But this decline  in the unified deficit is not an indicator that our challenge has eased. The retirement  of the baby boom generation and the rising health care costs will soon  place unprecedented and long-lasting stress on the federal budget, raising  debt held by the public to unsustainable levels. Figure 1 shows GAO’s simulation of the deficit path based on recent trends  and policy preferences. Rapidly rising health care costs are not simply a federal budget problem;  they are our nation’s number one fiscal challenge. As is true for the federal budget,  growth in health-related spending—Medicaid and health insurance for  state and local employees and retirees—is the primary driver of the fiscal  challenges facing the state and local governments. Our Long-Term Fiscal Outlook Is Driven by Health Care

Although Social Security is a major part of the fiscal challenge, it is far  from our biggest challenge. Health care spending  systemwide continues to grow at an unsustainable pace, eroding the  ability of employers to provide coverage to their workers and undercutting  their ability to compete internationally. Addressing the unsustainability of health care costs is a major  competitiveness and societal challenge that calls for us as a nation to  fundamentally rethink how we define, deliver, and finance health care in  both the public and the private sectors. The Window of Opportunity Is Narrowing

As we enter 2008, what we call the long-term fiscal challenge is not in the  distant future. In fact, the first baby boomers already have filed for early  retirement benefits and will be eligible for Medicare benefits in less than 3  years. The longer we wait, the more  painful and difficult the choices will become. Simply put, our nation is on  an imprudent and unsustainable long-term fiscal path that is getting worse  with the passage of time. As you are aware, during the past 3 years, I have traveled to 25 states as  part of the Fiscal Wake-Up Tour. The passage of time is shrinking the window for  action. It provides 13  potential tools for Congress and the administration to use to begin to  confront our long-term fiscal and other challenges. We have an obligation, however, to look at both the short term  and the long term. This long-term challenge  increases the importance of careful design of any stimulus package—it  should be timely, targeted, and temporary.
Why GAO Did This Study

GAO has for many years warned that our nation is on an imprudent and unsustainable fiscal path. During the past 3 years, the Comptroller General has traveled to 25 states as part of the Fiscal Wake-Up Tour. Members of this diverse group of policy experts agree that finding solutions to the nation's long-term fiscal challenge will require bipartisan cooperation, a willingness to discuss all options, and the courage to make tough choices. At the request of Chairman Conrad and Senator Gregg, the Comptroller General discussed the long-term fiscal outlook, our nation's huge health care challenge, and the shrinking window of opportunity for action.

What GAO Found

As we enter 2008, what we call the long-term fiscal challenge is not in the distant future. Already the first members of the baby boom generation have filed for early Social Security retirement benefits--and will be eligible for Medicare in only 3 years. Simulations by GAO, the Congressional Budget Office (CBO), and others all show that despite a 3-year decline in the budget deficit, we still face large and growing structural deficits driven primarily by rising health care costs and known demographic trends. Under any plausible scenario, the federal budget is on an imprudent and unsustainable path. Rapidly rising health care costs are not simply a federal budget problem; they are our nation's number one fiscal challenge. Growth in health-related spending is the primary driver of the fiscal challenges facing the state and local governments. Unsustainable growth in health care spending is a systemwide challenge that also threatens to erode the ability of employers to provide coverage to their workers and undercut our ability to compete in a global marketplace. Addressing the unsustainability of health care costs is a societal challenge that calls for us as a nation to fundamentally rethink how we define, deliver, and finance health care in both the public and the private sectors. The passage of time has only worsened the situation: the size of the challenge has grown and the time to address it has shrunk. The longer we wait the more painful and difficult the choices will become, and the greater the risk of a very serious economic disruption. It is understandable that the Congress and the administration are focused on the need for a short-term fiscal stimulus. However, our long-term challenge increases the importance of careful design of any stimulus package--it should be timely, targeted, and temporary. At the same time, creating a capable and credible commission to make recommendations to the next Congress and the next president for action on our longer-range and looming fiscal imbalance is called for.