	The Long-term Fiscal Challenge

The nation’s long-term fiscal outlook is daunting under any realistic policy  scenarios and assumptions. These simulations show that over the long term we face large and  growing structural deficits due primarily to known demographic trends  and rising health care costs. Continuing on this imprudent and unsustainable fiscal path  will gradually erode, if not suddenly damage, our economy, our standard  of living, and ultimately our national security. Our current path will also  increasingly constrain our ability to address emerging and unexpected  budgetary needs and increase the burdens that will be faced by our  children, grandchildren, and future generations of Americans. What Can Be Done? If citizens and government officials  come to better understand our nation’s various fiscal exposures and their  implications for the future, they are more likely to insist on prudent policy  choices today and sensible levels of fiscal risk in the future. Today you are focusing on budget process  improvements. While the process itself cannot solve  the problem, it is important. It can help policymakers make tough but  necessary choices today rather than defer them until tomorrow. Among the characteristics a budget process needs for  that to happen are  increased transparency and better incentives, signals, triggers and default  mechanisms to address the fiscal exposures/commitments the federal  government has already made and    better transparency for and controls over the long-term fiscal  exposures/commitments that the federal government is considering. I  endorse the restoration of realistic discretionary caps and PAYGO  discipline applied to both mandatory spending and revenue legislation. Concluding Observations

We cannot grow our way out of our long-term fiscal challenge. We have to  make tough choices and the sooner the better. A multi-pronged approach  is necessary: (1) revise existing budget processes and financial reporting  requirements, (2) restructure existing entitlement programs, (3) reexamine  the base of discretionary and other spending, and (4) review and revise tax  policy and enforcement programs. Everything must be on the table. Fundamentally, we need to undertake a top-to-bottom review of  government activities to ensure their relevance and fit for the 21st century  and their relative priority.
Why GAO Did This Study

The nation's long-term fiscal outlook is daunting. While the budget process has not caused the problems we face, the absence of meaningful budget controls and other mechanisms has served to compound our fiscal challenge. Conversely, a process that illuminates the looming fiscal pressures and provides appropriate incentives can at least help decision makers focus on the right questions. Meaningful budget controls and other mechanisms can also help to assure that difficult but necessary choices are made. The budget process needs to provide incentives and signals to address commitments the government has already made and better transparency for and controls on the long-term fiscal exposures being considered. Improvements would include the restoration of realistic discretionary caps; application of pay-as-you-go (PAYGO) discipline to both mandatory spending and revenue legislation; the use of "triggers" for some mandatory programs; and better reporting of fiscal exposures.

What GAO Found

Over the long term we face a large and growing structural deficit due primarily to known demographic trends and rising health care costs. Continuing on this imprudent and unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living, and ultimately our national security. Our current path will also increasingly constrain our ability to address emerging and unexpected budgetary needs and increase the burdens that will be faced by our children, grandchildren, and future generations. The budget process itself cannot solve this problem, but it can help policymakers make tough but necessary choices. If citizens and government officials come to better understand various fiscal exposures and their implications for the future, they are more likely to insist on prudent policy choices today and sensible levels of fiscal risk in the future. We cannot grow our way out of our long-term fiscal challenge. We must make tough choices and the sooner the better. A multi-pronged approach is needed: (1) revise existing budget processes and financial reporting requirements, (2) restructure existing entitlement programs, (3) reexamine the base of discretionary and other spending, and (4) review and revise tax policy and enforcement programs--including tax expenditures. Everything must be on the table and a credible and effective Entitlement and Tax Reform Commission may be necessary. Fundamentally we need a top-to-bottom review of government activities to ensure their relevance and fit for the 21st century and their relative priority.