In 2005 the  unified federal budget deficit was around $318 billion or 2.6 percent of  gross domestic product (GDP). National saving is the  sum of personal saving, corporate saving, and government saving. Last  year, for the first time since 1934, net national saving declined to less than  1 percent of GDP and the personal saving rate was slightly negative (see  fig. The  current account deficit is the difference between domestic investment and  national saving. Over most of the last 25 years, the United  States has run a current account deficit, but in 2005 the current account  deficit hit an all-time record—$782 billion, or over 6 percent of GDP (see  fig.4). Economic growth in recent years has been high despite the fact that  national saving was low by U.S. historical standards. This is because more  and better investments were made. However, we cannot let our recent good fortune lull us into complacency. If the net  inflow of foreign investment were to diminish, so too would domestic  investment and potentially economic growth if that saving is not offset by  saving here in the U.S. Also, our nation faces daunting fiscal and  demographic challenges, which may be even more of a reason to address  our nation’s low saving rates. Nation Faces Long-term Fiscal Challenges

Given our nation’s long-term fiscal outlook, acting sooner rather than later  to increase national saving is imperative. Greater economic growth from saving more now would make it easier for  future workers to achieve a rising standard of living for themselves while  also paying for the government’s commitments to the elderly. While  economic growth will help society bear the burden of financing Social  Security and Medicare, it alone will not solve the long-term fiscal  challenge. Tough choices are inevitable, and the sooner we act  the better. Acting  sooner rather than later could allow the miracle of compounding to turn  from enemy to ally.
Why GAO Did This Study

The Chairman of the Senate Committee on Finance asked GAO to testify on our nation's low saving and discuss the implications for long-term economic growth. National saving--the portion of a nation's current income not consumed--is the sum of saving by households, businesses, and all levels of government. National saving represents resources available for investment to replace old factories and equipment and to buy more and better capital goods. Higher saving and investment in a nation's capital stock contribute to increased productivity and stronger economic growth over the long term.

What GAO Found

Our nation faces a number of deficits, including our nation's budget deficit, a saving deficit, and a current account deficit. Unfortunately, America has been heading in the wrong direction on all three deficits in recent years. In 2005 our nation's budget deficit was around $318 billion or 2.6 percent of GDP. For the first time since 1934, net national saving declined to less than 1 percent of GDP and the personal saving rate was slightly negative in 2005. While the United States has run a current account deficit--or borrowed to finance domestic investment--over most of the last 25 years, the current account deficit hit an all time record--$782 billion, or over 6 percent of GDP in 2005. Despite low national saving in recent years, economic growth has been high. However, we cannot let our recent good fortune lull us into complacency. If the net inflow of foreign investment were to diminish, so too would domestic investment and potentially economic growth if that saving is not offset by saving here in the U.S. Also, our nation faces daunting fiscal and demographic challenges, which provide even more of a reason to address our nation's low saving rates. Greater economic growth from saving more now would make it easier for future workers to bear the burden of financing Social Security and Medicare, but economic growth alone will not solve the long-term fiscal challenge. Tough choices are inevitable, and the sooner we act the better in order to allow the miracle of compounding to turn from enemy to ally.