Testimony 

Before the Committee on the Budget, 

U.S. Senate

United States Government Accountability Office

GAO 

For Release on Delivery

Expected at 10:30 a.m. EST 

Thursday, January 11, 2007 LONG-TERM BUDGET 

OUTLOOK 

Saving Our Future Requires 

Tough Choices Today 

Statement of David M. Walker 

Comptroller General of the United States 

GAO-07-342T 
Chairman Conrad, Senator Gregg, Members of the Committee: 

I appreciate this invitation to talk with you about our nation’s long-term 

fiscal outlook and the challenge it presents. Your decision to begin this 

Congress with a hearing on this important issue demonstrates the 

seriousness with which this Committee views this challenge and your 

commitment to begin to address it. 

The picture I will lay out for you today is not a pretty one and it’s getting 

worse with the passage of time. But this nation has met difficult 

challenges—including challenges to its very existence—in the past and I’m 

confident that we can do so again. This is a great nation with much to be 

proud of and much to be thankful for. But today we are failing in one of 

our most important stewardship responsibilities—our duty to pass on a 

country better positioned to deal with the challenges of the future than the 

one we were given. As members of this Committee know, continuing on 

our current fiscal path would gradually erode, if not suddenly damage, our

economy, our standard of living, and ultimately even our domestic 

tranquility and our national security. 

My “bottom line” message today is no surprise to members of this 

Committee: 

• Our current financial condition is worse than advertised. 

• Our long-term fiscal outlook is both imprudent and unsustainable. 

• Improvements in information and processes are needed and can help. 

• Meeting our long-term fiscal challenge will require tough choices, bipartisan cooperation and compromise. 

• The time for action is now! 

As widely reported, the $248 billion fiscal year 2006 unified budget deficit

was lower than originally forecast and lower than last year’s deficit of 

$318 billion. While this improvement in the 1-year fiscal picture is better 

than a worsening in that picture, it did not fundamentally change our longterm fiscal outlook. In fact, the U.S. government’s total reported liabilities, 

net social insurance commitments, and other fiscal exposures continue to 

grow and now total approximately $50 trillion, representing approximately 

four times the nation’s total output, or gross domestic product (GDP) in

fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 

2000. 

The overall picture of the long-term fiscal outlook is not news to this 

committee. However, the long-term challenge is fast becoming a shortPage 1 GAO-07-342T 
Page 2 GAO-07-342T 

term one as the first of the baby boomers become eligible for early 

retirement under Social Security on January 1, 2008—less than one year—

and for Medicare benefits in 2011—less than 4 years from now. The budget

and economic implications of the baby boom generation’s retirement have 

already become a factor in Congressional Budget Office’s (CBO) 10-year 

baseline projections and will only intensify as the baby boomers age. 

Simply put, our nation is on an imprudent and unsustainable fiscal path. 

Herbert Stein once said that something that is not sustainable will stop. 

That, however, should not give us comfort. It is more prudent to change 

the path than to wait until a crisis occurs. 

And that brings me to my next point. While restraint in the near term and 

efforts to balance the budget over the next 5 years can be positive, it is 

important that actions to achieve this also address the long-term fiscal 

outlook. The real problem is not the near-term deficit—it is the long-term 

fiscal outlook. It is important to look beyond year 5 or even year 10. Both 

the budget and the budget process need more transparency over and focus 

on the long-term implications of current and proposed spending and tax 

policies. I will suggest a number of things that I believe will help in this 

area in this testimony. 

Our government produces two types of measures—budget and financial—

which further break down into three different numbers that can be seen as 

indicators of our current financial condition: the unified budget deficit, the 

on-budget deficit and the net operating cost or accrual deficit. No one of 

these alone is enough—we should look at all of them. The most commonly 

reported measure is the unified budget deficit. This is a largely cash-based 

number that represents the difference between revenues and outlays for 

the government as a whole. It is an important measure since it is indicative 

of the government’s draw on today’s credit markets—and its claim on 

today’s economy. This measure, however, masks the difference between 

Social Security’s cash flows and those for the rest of the budget. Therefore 

we also need to look beneath the unified deficit at the on-budget deficit—

what I like to call the “operating deficit.” And, finally, we should be 

looking at the financial statements’ report of net operating cost—the 

accrual-based deficit. 

The difference between the on-budget deficit and the unified budget 

deficit is the surplus in Social Security and the U.S. Postal Service. 

Excluding consideration of the $185 billion surplus in Social Security’s 

cash flows and a $1 billion surplus in the Postal Service, the on-budget 

deficit was $434 billion in 2006. Figure 1 shows graphically how the onOur Fiscal and 

Financial Condition Is 

Worse Than

Advertised 
Page 3 GAO-07-342T 

-7

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-1

0

1

2

3

19621965 1970 1975 1980 1985 1990 1995 2000 2006

Fiscal Years

On-budget Off-budget Unified

Percent of GDP

budget deficit and the off-budget surplus have related and combine to lead

to the unified deficit. Since the Social Security trust fund invests any 

receipts not needed to pay benefits in Treasury securities, this surplus 

reduces the amount the Treasury must borrow from the public. As I will 

note later, this pattern of cash flows is important—and it is projected to 

come to and end just 10 years from now. 

Figure 1: Surplus or Deficit as a Share of GDP, Fiscal Years 1962-2006

Sources: Office of Management and Budget, Department of the Treasury, and Congressional Budget Office. 

The third number, net operating cost, is the amount by which costs exceed 

revenue and it is reported in the federal government’s financial statements, 

which are prepared using generally accepted accounting principles. Costs 

are recorded on an accrual basis—namely, in the period when goods are 

used or services are performed as opposed to when the resulting cash 

payments are made. However, most revenues, on the other hand, are 

recorded on the modified cash basis––that is, they are recorded when 

collected. The net operating cost can be thought of as the accrual deficit. 

The accrual measure primarily provides more information on the longerterm implications of today’s policy decisions and operations by showing 
certain costs incurred today but not payable for years to come, such as 

civilian and military pensions and retiree health care.1

All three of these numbers are informative. However, neither accrual nor 

cash measures alone provide a full picture of the government’s fiscal 

condition or the cost of government. Used together, they present 

complementary information and provide a more comprehensive picture of

the government’s financial condition today and fiscal position over time. 

For example, the unified budget deficit provides information on borrowing

needs and current cash flow. The accrual deficit provides information on 

the current cost of government, but it does not provide information on 

how much the government has to borrow in the current year to finance 

government activities. Also, while accrual deficits provide more 

information on the longer-term consequences of current government 

activities, they do not include the longer-term cost associated with social 

insurance programs like Social Security and Medicare. In addition, they 

are not designed to provide information about the timing of payments and

receipts, which can be very important. Therefore, just as investors need 

income statements, statements of cash flow, and balance sheets to 

understand a business’s financial condition, both cash and accrual 

measures are important for understanding the government’s financial 

condition.2

 Table 1 below shows the three measures for fiscal year 2005 

and fiscal year 2006. 

 1

 For a discussion of how the accrual and cash deficits relate to each other see GAO,

Understanding Similarities and Differences between Accrual and Cash Deficits, 

GAO-07-117SP (Washington, D.C.: December 2006) and forthcoming update. 

2

 GAO is responsible for auditing the financial statements included in the Financial Report, 

but we have been unable to express an opinion on them for ten years because the federal 

government could not demonstrate the reliability of significant portions of the financial 

statements, especially in connection with the Department of Defense. Accordingly, 

amounts taken from the Financial Report may not be reliable. 

Page 4 GAO-07-342T 
Page 5 GAO-07-342T 

Table 1: Fiscal Year 2005 and 2006 Deficits and Net Operating Cost 

Dollars in billions 

Fiscal year 2005 Fiscal year 2006

 On-budget deficit ($494) ($434)

 Unified deficit (318) (248)

 Net operating costa(760) (450)

Sources: Office of Management and Budget and Department of the Treasury. 

a

Fiscal year 2005 net operating cost included a significant negative actuarial adjustment and 2006 

included a significant positive adjustment primarily due to changes in interest rate assumptions. 

Although looking at both the cash and accrual measures provides a more 

complete picture of the government’s fiscal stance today and over time 

than looking at either alone, even these together do not tell us the full 

story. For example, all of these show an improvement between fiscal year 

2005 and fiscal year 2006. However, the fundamental drivers of our longterm challenge are largely the same. To understand the long-term 

implications of our current path requires more than a single year’s 

snapshot. In this regard, the long-term outlook has worsened significantly 

in the last several years. That is why for more than a decade GAO has been 

running simulations to tell this longer-term story. 

Long-term fiscal simulations by GAO, CBO and others all show that we 

face large and growing structural deficits driven primarily by rising health 

care costs and known demographic trends. GAO runs simulations under 

two sets of assumptions. One takes the legislatively-mandated baseline 

from CBO for the first 10 years and then keeps discretionary spending and

revenues constant as a share of GDP while letting Social Security, 

Medicare, and Medicaid grow as projected by the Trustees and CBO under 

midrange assumptions.3

 The other perhaps more realistic scenario based 

on the Administration’s announced policy preferences modifies this 

baseline by letting discretionary spending grow with the economy and 

extending all expiring tax provisions.4

 As figure 2 shows, deficits spiral out 

 3

 Social Security and Medicare spending is based on the May 2006 Trustees’ intermediate 

projections. Medicaid spending is based on CBO’s December 2005 long-term projections 

under midrange assumptions.

4

Additional information about the GAO model, its assumptions, data, and charts can be 

found at http://www.gao.gov/special.pubs/longterm/. 

The Long-term Fiscal 

Outlook 
Page 6 GAO-07-342T 

of control under either scenario. We will be updating these figures with the 

release of the new CBO baseline later this month, but even with the lower 

deficit in 2006, the long-term picture will remain daunting. 

Figure 2: Unified Surpluses and Deficits as a Share of GDP under Alternative Fiscal 

Policy Simulations 

Source: GAO’s August 2006 analysis. 

Note: Assume currently scheduled Social Security benefits are paid in full throughout the simulation 

period. 

Looking more closely at each scenario gives a fuller understanding of what

the impact of continuing these trends would have on what government 

does. And looking back to 2001 also shows us how much worse the 

situation has become. As I noted, despite some recent improvements in 

short-term deficits, the long-term outlook is moving in the wrong 

direction. 

Figures 3 and 4 show the composition of spending under our “Baseline 

Extended” scenario in 2001 and 2006. Even with short-term surpluses, we 

had a long-term problem in 2001, but it was more than 40 years out. 

Certainly an economic slowdown and budget decisions driven by the 

attacks of 9/11 and the need to respond to natural disasters have 

contributed to the change in outlook. However, these items alone do not 

account for the dramatic worsening. Tax cuts also contributed but the 

single largest contributor to the deterioration of our long-term outlook 

was the passage of the Medicare Prescription Drug Bill in 2003. 

-20

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-5

0

5

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Fiscal year

Percent of GDP

Baseline

D Extended iscretionary spending

grows with the economy

and all expiring tax

provisions extended
Page 7 GAO-07-342T 

Figure 3: Composition of Spending as a Share of GDP under Baseline Extended,

January 2001

Source: GAO’s January 2001 analysis. 

Note: All other spending is net of offsetting interest receipts in 2015-2040. 

Figure 4: Composition of Spending as a Share of GDP under Baseline Extended,

August 2006 

Source: GAO’s August 2006 analysis. 

Notes: In addition to the expiration of tax cuts, revenue as a share of GDP increases through 2016 

due to (1) real bracket creep, (2) more taxpayers becoming subject to the alternative minimum tax, 

and (3) increased revenue from tax-deferred retirement accounts. After 2016, revenue as a share of 

GDP is held constant. 

0

10

20

30

40

50

2005 2015 2030 2040

Fiscal year

Percent of GDP

Net interest Social Security Medicare & Medicaid All other spending

Revenue

0

10

20

30

40

50

2005 2015 2030 2040

Fiscal year

Percent of GDP

Net interest Social Security Medicare & Medicaid All other spending

Revenue
Page 8 GAO-07-342T 

Figure 4 illustrates today’s cold hard truth, that neither slowing the growth

in discretionary spending nor allowing the tax provisions to expire—nor 

both together—would eliminate the imbalance. This is even clearer under

the more realistic scenario as shown in figure 5. Estimated growth in the 

major entitlement programs results in an unsustainable fiscal future 

regardless of whether one assumes future revenue will be somewhat 

above historical levels as a share of the economy as in the first simulation 

(fig. 4) or lower as shown in figure 5.

Figure 5: Composition of Spending as a Share of GDP Assuming Discretionary 

Spending Grows with GDP after 2006 and All Expiring Tax Provisions Are Extended

Source: GAO’s August 2006 analysis. 

Both these simulations illustrate that without policy changes on the 

spending and/or revenue side of the budget, the growth in spending on 

federal retirement and health entitlements will encumber an escalating 

share of the government’s resources. A government that in our children’s 

lifetimes does nothing more than pay interest on its debt and mail checks 

to retirees and some of their health providers is unimaginable. 

Although Social Security is a major part of the fiscal challenge, contrary to

popular perception, it is far from our biggest challenge. While today Social 

Security spending exceeds federal spending for Medicare and Medicaid 

that will change. Over the past several decades, health care spending on 

average has grown much faster than the economy, absorbing increasing 

shares of the nation’s resources, and this rapid growth is projected to 

continue. CBO estimates that Medicare and Medicaid spending will reach 

6.3 percent of GDP in 2016, up from 4.6 this year (2007), while spending for 

0

10

20

30

40

50

2005 2015 2030 2040

Fiscal year

Percent of GDP

Net interest Social Security Medicare & Medicaid All other spending

Revenue
Page 9 GAO-07-342T 

Social Security will only reach 4.7 percent of GDP in 2016 up from 4.2 

percent this year. For this reason and others, rising health care costs pose 

a fiscal challenge not just to the federal budget but also to states, 

American business, and our society as a whole. 

While there is always some uncertainty in long-term projections, two 

things are certain: the population is aging and the baby boom generation is

nearly at retirement age. The aging population and rising health care 

spending will have significant implications not only for the budget but also 

for the economy as a whole. Figure 6 shows the total future draw on the 

economy represented by Social Security, Medicare, and Medicaid. Under 

the 2006 Trustees’ intermediate estimates and CBO’s long-term Medicaid 

estimates, federal spending for these entitlement programs combined will 

grow to 15.5 percent of GDP in 2030 from today’s 9 percent. It is clear that 

taken together, Social Security, Medicare, and Medicaid under current law 

represent an unsustainable burden on future generations. 

Figure 6: Social Security, Medicare, and Medicaid Spending

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

for Medicare and Medicaid Services, and the Congressional Budget Office. 

Notes: Social Security and Medicare projections based on the intermediate assumptions of the 2006 

Trustees’ Reports. Medicaid projections based on CBO’s August 2006 short-term Medicaid estimates 

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

While Social Security, Medicare and Medicaid dominate the long-term 

outlook, they are not the only federal programs or activities that bind the 

future. The federal government undertakes a wide range of programs, 

responsibilities, and activities that obligate it to future spending or create 

0

5

10

15

20

25

30

2000 2010 2020 2030 2040 2050 2060 2070 2080

Percent of GDP

Social Security

Medicaid

Medicare
Page 10 GAO-07-342T 

an expectation for spending and potentially limit long-term budget 

flexibility. GAO has described the range and measurement of such fiscal 

exposures—from explicit liabilities such as environmental cleanup 

requirements to the more implicit obligations presented by life-cycle costs

of capital acquisition or disaster assistance. 

As shown in figure 7, despite improvement in both the fiscal year 2006 

reported net operating cost and the cash-based budget deficit, the U.S. 

government’s major reported liabilities, social insurance commitments, 

and other fiscal exposures continue to grow. They now total 

approximately $50 trillion—about four times the nation’s total output 

(GDP) in fiscal year 2006—up from about $20 trillion, or two times GDP in 

fiscal year 2000. We all know that it is hard to make sense of what 

“trillions” means. One way to think about it is: if we wanted to put aside 

today enough to cover these promises, it would take $170,000 for each and 

every American or approximately $440,000 per American household. 

Clearly, despite recent progress on our short-term deficits, we have been 

moving in the wrong direction in connection with our long-range 

imbalance in recent years. 

Figure 7: Major Reported Fiscal Exposures (Dollars in Trillions) 

Source: Department of Treasury. 

Notes: Data from 2000 and 2006 Financial Report of the United States Government. Estimates for 

Social Security and Medicare are at present value as of January 1 of each year and all other data are

as of September 30. Totals and percent increases may not add due to rounding. 

$50.5

7.9

13.1

11.3

6.4

38.8

1.3

$10.4

2006 

147

197

140

52

2000 % Increase

$20.4

--

6.5

2.7

3.8

13.0

0.5

$6.9

• E.g., PBGC, undelivered orders

Total

• Future Medicare Part D benefits

• Future Medicare Part B benefits

• Future Medicare Part A benefits

• Future Social Security benefits

• Implicit exposures

• Commitments & contingencies

• Publicly held debt

• Military & civilian pensions & retiree health

• Other

• Explicit liabilities

$50.5

7.9

13.1

11.3

6.4

38.8

1.3

$10.4

2006 

147

197

140

52

2000 % Increase

$20.4

--

6.5

2.7

3.8

13.0

0.5

$6.9

• E.g., PBGC, undelivered orders

Total

• Future Medicare Part D benefits

• Future Medicare Part B benefits

• Future Medicare Part A benefits

• Future Social Security benefits

• Implicit exposures

• Commitments & contingencies

• Publicly held debt

• Military & civilian pensions & retiree health

• Other

• Explicit liabilities
Page 11 GAO-07-342T 

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 long-term fiscal challenge and the broader challenge of 

modernizing government for the 21st century. I have said that Washington 

suffers from myopia and tunnel vision. This can be especially true in the 

budget debate in which we focus on one program at a time and the deficit 

for a single year or possibly the costs over 5 years without asking about 

the bigger picture and whether the long term is getting better or worse. We

at GAO are in the transparency and accountability business. Therefore it 

should come as no surprise that I believe we need to increase the 

understanding of and focus on the long term in our policy and budget 

debates. To that end—as I noted earlier—I have been talking with a 

number of members of the Senate and the House as well as various groups 

concerned about this issue concerning a number of steps that might help.

I’ve attached a summary of some of these ideas to this statement. Let me 

highlight several critical elements here. 

• The President’s budget proposal should again cover 10 years. This is 

especially important given that some policies—both spending and tax—

cost significantly more (or lose significantly more revenue) in the second 5 

years than in the first. In addition, the budget should disclose the impact of 

major tax or spending proposals on the short, medium and long term. 

• The executive branch should also provide information on fiscal 

exposures—both spending programs and tax expenditures—that is, the 

long-term budget costs represented by currently individual programs, 

policies or activities as well as the total. 

• The budget process needs to pay more attention to the long-term 

implication of the choices being debated. For example, elected 

representatives should be provided with more explicit information on the 

long-term costs of any major tax or spending proposal before it is voted 

upon. It is sobering to recall that during the debate over adding 

prescription drug coverage to Medicare, a great deal of attention was paid 

to whether the 10-year cost was over or under $400 billion. Not widely 

publicized—and certainly not surfaced in the debate—was that the present 

value of the long-term cost of this legislation was about $8 trillion! 

Of course, when you are in a hole, the first thing to do is stop digging. I 

have urged reinstitution of the statutory controls—both meaningful caps 

on discretionary spending and pay-as-you-go (PAYGO) on both the tax and 

spending sides of the ledger—that expired in 2002. Given the severity of 

our current challenge, Congress may wish to look beyond the return to 

PAYGO and discretionary caps. Mandatory spending cannot remain on 

autopilot. We have suggested that Congress might wish to design “triggers” 

Process and 

Presentational 

Changes to Increase 

Transparency and 

Focus on Long-term 

Consequences Can 

Help 
Page 12 GAO-07-342T 

for mandatory programs—some measure that would prompt action when

the spending path increased significantly. In addition, Congress may wish 

to look at rules to govern the use of “emergency supplementals.” However, 

as everyone in this committee knows, these steps alone will not solve the 

problem. That is why building in more consideration of the long-term 

impact of decisions is necessary. 

The government can help ease future fiscal burdens through spending 

reductions, revenue actions, or both that reduce debt held by the public 

and enhance the pool of economic resources available for private 

investment and long-term growth. Economic growth is essential, but we 

will not be able to simply grow our way out of the problem. The numbers 

speak loudly: our projected fiscal gap is simply too great. To “grow our 

way out” of the current long-term fiscal gap would require sustained 

economic growth far beyond that experienced in U.S. economic history 

since World War II. 

While the appropriate level of revenues will be part of the debate about

our fiscal future, making no changes to Social Security, Medicare, 

Medicaid, and other drivers of the long-term fiscal gap would require ever

increasing tax levels—and that seems both inappropriate and implausible. 

Accordingly, substantive reform of Social Security and our major health 

programs remains critical to recapturing our future fiscal flexibility. 

Similarly, given demographic and health care cost trends, the size of the 

spending cuts necessary to hold revenues at today’s share of GDP seems 

inadequate and implausible. Waiting only makes matters worse. GAO’s 

simulations show that if no action is taken, balancing the budget in 2040

could require actions as large as cutting total federal spending by 60

percent or raising federal taxes to 2 times today’s level. There are no “easy 

answers” and everything must be on the table. 

Although the long-term outlook is driven by Social Security and health 

care costs, this does not mean the rest of the budget can be exempt from 

scrutiny. Many tax expenditures operate like entitlement programs—but 

with even less scrutiny. Other programs and activities were designed for a 

very different time. To recapture our fiscal flexibility and bring our 

government and its programs in line with 21st

 century realities requires a 

fundamental reexamination of major spending and tax policies and 

Meeting the LongTerm Fiscal Challenge 

Requires Cooperation 

and Compromise—

and Action Should 

Not Be Delayed 
priorities.5

 Ultimately this reexamination will entail a national discussion 

about what Americans want from their government and how much they 

are willing to pay for those things. This discussion will not be easy, but it is 

critical. 

For many years those of us who talk about the need to put Social Security 

on a sustainable course and to reform Medicare have talked about the 

benefits of early action. Acting sooner rather than later can turn 

compound interest from an enemy to an ally. Acting sooner rather than 

later permits changes to be phased in more gradually and gives those 

affected time to adjust to the changes. Delay does not avoid action—it just 

makes the steps that have to be taken more dramatic and potentially 

harder. Unfortunately, there has already been too much delay. And now 

the future is upon us. 

Next year members of the baby boom generation start to leave the labor 

force. Reflecting this demographic shift, CBO projects the average annual 

growth rate of real GDP will decline from 3.1 percent in 2008 to 2.6 percent 

in the period 2012-2016. This slowing of economic growth will come just as 

spending on Social Security, Medicare and Medicaid will begin to 

accelerate—accounting for 56 percent of all federal spending by 2016 

compared to 43 percent in 2006. 

As I noted earlier, today Social Security’s cash surplus helps offset the 

deficit in the rest of the budget, but growth in Social Security spending is 

expected to increase from an estimated 4.8 percent in 2008 to 6.5 percent 

in 2016. The result, as shown in figure 8, is that the Social Security 

surpluses begin a permanent decline in 2009. At that time the rest of the 

budget will begin to feel the squeeze since the capacity of Social Security 

surpluses to offset deficits in the rest of the budget will begin to shrink. In 

2017 Social Security will no longer run a cash surplus and will begin 

adding to the deficit. That year Social Security will need to redeem the 

special securities it holds in order to pay benefits. Treasury will honor 

those claims—the United States has never defaulted. But there is no free 

money. The funds to redeem those securities will have to come from 

higher taxes, lower spending on other programs, higher borrowing from 

the public, or a combination of all three. 

 5

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

GAO-05-325SP (Washington, D.C.: February 2005) and Suggested Areas for Oversight for 

the 110th Congress, GAO-07-235R (Washington, D.C.: Nov. 17, 2006).

Page 13 GAO-07-342T 
Page 14 GAO-07-342T 

Figure 8: Projected Cash Surpluses and Deficits in the Combined Social Security 

Trust Fund 

Source: GAO analysis of data from the Office of the Chief Actuary, Social Security Administration. 

Note: Projections based on the intermediate assumptions of the 2006 Trustees’ Reports. The 

consumer price index is used to adjust from current to constant dollars. 

It is a hopeful sign that we are here today. By beginning the year not with

a discussion of the current year’s budget but with a focus on the long term, 

this committee is showing the kind of leadership needed to tackle this 

challenge. 

I have long believed that the American people can accept difficult 

decisions as long as they understand why such choices are necessary. 

They need to be given the facts about the fiscal outlook: what it is, what 

drives it, and what it will take to address it. As most of you know, I have 

been investing a good deal of time in the Fiscal Wake-Up Tour (FWUT) led 

by the Concord Coalition. Scholars from both the Brookings Institution 

and the Heritage Foundation join with me and Concord in laying out the 

facts and discussing the possible ways forward. In our experience, having

these people with quite different policy views agree on the nature, scale 

and importance of the issue—and on the need to sit down and work 

together—resonates with the audiences. Although the major participants 

have been Concord, GAO, Brookings and Heritage, others include such 

organizations as the Committee for Economic Development (CED); the 

American Institute of Certified Public Accountants (AICPA); the 

Association of Government Accountants (AGA); the National Association 

Concluding Remarks 

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2005 2010 2015 2020 2025 2030 2035 2040

Calendar year

Cash deficits begin

2017

Billions of 2006 dollars
of State Auditors, Comptrollers and Treasurers (NASACT); and AARP. The 

FWUT also has received the active support and involvement of community 

leaders, local colleges and universities, the media, the business community 

and both former and current elected officials. We have been to 17 cities todate. The discussion has been broadcast on public television stations in 

Atlanta and Philadelphia. Just this morning I returned from an event at the 

John Glenn School of Public Affairs at Ohio State University in Columbus, 

Ohio, in which OMB Director Portman and former Senator Glenn 

participated. 

The specific policy choices made to address this fiscal challenge are the 

purview of elected officials. The policy debate will reflect differing views 

of the role of government and differing priorities for our country. What the 

FWUT can do—and what I will continue to do—is lay out the facts, 

debunk various myths and prepare the way for tough choices by elected 

officials. If the American people understand that there is no magic bullet—

if they understand that 

• we cannot grow our way out this problem; 

• eliminating earmarks will not solve the problem; 

• wiping out fraud, waste and abuse will not solve the problem; 

• ending the war or cutting way back on defense will not solve the problem; 

and 

• letting the recent tax cuts expire will not solve this problem. 

Then they can engage with you in a discussion about what government 

should do and how. 

This is a great nation. We have faced many challenges in the past and we 

have met them. It is a mistake to underestimate the commitment of the 

American people to their children and grandchildren; to underestimate 

their willingness and ability to hear the truth and support the decisions 

necessary to deal with this challenge. We owe it to our country, children 

and grandchildren to address our fiscal and other key sustainability 

challenges. The time for action is now. 

Mr. Chairman, Senator Gregg, members of the Committee, let me repeat 

my appreciation for your commitment and concern in this matter. We at 

GAO stand ready to assist you in this important endeavor. 

Page 15 GAO-07-342T 
Page 16 GAO-07-342T 

For further information on this testimony, please contact Susan J. Irving at 

(202) 512-9142 or irvings@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this testimony. Individuals making key contributions to this testimony 

include Jay McTigue, Assistant Director, and Melissa Wolf. 

Contacts and 

Acknowledgments 
Page 17 GAO-07-342T 

• Produce an annual Statement of Fiscal Exposures, including a concise list 

and description of exposures, cost estimates where possible, and an 

assessment of methodologies and data used to produce such cost 

estimates. 

• Increase the transparency of tax expenditures by including them in the 

annual Fiscal Exposures Statement and, where possible, also showing 

them along with spending and credit programs in the same policy area. 

• Provide information on the impact of major tax or spending proposals on 

short-term, midterm, and long-term fiscal exposures and on the path of 

surplus/deficit and debt as percent of gross domestic product (GDP) over 

10-year and longer-term horizons (and assuming no sunset if sunset is part 

of the proposal). 

• Cover 10 years in the budget. 

• Consider requiring the President to include in his annual budget 

submission a long-term fiscal goal (e.g., balance, surplus, or deficit as 

percent of GDP). 

• Prepare and publish a Summary Annual Report or Citizen’s Summary that 

summarizes, in a clear, concise, plain English, and transparent manner, 

key financial and performance information included in the Consolidated 

Financial Report. 

• Prepare and publish a report on long-range fiscal sustainability every 2 to 4 

years. 

• Require improved disclosure—at the time proposals are debated but 

before they are adopted—of the long-term costs of individual mandatory 

spending and tax proposals over a certain size and for which costs will 

ramp up over time. 

An annual report or reports by GAO including comments on the 

Consolidated Financial Statement (CFS), results of the latest long-term 

fiscal simulations, comments on the adequacy of information regarding 

long-term cost implications of existing and proposed policies in the 

previous year as well as any other significant financial and fiscal issues. 

Appendix I: Ideas for Improving the 

Transparency of Long-term Costs and the 

Attention Paid to These Costs before 

Decisions Are Made 

Supplemental Reporting 

in the President’s Annual 

Budget Submission 

Additional Executive 

Branch Reports 

Additional Cost 

Information on Proposals 

before Adoption 

GAO Reports 
Page 18 GAO-07-342T 

• Use accrual budgeting for the following areas where cash basis obligations

do not adequately represent the government’s commitment: 

• employee pension programs (pre-Federal Employee Retirement System 

employees), 

• retiree health programs, and 

• federal insurance programs, such as the Pension Benefit Guaranty 

Corporation and crop insurance. 

• Explore techniques for expanding accrual budgeting to 

• environmental cleanup and 

• social insurance—could consider deferring recognition of social 

insurance receipts until they are used to make payments in the future 

(this was suggested in GAO’s accrual budgeting report as an idea to 

explore, possibly with a commission designed to explore budget 

concepts). 

Other Areas in Which 

GAO Has Suggested That 

Congress Might Consider 

Changing the Budget 

Treatment 

(450562) 
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