Long-Term Fiscal Challenge: Comments on the Bipartisan Task Force for Responsible Fiscal Action Act
Released: 2007-10-31T00:00:00

Letter

The Nation’s Long- Term Fiscal Challenge

Long-term fiscal simulations by GAO, Congressional Budget Office (CBO), and others all show that despite a 3-year decline in the federal government’s unified budget deficit, we still face large and growing structural deficits driven primarily by rising health care costs and known demographic trends. In fact, our long-range challenge has grown in the past three years and the projected tsunami of entitlement spending is closer to hitting our shores. The long-term fiscal challenge is largely a health care challenge. Although Social Security is important because of its size, the real driver is health care spending. It is both large and projected to grow more rapidly in the future.

GAO’s current long-term simulations show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control. Figure 1 shows two alternative fiscal paths. The first is “Baseline extended,” which extends the CBO’s August baseline estimates beyond the 10-year projection period, and the second is an alternative based on recent trends and policy preferences. Our “Alternative simulation” assumes action to return to and remain at historical levels of revenue and reflects somewhat higher discretionary spending than in Baseline extended and more realistic Medicare estimates for physician payments than does the Baseline extended scenario. Although the timing of deficits and the resulting debt build up varies depending on the assumptions used, both simulations show that we are on an imprudent and unsustainable fiscal path.

The bottom line is that the nation’s longer-term fiscal outlook is daunting under any realistic policy scenario or set of assumptions. Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Our current path also increasingly will constrain our ability to address emerging and unexpected budgetary needs and they serve to increase the burdens that will be faced by future generations.

Although 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 responsibilities, programs, and activities that may either obligate the government to future spending or create an expectation for such spending. In fact, last year the U.S. government’s major reported liabilities, social insurance commitments, and other fiscal exposures continued 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. (See fig. 2.) Absent meaningful reforms, these amounts will continue to grow every second of every minute of every day due to continuing deficits, known demographic trends, and compounding interest costs.

GAO, Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003). leadership. In addition to the proposal that both of you are offering, I’m pleased to say that several other members on both sides of the political aisle and on both ends of Capitol Hill are also taking steps to answer the call for fiscal prudence by proposing bills to accomplish similar objectives.

The Bipartisan Task Force

I was pleased to join you when you announced this proposal. As I said at the time, I believe it offers one potential means to achieve an objective we all should share: taking steps to make the tough choices necessary to keep America great and to help make sure that our country’s, children’s and grandchildren’s future is better than our past. Senators Conrad and Gregg, thank you for your leadership.

I was especially pleased to see that the task force that would be created by your legislation was informed by GAO’s work on the key elements necessary for any task force or commission to be successful. Last year we looked at several policy-oriented commissions. (See app. I for a summary table on that work.) Our analysis suggests that there are a number of factors that can increase the likelihood a commission will be successful. Examples of those factors—and elements your proposal encompasses— are a broad charter—don’t artificially limit what can be discussed and don’t set policy preconditions (like “must support individual accounts”) for membership, involvement of leaders from both the executive and legislative branches—including elected officials, a report with specific proposals and a requirement for supermajority vote to make recommendations to the President and the Congress, and a process to require consideration of the proposals.

A few of these points deserve elaboration. Having a broad charter and no preconditions is very important. This means that “everything is on the table”—and that is critical in order for the effort to be credible and have any real chance of success. But let me be clear what we mean by “everything is on the table”—it means that everything is open for discussion and debate. It does not mean advance agreement to a specific level of revenues or benefit changes. The only precondition should be the end goal: to put the nation’s fiscal outlook back on a prudent and sustainable path for the future.

I believe that having true bipartisanship and active involvement by both the executive and the legislative branches is important. If any proposal is seen as partisan or the product of only one branch, it is unlikely to fly with the American people. Candidly, based on my interactions with thousands of Americans from across the nation during the past two years, there is little confidence in the ability of elected officials to rise above partisan battles and ideological divides. As a result, I believe that any related commission or task force should also involve knowledgeable professionals from selected nonpartisan institutions who have significant expertise and experience.

Finally, the task force or commission will need to move beyond diagnosis to prescription. We know the path must be changed. What we need now are credible and specific legislative proposals that will accomplish that. Furthermore, these should come from a supermajority of the task force or commission members with a mechanism to assure a vote on a majority basis by the Congress.

At your request, we are looking at how other countries have reformed their entitlement programs—not the substance of their reforms but rather the process that led up to the reform. As countries have sought to reform entitlements such as pensions and disability, they have often used commissions as a means to develop reform proposals that became the basis for legislation. For example, the 2003 Rurup Commission in Germany, composed of experts, public officials, and others, made recommendations for reform of public pensions that were enacted in 2004 and 2007. In the Netherlands, the 2000 Donner Commission composed of respected public figures representing the major political parties developed recommendations that became the basis for major disability reform legislation enacted in 2005. In the early 1990s, a working group of parliamentary members in Sweden developed the concept of a major structural reform of their public pension system that was worked out in detail in succeeding years and enacted in 1998. In addition to these types of commissions, several countries also have permanent advisory bodies tasked with periodically informing the government on pension policy challenges and reform options.

Our related work is not yet complete, but some of what we have found to date would not surprise you. These special groups—whether commissions or task forces—can and do fill multiple roles including public education, coalition building, “setting the table” for action, and providing a means for and cover to act. Leadership is key and public education is also important.

You asked that we comment on some particulars—and on areas where we think further refinements would increase the chances of success. Let me now turn to three areas: timing and how to ensure involvement of the newly-elected President, congressional action: whether—and if so how—to permit amendments to or substitutes for the commission’s proposals, and the supermajority vote requirement, and the chairmanship of the commission.

Timing and Involving the Newly-Elected President

A great strength of your proposal is that it calls for the task force or commission to deliberate throughout 2008. As you know, members of the Fiscal Wake-Up Tour believe that fiscal responsibility and intergenerational equity must be a top priority for the new President. We all agree that finding solutions will require leadership, bipartisan cooperation, a willingness to discuss all options and courage to make tough choices. For example, those who argue that spending must come down from projected levels should explain which programs they would target and how the savings would be achieved. Those who argue for higher taxes should explain what level of taxation they are willing to support, the manner in which the new revenue would be raised and the mechanisms that will help to ensure that any additional revenues will be used in a manner that will help rather than hinder our effort to be fiscally responsible. Those who are unwilling to do either should explain how much debt they are willing to impose on future generations of Americans.

Indeed, we have suggested a number of key questions we believe it is reasonable to ask the candidates. These include the following: What specific spending cuts, if any, do you propose and how much of the problem would they solve?

What specific tax increases, if any, do you propose and how much of the problem would they solve?

What is your vision for the future of Social Security and what strategies would you pursue to bring it about?

What is your vision for the nation’s health care system, including the future of Medicare, and what strategies would you pursue to bring it about?

These questions and others should be addressed by all the (presidential) candidates so the public can assess whether he or she appreciates the magnitude of the problem, the consequences of doing nothing (or making the problem worse), and the realistic trade-offs needed to find real and sustainable solutions.

Although I believe the candidates should recognize the seriousness of this challenge, I also believe it is unrealistic to expect candidates to offer coherent, fully comprehensive proposals at this point in the campaign. In that sense the task force or a similar commission performs a great service: candidates could promise to take seriously any information or proposals and to engage in a constructive manner with the group after the election. They could agree that for the task force or commission to have a chance of succeeding “everything must be on the table” at least for discussion.

That said, it is important to find a way to involve whoever is elected as our new President. After all, it will be the person elected approximately 53 weeks from now who must use the “bully pulpit” and put their energy and prestige behind the effort to help ensure success. Although I think having a deadline is important, I believe that a December 9, 2008, deadline for the commission’s report does not offer enough time for the kind of input and involvement that will be necessary. Some way must be found to gain the active involvement and buy-in of the incoming President. In any event, it seems likely that the December 2008 deadline would need to be replaced—perhaps with a January or February 2009 date.

Congressional Action on the Proposal

You also asked us to think about the current requirement for a “fast track” up-or-down vote in the House and Senate and the requirement for a supermajority in both houses.

As former Congressman and former Office of Management and Budget (OMB) Director Leon Panetta has said, in any effort to change our fiscal path “nothing will be agreed to until everything is agreed to.” This statement also offers a warning about the dangers of picking apart any package. Whatever process is developed for considering the task force’s recommendations should protect the proposal from being picked apart amendment by amendment. The task force is charged with developing— and agreeing to—a coherent proposal which, taken as a whole, will put us on a prudent and sustainable long-term fiscal path. Presumably, to reach agreement, the members will have made compromises—any proposal is going to have elements that represent concessions by the various members. In all likelihood those concessions will have been made in return for concessions by others. If individual elements can be eliminated by amendment, the likelihood that the package will achieve its goal will be reduced. The very process of coming up with a coherent proposal means that the package is likely to stand or fall as a whole. In that sense the prohibition on amendments makes some sense.

At the same time, I believe it would make sense to permit alternatives. I say alternatives not amendments because I believe it is important that any alternatives achieve the same change in fiscal path as the task force’s proposal. The SAFE bill proposed by Senator Voinovich and by Representatives Cooper and Wolf does permit alternatives—but it holds them to the same standards and criteria as the proposal from the commission. Permitting alternative packages to be offered and voted upon may increase the credibility and acceptance of the end result.

The Task Force bill requires both a supermajority to report out a proposal and a supermajority in both houses to adopt the proposal. The supermajority requirement within the task force (or commission) offers assurance that any proposal has bipartisan support. It offers stronger backing for a proposal that must reflect difficult choices. If a proposal comes to the Congress with a two-thirds or three-fourths vote of the task force, the necessity for a supermajority vote to enact the proposal in the Congress is less clear. It is even possible that this requirement could offer the opportunity for a minority to derail the process. Any package that makes meaningful changes to our fiscal path is going to contain elements that generate significant opposition. Therefore, although I think requiring a supermajority within the task force makes sense, requiring a supermajority vote for enactment of the task force or commission’s proposal by the Congress is inappropriate. In my view, such a requirement puts too many hurdles in the way of making tough choices and achieving necessary reforms.

Chairmanship and the Role of the Outgoing Administration

Finally, Chairman Conrad, Senator Gregg, let me raise a question about the role envisioned for the outgoing Administration. I believe you are correct to include executive branch officials. In this regard, I have the utmost respect for the current Secretary of the Treasury. I have met with him on several occasions and am well aware that he has made several statements about the need for action on our long-term fiscal challenge. At the same time, I believe that designating a cabinet official in an outgoing administration as the task force chairman presents some serious challenges and potential drawbacks.

Both the strength and the weakness of having the Secretary of the Treasury participate is that he will be seen as representing the outgoing President. While participation by the executive branch at the highest level will be important, having an outgoing Administration official serve as chairman may serve to hinder rather than help achieve acceptance and enactment of any findings and recommendations. Given the fiscal history of the first 7 years of this century and the experience with the Commission to Strengthen Social Security, I would question whether having the Treasury Secretary or any other current Administration official serve as chairman is the right way to go.

Common Ground and Commitment to Sustainability

Before concluding, I would like to say a few words about what I hope is a renewed push to find a vehicle for addressing this very important challenge. Senator Voinovich has proposed the SAFE Commission. Its membership is different than your Task Force proposal but it seeks the same goal—improving our fiscal path. As I noted, Congressmen Cooper and Wolf have joined to introduce companion bills in the House: both to the SAFE Commission and to the Conrad-Gregg Bipartisan Task Force. As a result, both the Senate and the House have before them bills that seek to create vehicles for executive-legislative bipartisan development of credible, specific, legislative proposals to put us back on a prudent and sustainable fiscal path in order to ensure that our future is better than our past. We owe it to our country, children, and grandchildren to do no less.

These are encouraging signs. I hope there is movement in this Congress. At the same time I think we must recognize that achieving and maintaining fiscal sustainability is not a one-time event. Even if a task force or commission is created and succeeds in developing a proposal and that proposal is enacted, it will be necessary to monitor our path. In that context I note that the proposal by Senators Feinstein and Domenici for a permanent commission would require periodic review and reporting of recommendations every 5 years to maintain the adequacy and long-term solvency of Social Security and Medicare. In our work looking at other countries we note that reform is an ongoing process and that no matter how comprehensive initial reforms, some adjustments are likely to be necessary. Something like the ongoing commission suggested by Senators Feinstein and Domenici may be a good companion and follow-on to the Task Force/Commissions envisioned by either the Bipartisan Task Force or the SAFE Commission bills. We will need to be flexible in our response to early challenges and success as we move forward.

Conclusions

Changing our fiscal path to a prudent and sustainable one is hard work and achieving reform requires a process with both integrity and credibility. In our work on other countries’ entitlement reform efforts, we see that reforms are sometimes the culmination of earlier efforts that may have seemed “unsuccessful” at the time. For example, a 1984 Swedish commission on pension reform did not reach consensus on a proposal but its work helped set the stage for a process that resulted in a major reform. Similarly, the recent reforms of public pensions in Germany and disability in the Netherlands built upon a long series of incremental reform changes. Each reform effort can move the process forward and each country must find its own way.

Today we can build on previous efforts in the United States. In this country we have been discussing Social Security reforms and developing reform options since the mid-1990s. We have had two major commissions on entitlement reform in the last decade—a Presidential commission on Social Security in 2001 and a Congressional commission on Medicare in 1998. There have also been discussion, studies and commissions on tax reform. As we said in our report on the December 2004 Comptroller General forum on our nation’s long-term fiscal challenge, leadership and the efforts of many people will be needed to change our fiscal path. The issues raised by the long-term fiscal challenge are issues of significance that affect every American. By making its proposal, this Committee has shown the kind of leadership that is essential for us to successfully address the long-term fiscal challenge that lies before us.

The United States is a great nation, possibly the greatest in history. 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 country, 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.

Appendix I: Selected Commissions Summary

Restricted; required revenue neutrality and keeping incentives for homeownership and charitable giving, and encouraging savings; required to consider equity and simplicity too 32 (22/10)

17 (9/8)

10 (0/10)

16 (0/16); Included 3 former Members of Congress 9 (0/9); Chair and Vice-Chair were former Senators; 1 former House Representative on panel; also included 4 professors and 2 “tax practitioners”

Yes, functionally; technically Breaux = Chair; Thomas = “Administrative Chair”

No; proposed recommendations failed to gain required 11 votes (Jan. 1995) (Dec. 2001) (July 2004) (Nov. 2005)

No; but recommended 5 broad principles for crafting “solutions to our fiscal problems” n.a.

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