Policy

Government policies to improve the economic 

performance of both the private and public sectors 

through measures such as liberalizing trade and 

drawing on greater market competition have 

also resulted in changes to the U.S. and world 

economies. The U.S. government and, increasingly, 

the governments of foreign nations have moved 

away from heavily regulated or state-owned 

enterprises to more competitive markets. In the 

United States, the federal government has moved to 

deregulate industries such as trucking, electricity, 

and telecommunications. In Europe and elsewhere, 

governments have privatized publicly owned 

industries, and many planned economies have 

reorganized to be more market oriented. 

Consequently, formerly regulated industries 

have been forced to become more efficient as 

new competitors enter previously protected 

markets. According to an OECD study, the U.S. 

economy benefits from an industry structure 

that has less restrictive labor and product 

market regulation than that of many other OECD 

members. Nevertheless, deregulation can present 

its own challenges, and such policies should 

be implemented in the context of oversight 

institutions that can protect the public interest.

GAO-07-467SP 15
Saving and Investment

Although the economy was growing at the 

beginning of the 21st century, concern over that 

growth’s sustainability increased, because of a 

serious decline in personal saving into negative 

territory. Personal saving is an important 

component of national saving that helps fuel capital 

investment and research and development and, in 

turn, drives the productivity growth that allows 

personal incomes to rise without accelerating 

inflation. Personal saving declined from about 5 

percent of GDP in the early 1990s to turn negative 

in 2005 and 2006 for the first time in over 20 years. 

The last time that the personal savings rate was 

negative for 2 straight years was 1932 and 1933. The 

effect of low personal saving on national saving 

has been compounded by a return to federal budget 

deficits that have brought government saving into 

negative territory. The nation has been able to 

sustain a high rate of investment in the face of 

this decline in saving because of the increase in 

foreign investment in the United States. Unless 

the nation can increase its own saving level, it 

will continue to rely on foreign inflows for future 

investment, productivity growth, and financing of 

federal deficit spending. This increased reliance on 

foreign investors also serves to increase the risk 

of higher interest rates. A further decline in the 

dollar and other economic disruptions can result 

if foreign investors’ appetites for U.S. debt decline. 

In the longer run, the level of aggregate saving may 

place even greater constraints on federal spending 

for national priorities, particularly Social Security, 

Medicare, and Medicaid. This budget outlook 

reinforces the importance of long-term growth 

fueled by efficiency, saving, and investment that 

will allow the nation to support its commitments to 

future generations.

Innovation and 

Change Management

Today, knowledge is a tradable commodity along 

with material goods. Creating new knowledge 

requires innovation and a society able to adapt 

and to exploit that knowledge for its own benefit. 

Innovation is a critical measure of a nation’s 

technology industry; it determines the nation’s 

ability to convert core research into marketable 

technology, in turn fueling economic growth and 

creating new jobs. The growing use of technology 

and knowledge-based services raises a number of 

issues that the nation must face. The importance 

of research and development, particularly in the 

private sector, requires strategic management 

and attention to incentives. The nature of new 

knowledge and its relationship to technology 

has changed, and the rewards are going to those 

who can most quickly transform new ideas into 

useful technologies and other tools. For example, 

in the past, the cycle in which a new idea was 

transformed into useful technology took 20 years. 

Today, the period of innovation is considerably 

shorter, having been reduced even to zero 

where science and its associated technology are 

joined. Change management, encompassing the 

transformation of entities through such means 

as strategic leadership and management, human 

capital, business process reengineering, and supply 

chain management, has also become critical. 

Related Issues

Border and port security

Natural disasters

Infectious diseases and public health

Fiscal deficits and debt burdens

Health care quality, access, and costs

Defense and homeland security strategies

Tax gaps

Energy, environment, and resource protection

Food and water resources

Trade

Information

Capital markets

Transportation

Aging and life spans

Dependency ratios

Demographic diversity

Income distribution gaps

Changing social behaviors

Retirement security

Employment

Productivity and economic growth

Information and communications technology

Cybersecurity and personal privacy

Data quality and reliability

Space exploration

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16 GAO-07-467SP
Recognizing Global Interdependency 

Economies, governments, and cultures are 

becoming increasingly interdependent as more 

people, goods, money, and information move 

more rapidly across boundaries that once seemed 

to firmly separate them. While such movement 

has brought many benefits to many people, 

interdependence has challenged governments 

to extend benefits to people in the world’s 

poorest areas. Other challenges, such as the 

risk of pandemic viruses and extreme weather 

conditions, mean that governments and other 

institutions must work together to resolve global 

problems. Concerns exist that rising nationalism 

and protectionism in certain countries, coupled 

with mistrust of international organizations 

and multinational corporations, may slow or 

reverse progress made in promoting global 

interdependence. 

Trade

Indicators such as international trade and 

financial transactions reveal how economic 

activity has come to link nations. The United 

States is still one of the top global exporters. 

U.S. exports rose as a share of GDP from about 

5 percent in 1970 to about 10 percent in 2005. 

The rise in U.S. imports was even greater, 

however, from about 5 percent to about 15 percent 

of GDP—resulting in a huge increase in the U.S. 

trade deficit from 1995 through 2005. According to 

a 2006 Council on Competitiveness report, about 

a third of the trade deficit is from oil imports, 

another third is from trade with China, and the 

remaining third is from all other imports. 

Not spread uniformly, growth in U.S. trade was 

greatest with China, Mexico, and Canada. China’s 

share of U.S. exports rose from 2 percent in 1980 

to 5 percent in 2005; its share of imports rose from 

none to 15 percent. Exports to Mexico and Canada 

increased from 25 percent to 37 percent, imports 

22 percent to 28 percent. Meanwhile, U.S. trade 

with Africa, the European Union, and Latin 

America generally declined. This picture reflects 

a greater integration of the North American 

market and a shift in the pattern of trade from 

the Atlantic toward the Pacific. Some experts 

point out that while the United States has the 

largest trade deficit, the size of this deficit may be 

overestimated because many U.S. multinational 

firms report their sales through their foreign 

operations. 

Capital Markets

The globalization of capital markets provides 

both benefits and risks, including systemic risks. 

Figure 5, for instance, demonstrates the growth 

in international money market instruments from 

1989 to 2006, showing dramatic growth through 

the period.

Figure 5: International Money Market 

Instruments Issued, 1989-2006

Sources: GAO (analysis) and Bank for International Settlements (data).

0

200

400

600

800

1,000

Fiscal year

Total issues

1989

19901991

1992

19931994

19951996

1997

1998

19992000

20012002200320042005

2006

Note: The data used for this chart are available from the 

Bank for International Settlements Quarterly Review, 

December 2006, table 13A, which is available at 

www.bis.org. The labeled data points are as of September of 

the respective year. 

Today, U.S.-based exchanges and banking 

corporations compete for business worldwide. 

While still dominant, the U.S. financial and 

commodity exchanges face increased competition 

from exchanges abroad. High-profile corporate 

scandals, such as Enron and WorldCom, prompted 

concerns about firms trading on U.S. exchanges 

and the reliability of information about them. 

Although reform legislation—the Sarbanes-Oxley 

GAO-07-467SP 17
Act of 2002—was enacted to strengthen 

confidence in U.S. exchanges, there are increased 

pressures to develop international accounting, 

auditing, and financial reporting standards to 

provide investors better and more comparable 

information along with greater transparency. As 

U.S. multinational corporations have moved their 

operations globally, U.S. banking corporations 

have become global leaders, moving into such 

emerging markets as China, India, and Eastern 

Europe, even as foreign financial institutions 

become more important players in U.S. financial 

markets. 

International concern about the fundamental 

soundness of the U.S. economy relating to its 

consumer spending and federal deficit and 

prospects for future growth along with the 

principle of diversification has caused investors 

to shift their investments to other countries, 

recently resulting in a depreciation of the dollar. 

U.S. net international indebtedness has increased 

sharply, to more than 20 percent of GDP from 

1999 through 2005. While such financial flows 

can benefit the United States, a high level of U.S. 

foreign indebtedness may not be sustainable 

and may leave U.S. and other nations’ economies 

vulnerable to disruption. For example, U.S. 

Treasury securities account for a large share 

of the securities that foreign investors trade. 

China and Japan hold the largest shares, but the 

United States has large bilateral trade deficits 

with China and Japan. The large and persistent 

imbalances in U.S. current account balances with 

both nations have led many experts to focus on 

the currency policies of those governments, such 

as intervention to influence the value of their 

currencies. 

Information

With advances in information and 

communications technology, the world is 

connected as never before. According to a 2005 

World Information Society report, many parts of 

the developing world are making strong gains in 

mobile telephone adoption (over one-third of the 

world’s population have mobile phones) and, to a 

lesser extent, Internet access. Millions of personal 

computers, handheld devices, and “smart” phones 

now form a global network through the Internet, 

allowing individuals, governments, and businesses 

to communicate, exchange information, and 

transact business instantaneously. According 

to the UN, a billion people are connected to the 

Internet. At the end of 2004, for example, the 

percentage of the world population using the 

Internet in developed areas was eight times that in 

developing areas. (See fig. 6.)

Figure 6: Global Internet Users by National 

Income Group, 1990–2004

Source: GAO.

Percentage

0

10

20

30

40

50

60

Low-income countries

Middle-income countries

High-income countries

1990 1992 1994 1996 1998 2000 2002 2004

Fiscal year

Note: We combined data for several countries from the 

World Development Indicators Online database to construct 

this figure.

Mobile phone subscribers as a share of the 

world population increased from 1 percent to 

27.4 percent from 1994 to 2004; Internet users 

increased from 0.5 percent of the population to 

12.8 percent during that same period. During 

this time, the digital divide lessened as these 

indicators grew more rapidly in developing 

countries than in developed countries. Although 

the digital divide lessened, such factors as 

poverty and lack of electricity continue to 

hinder some developing countries from entering 

the Internet age.

Transportation

Over the next two decades, demands for 

transportation will increase because of increases 

in travel and trade. Nations that can make 

wise investments in transportation will enjoy 

higher living standards and growing economies. 

18 GAO-07-467SP
The United States’ economic vitality and the 

quality of life of its citizens depend significantly 

on a sound, secure, and available physical 

infrastructure. The nation’s transportation system 

presents particularly complex policy challenges, 

because it encompasses many modes—air, water, 

highway, rapid transit, and rail—whose systems 

are owned, funded, and operated by public and 

private sectors. According to the American 

Society of Civil Engineers’ 2005 Report Card, our 

nation’s physical infrastructure is badly in need of 

investment and repair. 

Policymakers face the challenge of maintaining 

the safety and condition of the transportation 

system while preventing congestion from 

overwhelming it. For example, the United States 

remains heavily dependent on trucks and rail to 

transport goods and produce. Freight rail tonnage 

is expected to increase by 50 percent by 2020. In 

addition, air travel and air traffic are projected 

to increase 4.3 percent annually through 2015. 

Airports will need to accommodate increasing 

numbers of regional jets, new super jumbo jets, 

and competition from abroad. Transportation 

decisions are inextricably linked with economic, 

environmental, and energy policy concerns, 

and coordination across levels of government 

and different sectors is complex. New security 

imperatives to deter terrorists present additional 

challenges for all modes of transportation 

that must be addressed in a rapidly changing 

demographic and technological landscape. 

Related Issues

Terrorism

Growing instability, rogue nations, failed 

states, and nuclear proliferation

Border and port security

Natural disasters

Infectious diseases and public health

Fiscal deficits and debt burdens

Defense and homeland security strategies

Energy, environment, and resource protection

Food and water resources

Education, skills, and knowledge

Immigration

Tax policy

Regulatory policy

Saving and investment

Innovation and change management

Demographic diversity

Income distribution gaps

Changing social behaviors

Employment

Productivity and economic growth

Information and communications technology

Cybersecurity and personal privacy

Space exploration

Humanity and ethics

Elections and citizens’ involvement

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GAO-07-467SP 19
Profound changes in the characteristics of the U.S. 

population will continue in the coming decades as 

it becomes older and more ethnically diverse. Unlike in Europe and Japan, demographers here project a continued growth in the U.S. population of 

300 million over the next three or four decades in 

terms of its labor force and children. According to 

the 2000 census, the median age of the U.S. population is now the highest it has ever been, which 

is influenced by the 75 million baby boomers who 

were born from 1946 through 1964, inclusive. This 

generation, coupled with the more significant 

trends of rising life longevity and falling fertility 

rates, is expected to place increased demands on 

the government’s social insurance commitments, 

including Social Security, Medicare, and Medicaid. 

These trends will also create challenges for the 

federal, state, and local governments and the private and nonprofit sectors in ways that they have 

only begun to consider. While experts disagree on 

the degree to which income inequality has grown, 

these trends should be carefully monitored for 

their social and political implications. A key emerging area for policymakers is how rapid changes in 

information and communications technology affect 

purchases of goods and services (e-commerce), relationships with government (e-government), and 

social interactions in the community.

Aging and Life Spans

Our nation’s population is becoming older, mirroring global trends in both developed and developing countries. According to the UN, the world’s 

population has transitioned from a state of high 

birth and death rates to a state of low birth and 

death rates marked by a rapid, large, and ubiquitous growth in the number and proportion of older 

persons. Life expectancy in the United States has 

increased; 50 years ago it was age 65 and now it 

is well over 70 for both men and women. People 

age 80 and older are projected to rise in number 

in the United States from 9.3 million in 2005 to 

33.7 million by 2050 (see fig. 7). 

Although baby boomers are projected to be healthier and wealthier than prior generations of retirees, 

they will also live longer and have greater retirement income needs, but not necessarily have greater means. For example, there will be many others 

who will be needy and depend on their families 

or other social institutions for assistance. Women 

older than 60 outnumber men in the United States 

Adapting to Societal Changes

Figure 7: U.S. Population for 2000, 2025, and 2050

Source: U.S. Census Bureau.

0

5

10

15

20

25

30

35

2050

2025

2000

0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80+

Population (in millions)

Age

20 GAO-07-467SP
and around the world, and the burden of caring for 

elderly persons falls more heavily on women than 

on men. Women’s longer life spans do not generally 

increase their years of disability later in life but, in 

some cases, their health is affected by earlier lack 

of health care. Moreover, for older women, the accumulated effect of lower lifetime earnings, lower 

pensions, lower social status, and lesser access 

to property and inheritance contributes to their 

disproportionate poverty, especially if they are 

widowed or have never been married. 

Experts predict that the “age-in-place phenomenon,” whereby aging baby boomers remain in their 

residences, will be a more dominant force behind 

elderly growth in the first quarter of the 21st century as all communities experience an increase 

in their aging populations. The public, private, 

and nonprofit sectors will need to anticipate how 

best to keep them involved in their communities 

as well as provide needed transportation, social, 

and health services. Older people in retirement 

in the United States receive care more commonly 

at home and in the community than in nursing 

homes. Among those who remain at home, about 

80 percent are helped by family and friends, more 

than 65 percent depending entirely on unpaid 

care. The kind of care elderly persons seek, however, depends not just on their finances but also on 

their culture and family structure. For example, 

79 percent of Asian women and 76 percent of Hispanic women older than 65 lived with family in 

2003, while only 57 percent of non-Hispanic white 

women lived with family. The percentages of the 

elderly who are divorced or were never married, 

who live alone or with only a spouse, and who live 

without adult children are likely to rise. 

Dependency Ratios

Relative to the world’s younger population, the 

world’s elderly population is growing quickly in 

absolute numbers and percentages. The needs 

of young adults and elderly persons, of whatever background, will come together at a critical 

crossroads in the next several decades. This will 

be true in developing countries, where economic 

resources are fewer, health care is less adequate, 

and traditional family support systems may 

break down as populations shift. It will also be 

true in developed countries, including the United 

States. As the baby boomers age, the share of 

the population 65 or older is projected to grow 

from 12.3 percent of the population in 2000 to 

20.5 percent in 2040.

The aging of the baby boom generation will have 

dramatic implications for the federal budget. 

By 2040, federal spending on Social Security, 

Medicare, and Medicaid is estimated to reach 

17.8 percent of GDP, up from 6.7 percent of GDP 

in 2000. Estimates suggest that the increased 

numbers of beneficiaries served coupled with 

anticipated inflation in health care costs will 

drive spending for these three programs to about 

24 percent of GDP by 2080. While the baby boomers are exerting such pressures on federal expenditures, the growth of the labor force is expected 

to slow considerably, becoming negligible by 2050. 

This decline in the number of working-age people 

compared with the rise in the number of elderly 

persons has obvious implications for the Social 

Security and Medicare trust funds. Today, about 

3.3 people pay into Social Security for every person receiving benefits. By 2080, this ratio is projected to be fewer than 2 people for every person 

receiving benefits. The challenge will be to examine and prepare for what the late 20th century’s 

trends imply for the 21st century with respect 

to support systems for the growing numbers of 

the aging and the diminishing numbers of young 

adults who care for them. 

Demographic Diversity

The United States has become more racially and 

ethnically diverse. According to 2005 figures from 

the U.S. Census Bureau’s American Community 

Survey, our nation’s growing diversity has reached 

virtually every state in our nation. The survey’s 

February 2007 reports on the Hispanic, Asian, and 

black populations also highlighted important differences in the characteristics of the subgroups within 

these populations in such areas as education, income levels, and where they live. The U.S. Census 

Bureau projects that from 2000 to 2050 the United 

States will experience a significant shift in its racial composition. While the non-Hispanic white 

population would increase in projected numbers 

from 195.7 million to 210.3 million, their share of 

the nation’s population would decrease, from 69.4 

percent to about 50.1 percent. The Hispanic population (of any race) would significantly increase from 

35.6 million to 102.6 million and their share of our 

nation’s population would nearly double, from 12.6 

percent to 24.4 percent. Similarly, the Asian popuGAO-07-467SP 21
lation is projected to increase from 10.7 million to 

33.4 million and their share of the population would 

double, from 3.9 percent to 8 percent. The black 

population is projected to rise from 35.8 million 

to 61.4 million, raising their share of the country’s 

population from 12.7 percent to 14.6 percent. As our 

nation transitions, an essential goal will be to ensure a civil and cohesive society that has tolerance 

and respect for the rights of all individuals. The 

government will need to consider how best to promote and build consensus on core civic values that 

are important to all Americans. Also, policymakers 

will need to consider the demographics of diversity 

as they reexamine existing programs and design 

new programs. 

Income Distribution Gaps

Although many people in this country enjoy economic prosperity, income inequality in the United 

States is a growing concern. While some have taken 

issue with the U.S. Census Bureau’s official measures for poverty and income inequality, it is generally recognized that poverty imposes costs on the 

nation as a whole, not merely in terms of programmatic outlays but also through lost productivity 

that can affect the overall economy. Also, concerns 

exist that growing income inequality potentially can 

destabilize U.S. society and undermine its democracy. Specifically, research shows that poverty can 

negatively affect economic growth by affecting the 

accumulation of human capital and rates of crime 

and social unrest. 

The federal government spends billions of dollars 

on programs to assist low-income individuals and 

families and attempts to reduce income inequality through government tax and income transfer 

policies. According to the U.S. Census Bureau, approximately 37 million people in the United States—

nearly 13 percent of the total population—lived 

below the poverty line in 2005. This percentage was 

significantly larger for particular population groups, 

specifically children, minorities, and those living in 

certain geographic areas such as inner cities. Experts debate the degree to which income inequality, 

in which people in the richest segment of society 

see their incomes rise more rapidly than people in 

the poorest segments, has grown. Some experts 

express concern about the reliability of the data. 

Many others assert that while data reliability problems exist, multiple measurement sources indicate a 

growing gap. For example, the U.S. Census Bureau’s 

measurement of inequality suggests that income inequality was 9 percent higher in the United States in 

2005 than in 1989. Contributing factors could be the 

transition of the U.S. economy from manufacturing 

to knowledge and services, which has resulted in 

both a loss of higher-paying manufacturing jobs, especially jobs located overseas, and a greater emphasis on education, knowledge, and skills for workers 

today and in the future. 

Changing Social Behaviors

Rapid advances in information and communications 

technology are affecting every sector of society as 

connectivity becomes needed rather than merely 

wanted. According to 2006 reports on surveys conducted by the Pew Internet and American Lifestyle 

Project, Associated Press, and America Online, 73 

percent of adults (about 147 million) and 45 percent 

of teenagers (about 11 million) in the United States 

use cell phones. Internet usage is widespread, partly 

because of the availability of high-speed broadband, 

with nearly 73 percent of adults and 87 percent of 

teenagers using it. People in the United States are 

growing more comfortable with buying goods and 

services electronically. While e-commerce still represents a small portion of the overall sales of goods 

and services, it has steadily grown. 

Instant access to information is causing increased 

demand for it in the public sector, fueling a greater 

focus on the government’s ability to provide information through electronic means. As in the rest 

of the world, e-government systems are growing 

rapidly to help automate information and business 

processes, make decision making more transparent, 

and facilitate public participation. The media are 

also undergoing changes as they struggle to balance 

printed media with the growing demand for Webbased media. The growth of various and multiple 

forms of media makes it increasingly difficult to 

capture the time and attention of the people. Also, 

rather than becoming merely consumers of information, people are beginning to create and customize 

information in cyberspace. The network of Web 

logs, or blogs, where any individual can enter his or 

her views on Internet sites accessible to the public 

is doubling in size every 6 months, forming a new 

medium for personal creativity and social and political action. A number of social networks, virtually 

real “second worlds,” and online games have millions of participants. Corporations and politicians 

are beginning to explore them as a way to promote 

or sell their products, brands, and messages. 

22 GAO-07-467SP
Related Issues

Border and port security

Infectious diseases and public health

Fiscal deficits and debt burdens

Health care quality, access, and costs

Defense and homeland security strategies

Social insurance commitments

Energy, environment, and resource protection

Education, skills, and knowledge

Immigration

Regulatory policy

•

•

•

•

•

•

•

•

•

•

Capital markets

Information

Transportation

Retirement security

Employment

Work and family

Urbanization and sprawl

Housing

Cybersecurity and personal privacy

Productivity and economic growth

Information and communications technology

Elections and citizens’ involvement

•

•

•

•

•

•

•

•

•

•

•

•

GAO-07-467SP 23
Around the world, nations are increasingly concerned with measuring and improving the quality of life of their citizens. Various economic, 

social, and environmental indicators suggest 

that in many respects, the quality of life in the 

United States has improved over the past several 

decades. Large segments of the population continue to enjoy greater economic prosperity than 

ever before. For example, more than two-thirds 

of U.S. households own their own homes. Moving 

forward, challenges will continue in areas such as 

retirement security, employment, balancing work 

and family, urbanization and sprawl, affordable 

housing, and personal privacy. 

Retirement Security

Retirement security in the United States is primarily based on Social Security, pensions, health 

insurance, and private savings as well as earnings 

from continued employment. For a large portion 

of the workforce, Social Security is the primary 

source of income, providing an inflation-adjusted 

monthly benefit for the duration of their retirement years. Yet, the nation’s increased life spans 

and reduced fertility have combined to create 

long-term fiscal stress on the Social Security program. If unaddressed, these fiscal challenges will 

result in the exhaustion of the Social Security 

trust fund by 2040 and will likely shift greater responsibility for retirement security planning and 

saving to individuals. 

The United States is unusual compared to most 

industrialized countries in that employers play a 

large role in the provision of pensions and health 

insurance. Like Social Security, the private employer pension system is also facing major challenges. 

U.S. firms have increasingly shifted pension costs 

and risks onto their employees. In 1980, 35 percent 

of private sector workers were covered by definedbenefit pension plans whereby the employer assumed the risk of fluctuations in investments. By 

2003, only 18.5 percent of the workforce was covered by such plans, because employers had shifted 

responsibility for retirement savings to workers, 

largely through 401(k) plans. Health care has also 

become a major source of financial insecurity, in 

that fewer employers are providing health insurance to their retired employees. Meanwhile, employers that still offer retiree health benefits have 

tightened eligibility standards and increased the 

share of costs that retirees bear. Although smaller 

pensions, rising health care costs, and longer life 

expectancies would seem to require workers to accumulate more saving on their own, savings rates 

have been declining since the early 1980s, with 

rates falling to historic negative levels in 2005 and 

2006. 

Earnings from employment also play an important 

role in retirement security as older employees can 

work longer prior to their complete exit from the 

labor market. Extending the labor force participation of older workers can lead to greater retirement income security, lead to an improved national fiscal outlook, and be individually rewarding. 

However, to facilitate the employment of older 

workers, government, businesses, and workers 

will have to come together to address the existing challenges of employer misperceptions about 

the productivity and trainability of older workers, 

inflexible work scheduling, and other impediments 

to extending senior labor force participation. 

Employment

The U.S. workforce of the 21st century is expected 

to find a very different set of opportunities and 

challenges from those previous generations encountered. Demographic and economic trends 

indicate that the size and composition of the labor 

force, as well as the characteristics of many jobs, 

are changing in the 21st century. Some experts 

predict that the United States will soon see tight 

labor markets, partly because of changes in demographic trends—the 75 million baby boomers will 

be followed by a generation of 44 million born from 

1965 through 1980—and demands for higher skills. 

As the cost of information continues to decline, 

even high-skilled occupations that do not rely on 

personal contact may face increased competition from abroad. At the same time, job instability 

among many young workers in the United States is 

potentially serious, tending to point toward higher 

unemployment later in life. Other factors that will 

shape the labor market include the beginning of 

the retirement of the baby boom generation, which 

Maintaining the Quality of Life for U.S. Citizens

24 GAO-07-467SP
will affect some industries more than others; 

low labor force participation rates among certain 

groups, such as high-school dropouts, low-income 

people, and some minority groups; and the number 

of immigrants—both legal and undocumented—in 

the labor force. The gap between the skills employers require and the skills U.S. workers have poses 

a significant challenge for the labor market. The 

several factors that contribute to this gap include 

the growth of the knowledge-based economy, decreased support for training programs, and insufficient emphasis on career education in schools. 

Work and Family

Work is a central part of many people’s lives. At 

the same time, people value their families and 

their leisure time. Finding the right balance between work, family, and leisure is an individual 

decision, but employers can attract and retain 

employees by providing a more family-friendly 

environment in which to work. This can include 

flexible work schedules; part-time work; telecommuting options; paid holidays, vacations, and sick 

days; options for extended time off; and on-site 

day care programs. The upward trend in demand 

for these benefits is expected to continue. 

Urbanization and Sprawl

Like the rest of the world, the United States is becoming increasingly urbanized, with many metropolitan areas growing at an extraordinary rate. In 

addition, people in this country, who have always 

been mobile, are on the move again, migrating 

from the Northeast and Midwest to the Southeast 

and Southwest and to coastal areas. Such mobility has implications on resource distribution and 

physical infrastructure investments. 

The growth of suburbs outside central cities, 

accelerating after World War II, had both positive 

and negative effects. Suburban growth began 

in response to a number of social, economic, 

demographic, and technological factors, including 

the postwar population boom; the increased 

availability of suburban housing; and the greater 

use of automobiles. When suburban growth 

means the rapid spread of fragmented, lowdensity, automobile-dependent development on 

the fringes of cities, some observers see urban 

sprawl. Sprawling development can occur in rural 

and urban areas and can encompass residential, 

commercial, and industrial zones. 

Research has identified positive effects of urban 

sprawl, such as increased homeownership and 

new, sometimes lower-cost locations for businesses. At the same time, research points to negative effects, such as higher infrastructure costs 

in low-density areas, increased traffic congestion, 

and less green space. Some experts believe—and 

anecdotal evidence supports their belief—that 

the federal government influences urban sprawl 

through specific programs (such as federal housing and transportation programs), taxation, and 

regulation, among other things, but few studies 

document the extent of such influence.

Housing

Homeownership continues to be a primary means 

for many families to accumulate wealth in this 

country. On the premise that homeownership 

contributes to stable and vital communities, 

the U.S. government has created incentives for 

homeownership by providing home mortgage 

tax deductions and liquidity through various 

governmental and quasi-governmental entities. 

These policies along with rising home values 

have lifted the rate of ownership among 

households close to 70 percent. While the overall 

homeownership rate is at a historic high, in 

certain subpopulations the rate lags behind. 

In recent years, the housing market has added 

significantly to investment and jobs in housingrelated sectors such as construction, mortgage 

brokering, and lending. It has also added to the 

“wealth effect” in that homeowners have extracted 

increasing amounts of equity from their homes, 

fueling consumer spending. However, experts are 

concerned that recent increases in defaults and 

foreclosures may signify a significant slowing 

or possible downturn in the housing market, 

which could adversely affect a large sector of the 

population as well as the overall economy. While 

there are federal programs designed to provide 

decent housing affordable to targeted populations 

that do not own homes, such as tax provisions 

related to the construction of federally financed 

rental housing, a growing number of low-income 

and moderate-income homeowners spend half 

or more of their incomes on housing and face 

challenges finding adequate and affordable 

housing near jobs and public transportation. 

GAO-07-467SP 25
Related Issues 

Terrorism

Border and port security

Transnational and violent crime

Natural disasters

Infectious diseases and public health

Fiscal deficits and debt burdens

Health care quality, access, and costs

Defense and homeland security strategies

Social insurance commitments

Energy, environment, and resource protection

Food and water resources

Education, skills, and knowledge

•

•

•

•

•

•

•

•

•

•

•

•

Immigration

Regulatory policy

Saving and investment

Trade

Transportation

Aging and life spans

Dependency ratios

Demographic diversity

Income distribution gaps

Changing social behaviors

Productivity and economic growth

Information and communications technology

Cybersecurity and personal privacy

Humanity and ethics

•

•

•

•

•

•

•

•

•

•

•

•

•

•

26 GAO-07-467SP
Science and technology influence every aspect 

of life. While information technology is a major 

force today—linking individuals, organizations, 

and economies around the world—other kinds 

of scientific and technological advances are 

also creating significant changes. Developments 

in science and technology present great 

opportunities to improve the quality of life, the 

performance of the economy and the government, 

and the relationship of government to citizens. 

For example, advances in biomedical science, 

including the mapping of the human genome, hold 

promise for extending life expectancies. Advances 

in physics hold promise for unlimited clean energy 

supplies. These developments challenge the 

government’s ability to evaluate their potential 

and assess their effect on security, safety, privacy, 

and equity. At the same time, these advances are 

accompanied by challenges with which our nation 

must deal, such as protecting data from abuse 

and misuse, ensuring that data are accurate and 

reliable, weighing the cost of advancing science 

(e.g., through space exploration), and considering 

the ethical and moral issues of medical research.

Productivity and 

Economic Growth

Science and technology has been the most 

significant ingredient for sustained economic 

growth in the United States, generating at least 

half of U.S. economic growth in the past 50 years 

and serving as a major source of productivity 

improvements. According to OECD, several 

sources of economic growth are related to key 

factors in the changing economy, among them 

research and development expenditures. Advances 

in science and technology in the United States 

have historically been fueled by combined public 

and private sector research and development 

investments of about $284 billion annually. 

These investments, along with the nation’s 

strong research and development infrastructure 

and intellectual property protections, have 

long ensured the United States’ leadership 

in the development and commercialization 

of scientific advances, and they have helped 

nurture entrepreneurship and dissemination of 

information on new technologies. 

The United States still has an impressive network 

of government laboratories, academic research 

centers, and business-backed research facilities. 

However, U.S. leadership is now challenged 

in view of fiscal constraints and a changing 

world. Whereas the United States was once the 

source of 70 percent of the world’s research and 

development, it is now the source for 30 percent, 

and U.S. funding of basic research has steadily 

decreased. Private sector firms’ investment in 

research and development has increased, but they 

are less inclined to fund basic research. Some 

large firms are establishing their own universities 

and research centers in this country and abroad, 

while universities are developing and participating 

in business enterprises. Regardless of the source 

of the investment, it is essential to our nation’s 

future economic growth that we continue to 

invest in research and technology. For example, 

advances in nanotechnology, which involve 

manipulating matter at the level of individual 

atoms, made by a multiagency research group 

and others, may lead to far-reaching innovations 

such as drugs able to target specific parts of the 

body at a given time. These innovations hold great 

promise for future growth but also pose social 

challenges as well. 

Information and 

Communications Technology

The United States has maintained its leadership 

in information and communications technology 

but it faces considerable competition from other 

countries. According to an annual ranking by the 

World Economic Forum, the United States ranked 

fourth in 2004, regaining its lead position in 2005, 

based on its information and communications 

technology physical infrastructure, availability 

of venture capital, high levels of business and 

government usage, and use of latest technologies. 

However, other indexes suggest that the United 

States is not a global leader when a broader 

set of indicators are considered. The United 

States ranked seventh of the top 10 economies 

Managing Advancements in Science and 

Technology

GAO-07-467SP 27
in 2005 according to the Information and 

Communications Technology Opportunity 

Index, a global index developed by a Canadian 

nongovernmental organization that measures 

four broad indicators—networks, skills, uptake 

(e.g., televisions, personal computers, phone lines, 

and Internet use), and intensity. More recently, 

the Digital Opportunity Index—a global index 

that the World Information Society developed 

in conjunction with multiple stakeholders—

indicates that the United States ranked 21st when 

measured using broad indicators of opportunity, 

infrastructure, and utilization. 

The United States faces a challenge in achieving 

the policy goal of providing universal service in 

light of the size of the country, rapid changes in 

information and communications technology, the 

high costs of installing the infrastructure, and 

ensuring that fees are affordable. Science and 

technology are expected to continue to generate 

rapid increases in computing and communications 

powers, and recent advancements in chip 

technology will make mobile phones even 

smarter. Installing the infrastructure to provide 

all households broadband access is costly and 

affects affordability as firms seek to recoup their 

costs through fees. The U.S. information and 

communications infrastructure depends on a 

few firms, each betting on a specific technology 

(for example, cable versus telephone) to provide 

interconnectivity. The high costs of installing 

the infrastructure, as well as competition for 

service fees, are forcing firms to adapt. For 

example, AT&T recently merged with Bell South 

and Cingular to combine broadband, wireless, 

voice, and video services. Also, as cities vie for 

skilled knowledge workers, they are investing 

in wireless infrastructures for Internet access 

and connectivity. Wireless technologies, such as 

wireless local and metropolitan area networks 

(sometimes referred to as WiFi and WiMax), 

provide new low-cost alternatives for providing 

broadband access to not only cities but rural and 

remote areas as well. Thirty percent of adults 

who access the Internet do so wirelessly, and 45 

percent of those who access the Internet do so 

elsewhere than the workplace. 

Cybersecurity and 

Personal Privacy

Increasing computer interconnectivity has 

revolutionized the way in which governments, 

nations, and much of the world communicate and 

conduct business. While the benefits have been 

enormous, this widespread interconnectivity can 

compromise individual privacy, increase exposure 

to commercial and governmental surveillance, 

and inundate both people and organizations 

with unwanted e-mail. In addition, new crimes 

committed over the Internet have become 

widespread, such as identity theft, as well as 

phishing, or obtaining access to an individual’s 

assets by diverting them to a fraudulent Web 

site where they can be tricked into providing 

credit card, bank account, and Social Security 

information. These types of criminal activities 

result not only in economic losses but also 

undermine public confidence in the Internet for 

both personal use and commercial transactions. 

Widespread interconnectivity also poses 

significant risks to our nation’s computer systems 

and, more important, to the critical operations 

and infrastructures they support. The Homeland 

Security Act of 2002 and federal policy established 

DHS as the focal point for coordinating activities 

to protect the computer systems that support 

our nation’s critical infrastructures. However, 

safeguarding information that could compromise 

national security, business interests, and 

individual privacy if lost will continue to be 

a challenge to the public and private sectors 

as technology advances and computing and 

communications electronics become even smaller 

in size, and those who try to break into computer 

systems become increasingly sophisticated. 

As small electronics such as the mobile phone 

become wider spread, terrorists and criminals are 

using them for their activities and as a means to 

make their transactions more difficult to detect 

and trace.

28 GAO-07-467SP
Data Quality and Reliability

Data are crucial in science and technology. Data 

must be accurate if findings are to be reliable. The 

need for accuracy is based on the need to ensure 

users that what is reported is credible and reliable. 

One inaccuracy can cast doubt on the reliability of 

an entire report or study and can divert attention 

from the substance of the work. Also, inaccurate 

data can damage an organization’s credibility and 

reduce its effectiveness and as information and 

knowledge migrate to the Internet, risk increases 

that inaccurate and unverified information will be 

accepted and quickly disseminated. 

In addition to damaging the scientific enterprise, 

scientific misconduct involving such actions as 

fabricating and falsifying data can erode the 

trust of citizens in science and government. 

Nonetheless, detecting scientific misconduct 

and ensuring data quality can be costly and time 

consuming. Further, because scientific research 

is globally interdependent, all countries must 

handle the challenge of detecting and preventing 

scientific misconduct similarly in order for science 

to advance. Therefore, U.S. decision makers need 

to collaborate and coordinate with those in other 

countries to establish policies that ensure data 

quality and reliability in the most efficient and 

effective manner. OECD has established a work 

group through the Global Science Forum, which 

brings together science policy officials from 

OECD countries, to develop recommendations 

for ensuring scientific integrity and preventing 

misconduct.

Space Exploration

Despite many successes in exploring space, the 

loss of life, unsuccessful missions, and unforeseen 

cost overruns have recently increased the level 

of concern over its benefits, particularly with 

regard to human space flight. Since the National 

Aeronautics and Space Administration’s (NASA) 

inception, it has undertaken programs that have 

greatly advanced scientific and technological 

knowledge. However, the loss of Shuttle 

Columbia and its crew is symbolic of the difficult 

environment in which NASA must perform its 

mission and the risks associated with human 

space exploration. The complexities NASA faces 

in returning the remaining three shuttles to flight 

so that construction on the International Space 

Station can resume, and the debate over the 

potential cost and the federal government’s role in 

implementing the administration’s vision for space 

exploration, are emblematic of the challenges the 

nation will need to resolve in the years ahead.

Humanity and Ethics

The tragic consequences of the use of thalidomide 

and the revelation of the Tuskegee syphilis study 

shocked the public and convinced policymakers 

that unregulated biomedical research represents 

a clear threat to research subjects. Consequently, 

the Congress and various federal agencies have 

taken actions to protect the rights of research 

subjects. Nonetheless, controversy continues 

as the research community grapples with what 

scientific and technological advances will allow 

them to do as they consider the moral and ethical 

implications of their work. The controversy will 

continue, especially when it involves vulnerable 

populations, such as pregnant women, fetuses, 

subjects of in vitro fertilization research, 

prisoners, and children. Also, as science advances 

in such areas as cloning and stem cell research, 

which may provide a means of extending life and 

even rejuvenation, important questions must be 

addressed with regard to social and economic 

implications as well as intergenerational equity. 

Elections and 

Citizens’ Involvement

All levels of government share responsibility in 

U.S. elections. Administering an election is a yearround process of voter registration, absentee and 

early voting, election administration and vote 

casting, and vote counting and certification. Each 

stage of an election involves people, processes, 

and technology. Electronic voting systems 

appear to hold promise for the efficiency and 

accuracy of elections by automating manual 

steps, accommodating voters with special needs, 

and implementing controls over voters’ and 

election workers’ errors. However, in a series 

of recent reports, election officials, computer 

security experts, citizens’ advocacy groups, and 

others have expressed significant concern about 

the security and reliability of electronic voting 

systems. The issues they have raised must be 

resolved if reliable elections are to be conducted. 

GAO-07-467SP 29
Related Issues

Terrorism

Growing instability, rogue nations, failed 

states, and nuclear proliferation

Border and port security

Natural disasters

Infectious diseases and public health

Fiscal deficits and debt burdens

Health care quality, access, and costs

Defense and homeland security strategies

Energy, environment, and resource protection

Food and water resources

Education, skills, and knowledge

Immigration

•

•

•

•

•

•

•

•

•

•

•

•

Tax policy

Regulatory policy

Innovation and change management

Trade

Capital markets

Information

Transportation

Aging and life spans

Income distribution gaps

Changing social behaviors

Employment

Work and family

Housing

Cybersecurity and personal privacy

•

•

•

•

•

•

•

•

•

•

•

•

•

•

30 GAO-07-467SP
As the pace of change accelerates in every aspect 

of life in the United States, the federal government 

is faced with new and more complex economic, 

demographic, social, technological, security, and 

other challenges that it alone cannot address. In fact, 

achieving meaningful national results and outcomes 

generally requires the coordinated efforts of various 

federal agencies, other governments both internationally and at the state and local levels, nongovernmental organizations, for-profit and not-for-profit contractors, the private sector, and others. The response 

to and recovery from hurricanes Katrina and Rita, the 

nation’s preparations for a possible pandemic influenza, and a host of other public issues vividly underscore the critical importance of employing a broad 

and integrated governance perspective—as opposed 

to one focused exclusively on federal government 

programs and organizations—to the global and national challenges of the 21st century.

To address these global and national challenges, 

the policy process itself must have the capacity to 

transcend the focus on specific programs and agencies to address how broad portfolios of programs 

and tools contribute to policy goals. Assessing the 

coherence of all related policy tools to ascertain 

whether they are aligned and relevant for a changing 

society will be a critical task in rethinking and updating the federal government’s role. At the same time, 

promoting effective partnerships with third parties 

in the formulation and design of complex national 

initiatives is increasingly vital to achieving successful 

policy outcomes in the years ahead. Since at least the 

1960s, the number of federal employees has dropped 

even as federal outlays have risen, partly because the 

dollars that fund federal programs are increasingly 

flowing to nonfederal entities. In fact, it is increasingly common to hear references to the “multisector” 

workforce that must work in concert to address any 

particular public need rather than just a federal or 

even public sector workforce. 

Long-term fiscal pressures and other emerging forces 

will test the capacity of the policy process to reexamine and update priorities and portfolios of federal 

entitlements, policies, programs, commitments, and 

revenue approaches. A process that only considers incremental changes to existing priorities and 

portfolios will constrain the nation’s capacity to both 

respond to the fiscal challenges and to make government more effective in the 21st century. Rather, the 

funding base of government—both spending and 

revenue—must be reassessed so that emerging needs 

can be addressed while outdated and unsustainable 

efforts can be either reformed or eliminated.

Developing a set of outcome-based key national 

indicators focused on the broadest levels of policy 

aspirations—for example, improving national health 

outcomes, reducing crime, or improving national 

educational progress—is essential to identifying and 

addressing broad national needs. Such a set of key 

national indicators could be used to inform executive branch strategic planning, enhance performance 

and accountability reporting, and facilitate the muchneeded and long overdue review of the base of the 

federal government’s policies, programs, functions, 

and activities in light of 21st century challenges and 

opportunities. They can also help to focus more attention on the horizontal dimension of government, 

the need to take a more integrated approach to the 

tools of government, as well as the need to work 

across boundaries (organizational, geopolitical, and 

sectoral) to achieve desired results. GAO is monitoring collaborative efforts, both domestically and internationally, seeking to develop a set of key national 

indicators that will be generally accepted by a broad 

range of stakeholders. A collaborative effort of this 

magnitude and complexity takes time, but it also 

serves to maximize the chance of both current use 

and long-term sustainability of the resulting indicator 

set. The key is for the indicators to be as outcome 

based as possible, timely, accessible, reliable, and 

balanced. 

Finally, the basic management systems and processes in federal agencies will have to undergo 

fundamental updating and reengineering to respond 

effectively to the governance and fiscal challenges 

facing the nation. Nothing less than a transformation in the people, processes, and technology used 

to address public goals is necessary to address the 

demanding policy goals facing the nation in a time of 

rapid change. First and foremost, continued progress 

must be made in addressing the federal government’s 

high-risk programs and operations—those that have 

great vulnerability to waste, fraud, abuse, and mismanagement and those in need of broad-based transformation to address major economy, efficiency, or 

effectiveness challenges. 

Governance Implications

GAO-07-467SP 31
a

This issue is discussed under the theme above.

Appendix I: Interrelationships of Themes and Issues

Changing 

security 

threats

Sustainability 

concerns

Economic 

growth and 

competitiveness

Global 

interdependency

Societal 

change

Quality 

of life

Science 

and 

technology

Terrorism, including weapons of 

mass destruction a

  

Growing instability, rogue nations, 

failed states, and nuclear 

proliferation

a 

Border and port security a

    

Transnational and violent crime a



Natural disasters a

   

Infectious diseases and public 

health a

    

Fiscal deficits and debt burdens  a

    

Health care quality, access, and 

costs a

   

Defense and homeland security 

strategies  a

    

Social insurance commitments a

 

Tax gaps a



Energy, environment, and resource 

protection  a

    

Food and water resources  a

   

Education, skills, and knowledge  a

   

Immigration   a

   

Tax policy  a

 

Regulatory policy  a

   

Saving and investment  a

 

Innovation and change 

management a

 

Trade   a

 

Capital markets   a

 

Information  a

 

Transportation    a

  

Aging and life spans   a

 

Dependency ratios (workers to 

retirees and workers to minors)   a



Demographic diversity    a



Income distribution gaps     a

 

Changing social behaviors   a

 

Retirement security    a

Employment    a



Work and family  a



Urbanization and sprawl   a

Housing  a



Productivity and economic growth       a

Information and communications 

technology       a

Cybersecurity and personal privacy      a

Data quality and reliability  a

Space exploration     a

Humanity and ethics    a

Elections and citizens’ involvement   a

Governance implications

Strategic partnerships and alliances       

Role of the nation-state    

Governance structures       

Combating fraud, waste, and abuse     

Risk, results, horizontal, and 

future focus, including key national 

indicators

      

Source: GAO.

Issues

Themes

32 GAO-07-467SP
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