Our Federal Disaster

U.S. Comptroller General David Walker, who runs the General Accountability Office (GAO) of the federal government, has been headlining what he calls the “Wake Up America Tour.” He’s crisscrossing the country, going to Rotary Clubs, Lions Clubs, Chambers of Commerce, Republican and Democratic gatherings -- anywhere he’s invited. Walker has a sobering message about federal spending and he gives it with an impressive array of charts and graphs.

 

GAO’s mission is to help improve the performance and assure the accountability of the federal government for the benefit of the American people. GAO has earned a reputation for professional, objective, fact-based, nonpartisan, non-ideological, fair and balanced reviews of government programs and operations.

 

The GAO April 2007 report “The Nations Long Term Fiscal Outlook” had the headline “The Bottom Line: Federal Fiscal Policy Remains Unsustainable.”  I have included excerpts from this report without comment.  After all, what can one say when the facts speak for themselves. You can get the full report here www.gao.gov/new.items/d07983r.pdf

As in previous updates, GAO’s current long-term simulations show ever-larger deficits resulting in a federal debt burden that ultimately spirals out of control.

 

By definition, what is unsustainable will not be sustained. The question is how and when our current imprudent and unsustainable path will end. At some point, action will be taken to change the Nation’s fiscal course. The longer action to deal with the Nation’s long-term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing.

 

What Drives Our Nation’s Bleak Long-Term Fiscal Outlook?

The long-term fiscal outlook results from a large and persistent gap between expected revenues and expected spending.

 

The spending that drives the outlook is primarily spending on the large federal entitlement programs (i.e., Medicare, Medicaid, Social Security). The retirement of the baby boom generation is one key element of this. In 2008 the first boomers will be eligible to draw Social Security early retirement benefits, and in 2011 the first boomers will become eligible for Medicare. In the succeeding 2 decades America’s population will age dramatically, and relatively fewer workers will be asked to support ever larger costs for retirees.

 

Although Social Security is a major part of the fiscal challenge, it is far from our biggest challenge. Spending on the major federal health programs (i.e., Medicare and Medicaid) represents a much larger and faster growing problem. In fact, the federal government’s obligations for Medicare Part D alone exceed the unfunded obligations for Social Security. 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. For this reason and others, rising health care costs pose a fiscal challenge not just to the federal budget but to American business and our society as a whole.

Revenues and Composition of Spending

 

 

Notes: In addition to the expiration of tax cuts, revenue as a share of GDP increases through 2017 due to (1) real bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) increased revenue from tax-deferred retirement accounts. After 2017, revenue as a share of GDP is held constant.

 

In these figures the category “all other spending” includes much of what many think of as “government”—discretionary spending on such activities as national defense, homeland security, veterans health benefits, our national parks, highways and mass transit, foreign aid, plus mandatory spending on the smaller entitlement programs such as Supplemental Security Income, Temporary Assistance for Needy Families (TANF), and farm price supports.² The growth in Social Security, Medicare, Medicaid, and interest on debt held by the public dwarfs the growth in all other types of spending.

The Fiscal Gap—Another Way to Measure the Challenge

 

Many ways exist to measure the long-term fiscal challenge. One quantitative measure is called “the fiscal gap.” The fiscal gap is the amount of spending reduction or tax increases needed to keep debt as a share of gross domestic product (GDP) at or below today’s ratio.

 

To close the fiscal gap …… would require revenue increases or programmatic spending cuts (i.e., in all discretionary spending and spending on federal entitlement programs) equal to about 20 percent each and every year over the next 75 years. …..Delaying action would make things worse.

 

This gap is too large for us to grow our way out of the problem. It would require decades of double-digit real economic growth, but the U.S. has not had a single year of double-digit real economic growth since World War II. To be sure, additional economic growth would certainly help the Nation’s financial condition and our ability to address our fiscal gap, but it will not eliminate the need for action.

 

 

 

From a separate GAO report “Fiscal Stewardship: A Critical Challenge Facing Our Nation” dated January 2007.  This report can be found here http://www.gao.gov/new.items/d07362sp.pdf

The federal government faces large and growing structural deficits in the future due primarily to known demographic trends and rising health care costs. These structural deficits—which are virtually certain given the design of our current programs and policies—will mean escalating and ultimately unsustainable federal deficits and debt levels. Based on various measures—and using reasonable assumptions—the federal government’s current fiscal policy is unsustainable. Continuing on this imprudent and unsustainable path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our domestic tranquility and national security.

 

At some point, action will need to be taken to change the nation’s fiscal course. The sooner appropriate actions are taken, the sooner the miracle of compounding will begin to work for the federal budget rather than against it. Conversely, the longer that action to deal with the nation’s long-term fiscal outlook is delayed, the greater the risk that the eventual changes will be disruptive and destabilizing. Acting sooner rather than later will give us more time to phase in gradual changes, while also providing more time for those likely to be most affected to make compensatory changes.

 

Although the long-term fiscal outlook is driven by rising health care costs and known demographics, we cannot ignore other government programs and activities. There is a need to engage in a fundamental review, reprioritization, and reengineering of the base of government. Aligning the federal government to meet the challenges and capitalize on the opportunities of the 21st century will require a fundamental review of what the federal government does, how it does it, and how it is financed. Many of the federal government’s current policies, programs, functions, and activities are based on conditions that existed decades ago, are not results-based, and are not well aligned with 21st century realities.

 

In order to effectively address our long-term fiscal imbalance, fundamental reform of existing entitlement programs is essential. However, entitlement reform alone will not get the job done.

 

We also need to reprioritize and constrain other federal government spending and generate more revenues—hopefully through a reformed tax system.

America, Wake Up!

By Charlie Jarvis, President USA Next:

Because we live in a Constitutional Republic, our level of responsibility for existing cultural, economic and political conditions is extraordinarily high. Too often, though, we excuse ourselves, claiming we are helpless victims. Unlike those living under authoritarian regimes that limit voting or suppress opposition, we have freedom to make changes. Yet, many citizens are completely submissive, salving their consciences with drivel such as, “What can one person do?” We need to wake up, prayerfully stand up, and get organized for change. In history the organized and passionately informed Few often have inordinate authority to make changes. It was one British parliamentarian, William Wilberforce, who year after year, decade after decade put defeat behind him, persevered and organized against the slave trade in the British Empire. It took decades of persistence. Conversely, the wrong Few can create immense evil.

The first thing to do is wake up and realize that you and I and all Americans are RESPONSIBLE for this mess and for the massive growth of government. We rail against welfare queens, but don’t see that government is in the business of wastefully redistributing hard earned money to myriad companies, individuals, corporations, “interest groups,” “research groups” and on and on. The federal budget is really a mammoth rat’s nest with waste, fraud and abuse intertwined into every single program.