GAO-08-465CG

Tallahassee Community 

Tallahassee, Florid

January 14, 2008

The Honorable David M. 

Comptroller General of the U
GAO-08-465CG 

Composition of Federal S

20%

10%

14%

29% 28%

1%

7% 15%

34% 43%

1966 1986 

Defense Social Security

Net interest

All other spending

Sources: Office of Management and Budget and the Department of the Treasury.Note: Numbers may not add to 100 percent due to rounding.
GAO-08-465CG 

Federal Spending for Ma

and Discretionary Pro

14%

44%

42%

26%

67%

7%

1966 1986 

Net Interest Discretionary 

Source: Office of Management and Budget.
GAO-08-465CG 

Fiscal Year 2006 and 

Deficits and Net Operatin

Fiscal Year 2006 Fi

($ Billion

On-Budget Deficit (434) Unified Deficita (248) Net Operating Cost (450) 

Sources: Office of Management and Budget and Department of the Treasury.aIncludes $185 billion in Social Security surpluses for fiscal year 2006 and $186 billion fo

Postal Service surpluses for fiscal year 2006 and a $5 billion deficit for fiscal year 2007.
GAO-08-465CG 

Major Fiscal Exposu

($ trillions)

2000 

• Explicit liabilities $6.9

• Publicly held debt• Military & civilian pensions & retiree 

health

• Other

0.5

13.0

3.82.76.5

--

$20.4

• Commitments & contingencies

• E.g., PBGC, undelivered orders

• Implicit exposures

• Future Social Security benefits• Future Medicare Part A benefits• Future Medicare Part B benefits• Future Medicare Part D benefits

Total

Source: 2000 and 2007 Financial Report of the United States Government.Note: Totals and percent increases may not add due to rounding. Estimates for Social present value as of January 1 of each year and all other data are as of September 30. 
GAO-08-465CG 

How Big is Our

Growing Fiscal Burde

This fiscal burden can be translated and compare

Total –major fiscal exposures 

Burden/Net worth ratio 

Income

Median household income3 

Burden2

Per household 

Total household net worth1 

Per person Per full-time worker Disposable personal income per capita4 

Source: GAO analysis.Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100, 2007:Q3 (December 6, 2007); total U.S. population as of 10/1/2007, from the U.S. Census Bureau; full-time workers reported by the Bure

6.5D (Aug. 1, 2007); and households reported by the U.S. Census Bureau, in Income, Poverty, and Health 

2006 (Aug. 2007); (3) U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the Unite

of Economic Analysis, Personal Income and Outlays, table 2, (Nov. 29, 2007). 
GAO-08-465CG 

Potential Fiscal Outco

Under Baseline Extended (January 

Revenues and Composition of Spending as 

0

1020304050

2005 2015 2030 

Fiscal year

Net interest Social Security Medicare & Medicaid 

Revenue

Percent of GDP

a a 

Source: GAO’s January 2001 analysis.aAll other spending is net of offsetting interest receipts.
GAO-08-465CG 

Potential Fiscal Outco

Under Alternative Simulation

Revenues and Composition of Spending as 

0

1020304050

2006 2015 2030 

Fiscal year

Net interest Social Security Medicare & Medicaid 

Revenue

Source: GAO’s August 2007 analysis.Notes: AMT exemption amount is retained at the 2006 level through 2017 and expiring tax prorevenue as a share of GDP returns to its historical level of18.3 percent of GDP plus expected taxes on withdrawals from retirement accounts. Medicare spending is based on the Trustees A

Centers for Medicare and Medicaid Services alternative assumption that physician payments acurrent law.

Percent of GDP
GAO-08-465CG 

State and Local Governme

Increasing Fiscal Challe

-6-4-2

02

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 

Percent of GDP

Operating Surplus/Deficit 

Sources: Historical data from National Income and Product Accounts. Historical data frprojections from 2007– 2050 using many CBO projections and assumptions, particular

Net-lending/Net-Borrowing
GAO-08-465CG 

State and Local Fiscal Cha

Add to the Federal Govern

Fiscal Challenge

-20-15-10

-5

05

2000 2005 2010 2015 2020 2025 2030 2035 

Fiscal year

Fed

Surplu

Combined 

Surplus/Deficit

Percent of GDP

Source: Historical data from National Income and Product Accounts, GAO Analysis.Note: Historical data from 2000 – 2006, projections from 2007 – 2050; state and local balance munified budget measure. Federal Simulation Assumptions: Discretionary spending grows with GDamount is retained at the 2006 level through 2017 and expiring tax provisions are extended. AfteGDP returns to its historical level of 18.3 percent of GDP plus expected revenues from deferred from retirement accounts. Medicare spending is based on the Trustees’ April 2007 projections aMedicare and Medicaid Services’ alternative assumption that physician payments are not reduce
GAO-08-465CG 

Current Fiscal Policy Is Uns

• The “Status Quo” is Not an Option

• We face large and growing structural deficits larg

demographic trends and rising health care costs

• GAO’s simulations show that balancing the budg

require actions as large as 

• Cutting total federal spending by 60 percent or• Raising federal taxes to 2 times today's level

• Faster Economic Growth Can Help, bu

Solve the Problem

• Closing the current long-term fiscal gap based o

assumptions would require real average annual the double digit range every year for the next 75 

• During the 1990s, the economy grew at an avera

year 

• As a result, we cannot simply grow our way out o

Tough choices will be required
GAO-08-465CG 

The Way Forward

A Three-Pronged Appr

1. Improve Financial Reporting, Public 

and Performance Metrics

2. Strengthen Budget and Legislative 

Controls

3. Fundamentally Reexamine & Transf

21st Century (i.e., entitlement progra

spending, and tax policy)

Solutions Require Active Involvem

both the Executive and Legislative 
GAO-08-465CG 

Key National Indica

• WHAT: A portfolio of economic, social, and environ

based measures that could be used to help assess other governmental jurisdictions’ position and progr

• WHO: Many countries and several states, regions, 

already undertaken related initiatives (e.g., AustraliaCanada, United Kingdom, Oregon, Silicon Valley (CBoston)

• WHY: Development of such a portfolio of indicators 

number of possible benefits, including

• Serving as a framework for related strategic planning effort• Enhancing performance and accountability reporting• Informing public policy decisions, including much needed b

government policies, programs, functions, and activities

• Facilitating public education and debate as well as an inform

• WAY FORWARD: Consortium of key players housed b

Academies domestically and related efforts by the OECinternationally
GAO-08-465CG 

Key National Indicat

Where the United States R

The United States may be the only superpcompared to most other OECD countries oeconomic, social, and environmental indicaverage, the U.S. ranks

OECD Categories for Key Indicators

(2006 OECD Factbook)

• Population/Migration • Energy • Environmen

• Labor Market • Education

• Public 

Finance

• Science & 

Tech.

• Macroeconomic 

Trends

• Prices

16 OUT OF 2

16 OUT OF 2

Source: 2006 OECD Factbook.
GAO-08-465CG 

Moving the Debate For

• The Sooner We Get Started, the 

• The miracle of compounding is currently wo• Less change would be needed, and there w

time to make adjustments 

• Our demographic changes will serve to mak

difficult over time

• Need Public Education, Discus

Debate

• The role of government in the 21st Century

• Which programs and policies should be cha• How government should be financed
GAO-08-465CG 

These Challenges Go B

Numbers and Dolla

It’s About

Source: GAO.

GAO-08-000CG 
GAO-08-465CG

Tallahassee Community 

Tallahassee, Florid

January 14, 2008

The Honorable David M. 

Comptroller General of the U
GAO-08-465CG 

On the Web

Web site: www.gao.gov/cghome.htm

Contact

Chuck Young, Managing Director, Public AffairsYoungC1@gao.gov (202) 512-4800 

U.S. Government Accountability Office441 G Street NW, Room 7149Washington, D.C. 20548

Copyright

This is a work of the U.S. government and is no

copyright protection in the United States. The pproduct may be reproduced and distributed in itwithout further permission from GAO. However, work may contain copyrighted images or other mpermission from the copyright holder may be newish to reproduce this material separately.