United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Federal Financial 

Management, Government Information, and 

International Security, Committee on Homeland 

Security and Governmental Affairs, U.S. Senate 

BUDGET PROCESS 

Better Transparency, 

Controls, Triggers, and 

Default Mechanisms Would 

Help to Address Our Large 

and Growing Long-term 

Fiscal Challenge 

Statement of David M. Walker 

Comptroller General of the United States 

For Release on Delivery

Expected at 2:30 p.m. EDT

Thursday, May 25, 2006

 

GAO-06-761T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 25, 2006

BUDGET PROCESS

Better Transparency, Controls, Triggers, 

and Default Mechanisms Would Help to 

Address Our Large and Growing Longterm Fiscal Challenge 

Highlights of GAO-06-761T, a testimony 

before the Subcommittee on Federal 

Financial Management, Government 

Information, and International Security, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

The nation’s long-term fiscal 

outlook is daunting. While the 

budget process has not caused the 

problems we face, the absence of

meaningful budget controls and 

other mechanisms has served to

compound our fiscal challenge. 

Conversely, a process that 

illuminates the looming fiscal

pressures and provides appropriate 

incentives can at least help

decision makers focus on the right 

questions. Meaningful budget

controls and other mechanisms can 

also help to assure that difficult but 

necessary choices are made. 

The budget process needs to 

provide incentives and signals to 

address commitments the 

government has already made and 

better transparency for and 

controls on the long-term fiscal

exposures being considered. 

Improvements would include the 

restoration of realistic

discretionary caps; application of

pay-as-you-go (PAYGO) discipline

to both mandatory spending and

revenue legislation; the use of 

“triggers” for some mandatory 

programs; and better reporting of 

fiscal exposures. 

Over the long term we face a large and growing structural deficit due 

primarily to known demographic trends and rising health care costs. 

Continuing on this imprudent and unsustainable fiscal path will gradually 

erode, if not suddenly damage, our economy, our standard of living, and 

ultimately our national security. Our current path will also increasingly 

constrain our ability to address emerging and unexpected budgetary needs 

and increase the burdens that will be faced by our children, grandchildren, 

and future generations. 

The budget process itself cannot solve this problem, but it can help 

policymakers make tough but necessary choices. If citizens and government 

officials come to better understand various fiscal exposures and their 

implications for the future, they are more likely to insist on prudent policy 

choices today and sensible levels of fiscal risk in the future. 

Composition of Spending as a Share of GDP Assuming Discretionary Spending Grows with 

GDP after 2006 and All Expiring Tax Provisions Are Extended 

0

10

20

30

40

50

2005 2015 2030 2040

Fiscal year

Percentage of GDP

Net interest Social Security Medicare & Medicaid All other spending

Revenue

Source: GAO’s May 2006 analysis.

Note: This includes certain tax provisions that expired at the end of 2005, such as the increased 

alternative minimum tax exemption amount. 

We cannot grow our way out of our long-term fiscal challenge. We must 

make tough choices and the sooner the better. A multi-pronged approach is 

needed: (1) revise existing budget processes and financial reporting 

requirements, (2) restructure existing entitlement programs, (3) reexamine 

the base of discretionary and other spending, and (4) review and revise tax 

policy and enforcement programs—including tax expenditures. Everything 

must be on the table and a credible and effective Entitlement and Tax 

Reform Commission may be necessary. Fundamentally we need a top-tobottom review of government activities to ensure their relevance and fit for 

the 21st century and their relative priority. 

www.gao.gov/cgi-bin/getrpt?GAO-06-761T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Susan J. Irving 

at (202) 512-9142 or irvings@gao.gov. 
Mr. Chairman, Senator Carper, and Members of the Subcommittee: 

I appreciate the opportunity to speak with you today about a budget

process that can help Congress deal with the large and growing fiscal 

challenges facing our nation. As you know, I have been vocal about our 

long-term fiscal imbalance and the need to make difficult but necessary 

choices soon so that we do not burden our children and grandchildren 

with a crushing debt. While the budget process has not caused the 

problems we face, the absence of meaningful budget controls and other 

mechanisms has served to compound our fiscal challenge. Conversely, a 

process that illuminates the looming fiscal pressures and provides 

appropriate incentives, transparency and control mechanisms can help 

decision makers to slow the bleeding and put us on a more prudent and 

sustainable long-range fiscal path. 

When updating the budget process, you face a two-pronged challenge: 

• the need to reinstitute and strengthen controls to deal with both near-term 

and longer-term deficits and 

• the need to design a process that helps Congress tackle our large and 

growing long-term fiscal challenges facing this nation by, among other 

things, improving the transparency of the long-term costs of current 

decisions. 

Today I want to focus on the long-term budget challenge and what role the 

budget process can play in helping to deal with it. Since at its heart the 

budget debate is about the allocation of limited resources, the budget

process can and should play a key role in helping to address our broader 

challenge of modernizing government for the 21st century. 

The nation’s long-term fiscal outlook is daunting under any realistic policy 

scenarios and assumptions. For over 14 years, GAO has periodically 

prepared various long-term budget simulations that seek to illustrate the 

likely fiscal consequences of our coming demographic challenges and

rising health care costs. Indeed, the health care area is especially 

important because the long-term fiscal challenge is largely a health care 

challenge. While Social Security is important because of its size, health

care spending is both large and projected to grow much more rapidly. 

Our most recent simulation results illustrate the importance of health care 

in the long-term fiscal outlook as well as the imperative to take action

soon. These simulations show that over the long term we face large and 

The Long-term Fiscal 

Challenge 

Page 1 GAO-06-761T 
growing structural deficits due primarily to known demographic trends 

and rising health care costs. These trends are compounded by the 

presence of near-term deficits arising from new discretionary and 

mandatory spending as well as lower federal revenues as a percentage of

the economy. Continuing on this imprudent and unsustainable fiscal path

will gradually erode, if not suddenly damage, our economy, our standard 

of living, and ultimately our national security. Our current path will also 

increasingly constrain our ability to address emerging and unexpected 

budgetary needs and increase the burdens that will be faced by our 

children, grandchildren, and future generations of Americans. 

Figures 1 and 2 present our long-term simulations under two different sets 

of assumptions. For both simulations, Social Security and Medicare 

spending is based on the 2006 Trustees’ intermediate projections, and we 

assume that benefits continue to be paid in full after the trust funds are 

exhausted, although current law does not provide for such. Medicaid 

spending is based on the Congressional Budget Office’s (CBO) December 

2005 long-term projections under its midrange assumptions. In figure 1, we 

start with CBO’s 10-year baseline, constructed according to the statutory 

requirements for that baseline. Consistent with these specific yet 

unrealistic requirements, discretionary spending is assumed to grow with 

inflation for the first 10 years and tax cuts scheduled to expire are 

assumed to expire. After 2016, discretionary spending and revenue are 

held constant as a share of gross domestic product (GDP) at the 2016 

level. Under this fiscally restrained scenario, spending for Social Security

and health care programs would grow to consume over three-quarters of

federal revenues by 2040. 

Page 2 GAO-06-761T 
Figure 1: Composition of Spending as a Share of GDP under Baseline Extended

0

10

20

30

40

50

Percentage of GDP

Revenue

Fiscal year

Net interest

Social Security

Medicare & Medicaid

All other spending

Source: GAO’s May 2006 analysis.

2005 2015 2030 2040

Note: Importantly, this simulation does not include the “Tax Increase Prevention and Reconciliation 

Act of 2005” (P.L. 109-222) enacted on May 17, 2006. Under this scenario, in addition to the 

expiration of tax cuts, revenue as a share of GDP increases through 2016 due to (1) real bracket 

creep, (2) more taxpayers becoming subject to the alternative minimum tax (AMT), and (3) increased 

revenue from tax-deferred retirement accounts. After 2016, revenue as a share of GDP is held 

constant. 

In figure 2, two assumptions are changed: (1) discretionary spending is 

assumed to grow with the economy after 2006 rather than merely with 

inflation, and (2) all expiring tax provisions are extended. In this less 

restrained but possibly more realistic scenario, federal revenues will cover 

little more than interest on the large and growing federal debt by 2040. 

Page 3 GAO-06-761T 
Figure 2: Composition of Spending as a Share of GDP Assuming Discretionary Spending Grows with GDP after 2006 and All 

Expiring Tax Provisions Are Extended 

0

10

20

30

40

50

2005 2015 2030 2040

Revenue

Fiscal year

Net interest

Social Security

Medicare & Medicaid

All other spending

Source: GAO’s May 2006 analysis.

Percentage of GDP

Note: This includes certain tax provisions that expired at the end of 2005, such as the increased AMT

exemption amount. 

While many alternative scenarios could be developed incorporating 

different combinations of possible policy choices and economic 

assumptions, these two scenarios can be viewed as possible “bookends” to 

a range of possible outcomes. 

Budget flexibility—the ability to respond to unforeseen events—is key to 

being able to successfully deal with the nation’s and the world’s 

uncertainties. By their very nature, mandatory spending programs—

entitlement programs like Medicare and Social Security—limit budget 

Page 4 GAO-06-761T 
flexibility.1

 They are governed by eligibility rules and benefit formulas, 

which means that funds are spent as required to provide benefits to those 

who are eligible and wish to participate. As figure 3 shows, mandatory 

spending has grown as a share of the total federal budget. For example, 

mandatory spending on programs (i.e., mandatory spending excluding 

interest) has grown from 27 percent in 1965—the year Medicare was 

created—to 42 percent in 1985 to 53 percent last year. (Total spending not 

subject to annual appropriations—mandatory spending and net interest—

has grown from 34 percent in 1965 to 61 percent last year.) Under both the

CBO baseline estimates and the President’s Budget, this spending would 

grow even further. 

 1

Similarly, tax expenditures—subsidies provided through the tax system—may limit 

flexibility on the revenue side; there is a trade-off between tax rates and revenue lost 

through tax expenditures. In order to raise a given amount of federal revenue, tax rates

must be raised higher than they otherwise need to be due to revenue losses from tax

expenditures.

Page 5 GAO-06-761T 
Figure 3: Federal Spending for Mandatory and Discretionary Programs 

Net interest

Discretionary

Mandatory

0

20

40

60

80

100

1962 1970 1980 1990 2000 2006 2016

CBO’s January 2006 

projections

Percentage of total outlays

Sources: The Office of Management and Budget and CBO.

Figure 3 illustrates that while it is important to control discretionary 

spending, the real challenge is mandatory spending. Accordingly, 

substantive reform of the major health programs and Social Security is 

critical to recapturing our future fiscal flexibility. 

The aging population and rising health care costs will have significant 

implications not only for the budget but also our economy and competitive 

posture. Figure 4 shows the total future draw on the economy represented 

by Social Security, Medicare, and Medicaid. Under the 2006 Trustees’ 

intermediate estimates and CBO’s 2005 midrange and long-term Medicaid 

estimates, spending for these entitlement programs combined will grow to

Page 6 GAO-06-761T 
over 15 percent of GDP in 2030 from today’s 8.9 percent. It is clear that 

taken together, Social Security, Medicare, and Medicaid represent an 

unsustainable burden on the federal budget and future generations. 

Ultimately, the nation will have to decide what level of federal benefits and 

spending it wants and how it will pay for these benefits. 

Figure 4: Social Security, Medicare, and Medicaid Spending as a Percentage of GDP 

0

5

10

15

20

25

30

2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Social Security

Medicaid

Medicare

Medicare

Medicaid

Social Security

Sources: GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration; Office of the Actuary, 

Centers for Medicare and Medicaid Services; and the Congressional Budget Office.

Percentage GDP

Note: Social Security and Medicare projections are based on the intermediate assumptions of the 

2006 Trustees’ reports. Medicaid projections are based on CBO’s January 2006 short-term Medicaid 

estimates and CBO’s December 2005 long-term Medicaid projections under midrange assumptions. 

While Social Security, Medicare, and Medicaid are the major drivers of the 

long-term spending outlook in the aggregate, they are not the only 

Page 7 GAO-06-761T 
promises the federal government has made for the future.2

 The federal

government undertakes a wide range of responsibilities, programs, and 

activities that may either obligate the government to future spending or 

create an expectation for such spending. Specific fiscal exposures vary 

widely as to source, likelihood of occurrence, magnitude, and strength of 

the government’s legal obligations. If we think of fiscal exposures as 

extending from explicit liabilities (like military and civilian pensions) to 

specific contingencies (like pension, flood, and other federal insurance 

programs) to the commitments implicit in current policy and/or public 

expectations (like the gap between the present value of future promised 

and funded Social Security and Medicare benefits), the federal 

government’s fiscal exposures totaled more than $46 trillion at the end of 

2005, up from about $20 trillion in 2000. This translates into a burden of 

about $156,000 per American, or approximately $375,000 per full-time 

worker—more than double what it was in 2000. These amounts are 

growing every second of every minute of every day due to continuing 

deficits, known demographic trends and compounding interest costs. 

Many are beginning to realize that difficult choices must be made, and 

soon. A crucial first step in acting to improve our long-term fiscal outlook 

will be to face facts and identify the many significant commitments 

already facing the federal government. If citizens and government officials 

come to better understand our nation’s various fiscal exposures and their 

implications for the future, they are more likely to insist on prudent policy 

choices today and sensible levels of fiscal risk in the future. 

What Can Be Done? 

How do we get started? Today you are focusing on budget process 

improvements. That’s a good start. While the process itself cannot solve 

the problem, it is important. It can help policymakers make tough but 

necessary choices today rather than defer them until tomorrow. 

Restoration of meaningful budget controls—budgetary caps and a pay-asyou-go (PAYGO) rule on both the tax and spending side of the ledger—is a 

start toward requiring that necessary trade-offs be made rather than 

delayed. Although the restoration of caps and a PAYGO rule are important, 

they are not enough. Among the characteristics a budget process needs for 

that to happen are 

 2

While interest is a large and growing share of the budget, it does not directly drive the 

fiscal outlook in that interest is the result of other decisions affecting spending and tax 

policy. 

Page 8 GAO-06-761T 
• increased transparency and better incentives, signals, triggers and default 

mechanisms to address the fiscal exposures/commitments the federal 

government has already made and 

• better transparency for and controls over the long-term fiscal 

exposures/commitments that the federal government is considering. 

Let me elaborate. 

There is broad consensus among observers and analysts who focus on the

budget that the controls contained in the expired Budget Enforcement Act 

constrained spending for much of the 1990s. In fact, annual discretionary 

budget authority actually declined in real terms during the mid-1990s. I

endorse the restoration of realistic discretionary caps and PAYGO 

discipline applied to both mandatory spending and revenue legislation. But 

the caps can only work if they are realistic; while caps may be seen as 

tighter than some would like, they are not likely to bind if they are seen as

totally unreasonable given current conditions. While PAYGO discipline 

constrained the creation or legislative expansion of mandatory spending 

and tax cuts, it accepted the existing provisions of law as given. Looking 

ahead, the budget process will need to go beyond limiting expansions. 

Cost increases in existing mandatory programs cannot be ignored and the 

base of existing spending and tax programs must be reviewed and reengineered to address our long-range fiscal gap. 

Specifically, as I have said before, I would like to see a process that forces 

examination of “the base” of the federal government—for major 

entitlements, for other mandatory spending, and for so-called

“discretionary” spending (those activities funded through the 

appropriations process). 

Reexamining “the base” is something that should be done periodically 

regardless of fiscal condition—all of us have a stewardship obligation over 

taxpayer funds. As I have said before, we have programs still in existence 

today that were designed 20 or more years ago—and the world has 

changed. I would suggest that as constraints on discretionary spending 

continue to tighten, the need to reexamine existing programs and activities 

becomes greater. One of the questions this Congress is grappling with—

earmarks—can be seen in this context. Whatever the agreed-upon level for 

discretionary spending, the allocation within that total will be important. 

How should that allocation be determined? What sort of rules will you 

want to impose on both the allocation across major areas (defense, 

education, etc.) and within those areas? By definition, earmarks specify 

Better Incentives and 

Signals 

Page 9 GAO-06-761T 
how some funds will be used. How will the process manage them? After 

all, not all earmarks are bad but many are highly questionable. It is not 

surprising that in times of tight resources, the tension between earmarks 

and flexibility will likely rise. 

Although mandatory spending is not amenable to caps, such spending 

need not—and should not—be permitted to be on autopilot and grow to an 

unlimited extent. Since the spending for any given entitlement or other 

mandatory program is a function of the interaction between eligibility 

rules and the benefit formula—either or both of which may incorporate 

exogenous factors such as economic downturns—the way to change the 

path of spending for any of these programs is to change their rules or 

formulas. We recently issued a report on “triggers”—some measure that 

when reached or exceeded, would prompt a response connected to that

program.3

 By identifying significant increases in the spending path of a 

mandatory program relatively early and acting to constrain it, Congress 

may avert much larger and potentially disruptive financial challenges and

program changes in the future. 

A trigger is a measure and a signal mechanism—like an alarm clock. It 

could trigger a “soft” response—one that calls attention to the growth rate 

of the level of spending and prompts special consideration when the 

threshold or target is breached. The Medicare program already contains a 

“soft” response trigger: the President is required to submit a proposal for 

action to Congress if the Medicare Trustees determine in 2 consecutive 

years that the general revenue share of Medicare spending is projected to 

exceed 45 percent during a 7-fiscal-year period.4

 The most recent Trustees’ 

report to Congress for the first time found that the general revenue share 

of financing is projected to exceed that threshold in 2012.5

 Thus, if next 

 3

GAO, Mandatory Spending: Using Budget Triggers to Constrain Growth, GAO-06-276 

(Washington, D.C.: Jan. 31, 2006). 

4

For the purpose of the Medicare trigger, general revenue Medicare funding is defined as

the difference between Medicare program outlays and dedicated Medicare financing 

sources. Dedicated Medicare financing sources are defined as Hospital Insurance (HI)

payroll taxes; the HI share of income taxes on Social Security benefits; state transfers for 

Part D prescription drug benefits; premiums paid under Parts A, B, and D; and any gifts

received by the trust funds. 

5

The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Insurance 

Trust Funds, The 2006 Annual Report of the Boards of Trustees of the Federal Hospital 

Insurance and Federal Supplementary Medical Insurance Trust Funds (Washington,

D.C.: May 2006), 27.

Page 10 GAO-06-761T 
year’s report again concludes that it will exceed the threshold during the 7-

fiscal-year period, the trigger will have been tripped and the President will 

be required to submit his proposal for action. 

Soft responses can help in alerting decision makers of potential problems, 

but they do not ensure that action to decrease spending or increase 

revenue is taken. In contrast, a trigger could lead to “hard” responses 

under which a predetermined, program-specific action would take place, 

such as changes in eligibility criteria and benefit formulas, automatic 

revenue increases, or automatic spending cuts. With hard responses, 

spending is automatically constrained, revenue is automatically increased,

or both, unless Congress takes action to override—the default is the 

constraining action. For example, this year the President’s Budget 

proposes to change the Medicare trigger from solely “soft” to providing a 

“hard” (automatic) response if Congress fails to enact the President’s 

proposal.6

Any discussion to create triggered responses and their design must 

recognize that unlike controls on discretionary spending, there is some 

tension between the idea of triggers and the nature of entitlement and 

other mandatory spending programs. These programs—as with tax 

provisions such as tax expenditures—were designed to provide benefits 

based on eligibility formulas or actions as opposed to an annual decision 

regarding spending. This tension makes it more challenging to constrain 

costs and to design both triggers and appropriate responses. At the same 

time, with less than 40 percent of the budget under the control of the 

annual appropriations process, considering ways to increase transparency, 

oversight, and control of mandatory programs must be part of addressing 

the nation’s long-term fiscal challenges. 

 6

The response would include a sequester if Congress did not act on the President’s 

proposal. The proposed sequester would result in a four-tenths of a percent reduction in all 

payments to providers beginning in the year the threshold is exceeded. Each year the

shortfall continues to occur the reduction would grow by an additional four-tenths of a 

percent. We have not yet analyzed how this would work. 

Page 11 GAO-06-761T 
Increased Transparency 

and Disclosure of Longterm Costs 

Besides triggers, transparency of existing commitments would be 

improved by requiring the Office of Management and Budget (OMB) to 

report annually on fiscal exposures—the more than $46 trillion figure7

 I 

mentioned earlier—including a concise list, description, and cost 

estimates, where possible. OMB should also ensure that agencies focus on 

improving cost estimates for fiscal exposures. This should complement 

and support continued and improved reporting of long-range projections 

and analysis of the budget as a whole to assess fiscal sustainability and 

flexibility. 

Others have embraced this idea for better reporting of fiscal exposures. 

Senator Voinovich has proposed that the President report each January on

the fiscal exposures of the federal government and their implications for 

the long-term financial health and Senator Lieberman introduced 

legislation to require better information on liabilities and commitments. 

This year Representatives Cooper, Chocola, and Kirk have sponsored 

legislation also aimed at improving the attention paid to our growing 

federal commitments. And, in his last few budgets the President has 

proposed that reports be required for any proposals that would worsen the 

unfunded obligations of major entitlement programs. These proposals 

provide a good starting point for discussion. Reporting is a critical first 

step—but, as I noted above, it must cover not only new proposals but also 

existing commitments, and it should be accompanied by some incentives 

and controls. We need both better information on existing commitments 

and promises and information on the long-term costs of any new 

significant proposed spending increases or tax cut. Ten-year budget 

projections have been available to decision makers for many years. We 

must build on that regime but also incorporate longer-term estimates of 

net present value (NPV) costs for major spending and tax commitments 

comprising longer-term exposures for the federal budget beyond the 10-

year window. Current budget reporting does not always fully capture or 

require explicit consideration of some fiscal exposures. For example, 

when Medicare Part D was being debated, much of the debate focused on

the 10-year cost estimate—not on the long-term commitment that was 

obviously much greater. While the budget was not designed to and does 

not provide complete information on long-term cost implications 

stemming from some of the government’s commitments when they are

made, progress can and should be made on this front. For example, we 

should require NPV estimates for major proposals—whether on the tax

 7

This figure is as of the end of 2005—it will be higher at the end of this year. 

Page 12 GAO-06-761T 
side or the spending side—whose costs escalate outside the 10-year 

window. And these estimates should be disclosed and debated before the 

proposal is voted on. 

Regarding tax provisions, it is important to recognize that tax policies and

programs financing the federal budget can be reviewed not only with an

eye toward the overall level of revenue provided to fund federal operations 

and commitments, but also the mix of taxes and the extent to which the 

tax code is used to promote overall economic growth and broad-based 

societal objectives. In practice, some tax expenditures are very similar to 

mandatory spending programs even though they are not subject to the 

appropriations process or selected budget control mechanisms. Tax 

expenditures represent a significant commitment and are not typically

subject to review or reexamination. This should not be allowed to 

continue nor should they continue to be largely in the dark and on 

autopilot. 

Finally, the growing use of emergency supplemental appropriations raises 

concerns that an increasing portion of federal spending is exempt from the 

discipline and trade-offs of the regular budget process.8

 Some have 

expressed concern that these “emergency” supplementals are not always

used just to meet the needs of unforeseen emergencies but also include 

funding for activities that could be covered in regular appropriation acts.

According to a recent Congressional Research Service report, after the 

expiration of discretionary limits and PAYGO requirements at the end of

fiscal year 2002, supplemental appropriations net of rescissions increased 

the budget deficit by almost 25 percent per year.9

 On average, the use of 

supplemental appropriations for all purposes has grown almost 60 percent 

each year, increasing from about $17 billion in fiscal year 2000 to about 

$160 billion in fiscal year 2005. Constraining emergency appropriations to 

those which are necessary (not merely useful or beneficial), sudden, 

urgent, unforeseen, and not permanent has been proposed in the past. The 

issue of what constitutes an emergency needs to be resolved and 

discipline exerted so that all appropriations for activities that are not true 

emergencies are considered during regular budget deliberations. 

 8

While most budget enforcement mechanisms expired in fiscal year 2002, Congress 

generally includes overall limits on discretionary spending and PAYGO points of order in

its budget resolution to manage its internal budget process. 

9

Congressional Research Service, Supplemental Appropriations: Trends and Budgetary 

Impacts Since 1981 (Washington, D.C.: Nov. 2, 2005). 

Page 13 GAO-06-761T 
We cannot grow our way out of our long-term fiscal challenge. We have to

make tough choices and the sooner the better. A multi-pronged approach

is necessary: (1) revise existing budget processes and financial reporting 

requirements, (2) restructure existing entitlement programs, (3) reexamine 

the base of discretionary and other spending, and (4) review and revise tax 

policy and enforcement programs. Everything must be on the table.

Fundamentally, we need to undertake a top-to-bottom review of 

government activities to ensure their relevance and fit for the 21st century

and their relative priority. Our report entitled 21st Century Challenges: 

Reexamining the Base of the Federal Government

10 presents illustrative 

questions for policymakers to consider as they carry out their 

responsibilities. These questions look across major areas of the budget

and federal operations, including discretionary and mandatory spending 

and tax policies and programs. We hope that this report, among other 

things, will be used by various congressional committees as they consider 

which areas of government need particular attention and reconsideration. 

The understanding and support of the American people will be critical in 

providing a foundation for action. The fiscal risks I have discussed, 

however, are a long-term problem whose full impact will not likely be felt 

for some time. At the same time, they are very real and time is currently 

working against us. The difficult but necessary choices we face will be 

facilitated if the public has the facts and comes to support serious and 

sustained action to address the nation’s fiscal challenges. That is why if an

Entitlement and Tax Reform Commission is created to develop proposals 

to tackle our long-term fiscal imbalance, its charter may have to include 

educating the public as to the nature of the problem and the realistic 

solutions. While public education may be part of a Commission’s charge,

we cannot wait for it to begin. As you may know, the Concord Coalition is 

leading a public education effort on this issue and I have been a regular 

participant. Although along with Concord the core group is the Heritage 

Foundation, the Brookings Institution, and the Committee for Economic 

Development, others are also actively supporting and participating in the 

effort—the state treasurers, auditors and comptrollers, the American 

Institute of Certified Public Accountants, AARP, and the National 

Academy of Public Administration. I am pleased to take part in this 

national education and outreach effort to help the public understand the 

nature and magnitude of the long-term financial challenge facing this 

Concluding 

Observations 

 10GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: February 2005). 

Page 14 GAO-06-761T 
nation. This is important because while process reform can structure 

choices and help, broad understanding of the problem is also essential. 

After all, from a practical standpoint, the public needs to understand the 

nature and extent of our fiscal challenge before their elected 

representatives are likely to act.

Thank you, Mr. Chairman. This concludes my prepared remarks. I would 

be happy to answer any questions you may have.

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this testimony. For further 

information on this testimony, please contact Susan J. Irving at (202) 512-

9142 or irvings@gao.gov. Individuals making key contributions to this 

testimony include Christine Bonham, Assistant Director; Carlos Diz, 

Assistant General Counsel; and Melissa Wolf, Senior Analyst. 

Contacts and 

Acknowledgments 

Page 15 GAO-06-761T (450497) 
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