	Long-Term Simulations

Long-term simulations are useful for comparing the potential outcomes of alternative fiscal policies within a common economic framework. While long-term simulations provide a useful perspective that is often lacking in budget debates, they should be interpreted carefully. Since our October report was issued, CBO’s 10-year budget projections have shown continued improvement in the short term. CBO now projects that the budget is already virtually in balance and that, in a few years, we could experience a period of budget surpluses on a unified budget basis. Currently, however, the dramatic drop in the deficit and the expected budget surpluses for the near future have changed the fiscal policy climate. While our no action path remains an unsustainable policy over the long term, it does include a period of budget surpluses over the next 15 years, consistent with CBO’s current baseline. Thus, as agreed with your office, we present two alternatives to the no action simulation in this testimony. Unlike no action and no surplus, the maintain balance simulation is one example of a sustainable fiscal path under which government activities can be maintained without a continual rise in the debt as a share of GDP. Long-Term Commitments Not Adequately Reflected in Budget Reporting

To some degree, the long-term fiscal policy of the nation is determined by the spending or revenue paths inherent in the design of federal programs. Without adequate information about the long-term cost implications of specific program (or revenue) designs, fiscal policy may not follow the expected path. Just as the current long-term projections are driven by a combination of demographics and the design of Social Security and federal health care programs, so future projections may also be affected by the long-term costs of other programs. Possible Budget Process and Reporting Improvements

The broad range of long-term federal commitments complicates the challenge of integrating more complete information on their expected future cost into the budget process. The diverse nature of the commitments, combined with the varying quality and amount of information available outside the budget process, suggests that across-the-board changes in budget reporting or process may not be the most effective way to proceed.
Why GAO Did This Study

GAO discussed its work on long-term budget issues, focusing on the: (1) results of GAO's simulations updated to incorporate the Congressional Budget Office's (CBO) new budget projections; and (2) programmatic composition and design of federal spending--for which policymakers need to consider the long-term fiscal and spending implications of the government's commitments.

What GAO Found

GAO noted that: (1) long-term simulations are useful for comparing outcomes of alternative fiscal policies within a common economic framework; (2) while long-term simulations provide a useful perspective that is often lacking in budget debates, they should be interpreted carefully; (3) since GAO's October 1997 report was issued, CBO's 10-year budget projections have shown continued improvement in the short term; (4) CBO now projects that the budget is already virtually in balance and that, in a few years, there could be a period of budget surpluses on a unified budget basis; (5) the dramatic drop in the deficit and the expected budget surpluses for the near future have changed the fiscal policy climate; (6) while GAO's no action path remains an unsustainable policy over the long term, it does include a period of budget surpluses over the next 15 years, consistent with CBO's current baseline; (7) GAO presents two alternatives to the no action simulation; (8) under the no surplus scenario, the deficit would reach 10 percent of the gross domestic product (GDP) 8 years earlier than the no action plan; (9) the maintain balance simulation is an example of a sustainable fiscal path under which government activities can be maintained without a continual rise in the debt as a share of GDP; (10) to some degree, the long-term fiscal policy of the nation is determined by the spending or revenue paths inherent in the design of federal programs; (11) without adequate information about the long-term cost implications of specific program designs, fiscal policy may not follow the expected path; (12) just as the current long-term projections are driven by a combination of demographics and the design of Social Security and federal health care programs, so future projections may also be affected by the long-term costs of other programs; (13) the broad range of long-term federal commitments complicates the challenge of integrating more complete information on their expected future cost into the budget process; and (14) the diverse nature of these commitments, combined with the varying quality and amount of information available outside the budget process, suggests that across-the-board changes in budget reporting or process may not be the most effective way to proceed.