    [Senate Hearing 116-521]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 116-521

                               THE FISCAL OUTLOOK

    =======================================================================

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON FISCAL RESPONSIBILITY
                              AND ECONOMIC GROWTH

                                     OF THE

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                OCTOBER 7, 2020

                                   __________

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                Printed for the use of the Committee on Finance

                                  __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    46-691 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                             COMMITTEE ON FINANCE

                         CHUCK GRASSLEY, Iowa, Chairman

    MIKE CRAPO, Idaho                    RON WYDEN, Oregon
    PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
    MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
    JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
    JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
    RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
    ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
    PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
    TIM SCOTT, South Carolina            ROBERT P. CASEY, Jr., Pennsylvania
    BILL CASSIDY, Louisiana              MARK R. WARNER, Virginia
    JAMES LANKFORD, Oklahoma             SHELDON WHITEHOUSE, Rhode Island
    STEVE DAINES, Montana                MAGGIE HASSAN, New Hampshire
    TODD YOUNG, Indiana                  CATHERINE CORTEZ MASTO, Nevada
    BEN SASSE, Nebraska

                 Kolan Davis, Staff Director and Chief Counsel

                  Joshua Sheinkman, Democratic Staff Director

                                     ______

           Subcommittee on Fiscal Responsibility and Economic Growth

                       BILL CASSIDY, Louisiana, Chairman

    TIM SCOTT, South Carolina            MAGGIE HASSAN, New Hampshire
    BEN SASSE, Nebraska                  RON WYDEN, Oregon

                                      (ii)

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Cassidy, Hon. Bill, a U.S. Senator from Louisiana, chairman,
      Subcommittee on Fiscal Responsibility and Economic Growth,
      Committee on Finance...........................................     1
    Hassan, Hon. Maggie, a U.S. Senator from New Hampshire...........     3
    Wyden, Hon. Ron, a U.S. Senator from Oregon......................     4

                            ADMINISTRATION WITNESSES

    Swagel, Hon. Phillip L., Ph.D., Director, Congressional Budget
      Office, Washington, DC.........................................     7
    Dodaro, Hon. Gene L., Comptroller General of the United States,
      Government Accountability Office, Washington, DC...............     8

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Cassidy, Hon. Bill:
        Opening statement............................................     1
        Prepared statement with attachment...........................    31
    Dodaro, Hon. Gene L.:
        Testimony....................................................     8
        Prepared statement...........................................    34
    Hassan, Hon. Maggie:
        Opening statement............................................     3
        Prepared statement...........................................    47
    Swagel, Hon. Phillip L., Ph.D.:
        Testimony....................................................     7
        Prepared statement...........................................    48
    Wyden, Hon. Ron:
        Opening statement............................................     4
        ``Trump Opens Door to Cuts to Medicare and Other Entitlement
          Programs,'' by Alan Rappeport and Maggie Haberman, The New
          York Times, January 22, 2020...............................    53

                                 Communication

    Center for Fiscal Equity.........................................    55

                                     (iii)

                               THE FISCAL OUTLOOK

                                  ----------

                           WEDNESDAY, OCTOBER 7, 2020

                               U.S. Senate,
             Subcommittee on Fiscal Responsibility
                                   and Economic Growth,
                                          Committee on Finance,
                                                        Washington, DC.
        The WebEx hearing was convened, pursuant to notice, at 2
    p.m., in the Dirksen Senate Office Building, Hon. Bill Cassidy
    (chairman of the subcommittee) presiding.
        Present: Senators Scott, Young, Wyden, Carper, and Hassan.
        Also present: Republican staff: Katie Hadji, Tax and
    Economic Counsel for Senator Bill Cassidy; Democratic staff:
    Jay Weismuller, Policy Advisor for Senator Hassan.

      OPENING STATEMENT OF HON. BILL CASSIDY, A U.S. SENATOR FROM
    LOUISIANA, CHAIRMAN, SUBCOMMITTEE ON FISCAL RESPONSIBILITY AND
                 ECONOMIC GROWTH, COMMITTEE ON FINANCE

        Senator Cassidy. I thank everybody for participating in a
    committee hearing which has become virtual with all the events
    we are aware of related to COVID in the past week.
        So it is the Senate Finance Committee's Subcommittee on
    Fiscal Responsibility and Economic Growth, and it is a virtual
    hearing on the fiscal outlook. I thank you all for
    participating, and I think it is going to be good. And I am
    sorry that we could not have had it in a more, oh what to say,
    a more kind of formal setting, because it may have been better
    attended, because I am not sure that there is any hearing we
    have that will be more important than this.
        Our witnesses today will be Phillip Swagel, the Director of
    the Congressional Budget Office; and Gene Dodaro, who is the
    Comptroller General of the United States and the head of the
    U.S. Government Accountability Office.
        And so with that, I will make my opening statement. I will
    turn to Maggie Hassan, my ranking member, and then I think
    Ranking Member Wyden for the entire committee has a statement
    he would like to make as well.
        So again, thank you all for being here. I am grateful for
    all who are there joining us by Internet.
        Today's hearing will address a topic that we prefer to shy
    away from: seriously addressing our Nation's runaway debt and
    deficit. When it comes to our health, we make choices that are
    not so easy. We want to exercise. We exercise when we want to
    relax, and we eat healthily when we would prefer to splurge.
    But these things promote our health and fitness; they are
    worthwhile for our overall well-being. Similarly, if we want to
    be strong as a Nation, we have to monitor our fiscal position
    and keep revenues in balance with our spending.
        Unfortunately, we have become fiscally soft and flabby, if
    we want to pursue the analogy to our own physical health. The
    Congressional Budget Office expects debt to rise to 107 percent
    of GDP by 2023, which would be the highest in our Nation's
    history. They also project that debt held by the public will be
    equal to 195 percent of GDP in 2050, if all goes well. That is
    ``if all goes well.''
        Meanwhile, the highway, Medicare, and Social Security trust
    funds are on glide paths to insolvency. All three will be
    depleted by 2031, by current projections.
        CBO's long-term report says to just get us back to 2019
    levels by 2050 would require some combination of spending cuts
    and tax increases amounting to $2,700 per person per year, and
    the longer we wait, the worse it gets. This will not be an easy
    fix.
        The current coronavirus pandemic reminds us that we live in
    an impermanent and unpredictable world. Even in our country's
    relatively short history, we have seen powerful nations
    decline. Most recently, the Soviet Union went from the first
    nation to put a satellite in space to collapse in a little bit
    over 30 years. That is the time frame of the long-term CBO
    report.
        I am not saying that the United States is like the Soviet
    Union or that debt led to its downfall. Instead, I am saying
    that the unthinkable happens all the time. We should not be so
    arrogant as to assume our current position will last forever
    and does not need to be addressed.
        Since World War II, the United States has become the
    greatest economic power in the history of the world. We have
    used this power to maintain a long period of relative global
    peace. As part of our success, we have enjoyed the benefits of
    a prosperous economy and a dominant role in foreign affairs.
        We cannot take this status for granted. One way we show
    complacency is by spending without thinking for the future,
    which wastes, if you will, our inheritance. History assures us
    nations rise and fall, and to face threats we need to stay lean
    and strong. And I think we all agree that our children and
    grandchildren will have their own challenges. One contribution
    we can make is not to leave them in a financial bind.
        Right now, we are in a unique situation. I and others have
    advocated for additional fiscal stimulus. Our failure to pass
    another relief package has much more to do with politics than
    with a willingness to spend.
        Whether or not a relief package gets passed, we will spend
    trillions in coronavirus relief this year--a number so massive
    we can hardly fathom. None of it is paid for. So there is a
    disagreement on exactly how much should be spent, but Congress
    is not being stingy.
        When it comes to our current fiscal situation, there is
    enough blame for all. I hope this will not go into a
    conversation of who is more at fault, which is not a
    particularly productive conversation. Nothing will be done
    without collaboration, give and take. As has been said so many
    times during this coronavirus crisis, we are all in it
    together. And when it comes to solving our debt and deficit and
    making sure our different trust funds remain strong and there
    for those who need them, we are truly all in it together.
        I have seen recent polling that suggests that people want
    to see action to reign in the national debt. But I think we all
    know that addressing the issue will force tough tradeoffs.
    There are no easy answers. It is something that Congress must
    lead on, to do its job.
        The first step is to acknowledge the problem. Some in the
    public square have argued that deficits do not matter, and I
    disagree and I think history disagrees.
        I hope to hear details from the witnesses about the scope
    of what we are up against and a frank appraisal of the
    consequences of not acting.
        Thank you all for being here, and I will now turn to
    Senator Hassan for her opening statement.
        [The prepared statement of Senator Cassidy appears in the
    appendix.]

               OPENING STATEMENT OF HON. MAGGIE HASSAN,
                   A U.S. SENATOR FROM NEW HAMPSHIRE

        Senator Hassan. Well, thank you, Senator Cassidy. Thank you
    to Director Swagel and Comptroller General Dodaro for
    testifying today, and for your work and the work that your
    entire teams do for our country.
        This subcommittee is charged with promoting fiscal
    responsibility and economic growth because, of course, the two
    go hand in hand. As a Nation, we must be concerned about the
    growth in the national debt. If not handled carefully, it could
    threaten to slow the economy and jeopardize our ability to make
    key investments in everything from innovation to national
    security.
        The first step to improving our Nation's fiscal outlook is
    improving the economic outlook of families, businesses,
    communities, and States that have been hit hard by the COVID-19
    virus.
        Yesterday, Federal Reserve Chair Powell warned that, quote,
    ``Too little support would lead to a weak recovery, creating
    unnecessary hardship for households and businesses,'' close
    quote.
        Providing assistance to families who cannot make ends meet,
    and helping hard-hit businesses stay afloat, is not only the
    right thing to do, it is also the fiscally responsible thing to
    do. It will help ensure that families can pay their rent or buy
    groceries at their local stores, and that small businesses can
    continue to employ their workers, which will help to keep local
    economies moving and improve our Nation's economic outlook.
        The second step to getting our Nation's fiscal house in
    order, after recovering from COVID-19, is for Congress to
    implement common-sense bipartisan measures that promote fiscal
    responsibility and reduce the national debt.
        As recommended by GAO, we need to address the so-called
    ``tax gap,'' which comes from corporations and millionaires
    avoiding taxes by under-reporting income to the Treasury. We
    need to revisit the partisan tax giveaways that were jammed
    through Congress in 2017 in order to ensure that major
    corporations are paying their fair share in taxes. And we need
    to eliminate waste, fraud, and abuse across the Federal
    Government--one of my top priorities as the ranking member of
    the Homeland Security and Governmental Affairs Subcommittee on
    Federal Spending Oversight.
        In seeking a bipartisan path to improving our fiscal
    standing, Congress must also strengthen and protect Social
    Security and Medicare, while making it absolutely clear that
    seniors will receive the full benefits that they have earned
    over a lifetime of work.
        Overall, it is clear that once we have recovered from
    COVID-19, the sooner we address the national debt the better.
    As shown by CBO and GAO, the difficulties of addressing the
    fiscal outlook only compound over time, making it all the more
    pressing that we work together in a bipartisan way to get
    through the crisis and then develop a fiscally responsible
    long-term plan for the Federal budget.
        Senator Cassidy, I look forward to working with you and the
    other members of the Finance Committee, and I look forward to
    hearing from Director Swagel and Comptroller General Dodaro on
    ways to improve our fiscal outlook.
        Thank you.
        Senator Cassidy. Thank you, Senator Hassan.
        [The prepared statement of Senator Hassan appears in the
    appendix.]
        Senator Cassidy. And now I think Ranking Member Wyden would
    like to make a statement.

                 OPENING STATEMENT OF HON. RON WYDEN,
                       A U.S. SENATOR FROM OREGON

        Senator Wyden. Thank you very much, Mr. Chairman. And I
    also see we have been joined by our colleague, Senator Scott--
    at least he was there--and also possibly Senator Carper. So we
    have a good contingent of Finance members out today.
        And I too want to thank Phil Swagel, the CBO Director who
    worked so closely with us on the prescription drug bill that we
    worked to get out of the Finance Committee and showed
    opportunity for some fresh approaches to, in effect, create
    incentives to hold down subsidies when there is price gouging.
    So we appreciate him. And Gene Dodaro has repeatedly done good
    and professional work, and we are so appreciative of him.
        Chairman Cassidy, Ranking Member Hassan, I am glad you all
    have put this hearing together. Senator Hassan has, in my view,
    kind of been the gold standard for elected officials in showing
    that you can care deeply about the human needs of our people,
    and do it in a fiscally responsible way; that the two are not
    mutually exclusive. You can do both. And I so appreciate her
    leadership, and I agree with so much of what she said for her
    opening statement.
        I am joining you from my dining room table in southeast
    Portland this morning, and I hope that everybody participating
    and watching is healthy and safe.
        I would like to make just a few key points, Mr. Chairman,
    and then, with your leave, I will read my full statement into
    the record. Would that be acceptable to you, Mr. Chairman?
        Senator Cassidy. Yes.
        Senator Wyden. Very good. First, appropos of Senator
    Hassan's points, I think Jerome Powell's statement yesterday
    ought to be required reading for every single member of
    Congress, because he laid out so clearly, and in an objective
    way, backed by the nonpartisan fact-driven approach that they
    have at the Fed, what is at stake here.
        So I think he summed up my views very clearly, and I think
    that obviously if you walked into a coffee shop in America,
    most people would not be talking about the fiscal outlook. But
    I think the topic is going to dominate a lot of discussions in
    the Congress in years ahead.
        And I will just say that when you set aside all the fiscal
    lingo, this is a debate about whether the Congress ought to
    quit prematurely on the pandemic recovery, while locking in
    cuts to Social Security, Medicare, and Medicaid down the road.
    This is essentially the far-right Republican agenda behind a
    bunch of vague fiscal buzzwords. I personally think it is a
    recipe for nightmares in
    middle-class households.
        Now, the country has only recovered half the jobs lost when
    the pandemic hit. The $600 enhanced unemployment benefits that
    we worked so hard for, did so much to allow millions of
    families in America to make rent and buy groceries and also, as
    has now been reported, did an awful lot to keep the economy
    afloat during the spring. It has expired now. Republicans
    blocked an extension. Permanent job losses and corporate
    layoffs are stacking up.
        I was particularly concerned, Chairman Cassidy and Senator
    Hassan, about this new report that I just saw of people
    permanently dropping out of the workforce. In other words, they
    just thought there was not an opportunity for them to get
    ahead. A patchwork of policies holds back an avalanche of
    evictions, and millions of Americans lost their health care
    when they lost their jobs.
        Over the month of September alone, just one month,
    colleagues, nearly a million women dropped out of the
    workforce, which is why I have been looking at those numbers
    with such care. The economy still has a lot of open wounds
    here. And yet a lot of people on the far right, and
    conservative Republicans, say: cut, cut, cut. And apparently
    those are the folks who do not want another major economic
    rescue package. And I think we need one. I think we need to
    make sure that if you are laid off through no fault of your
    own, you have an opportunity to make rent and pay for
    groceries.
        People who get those unemployment benefits, colleagues, are
    not using those dollars to buy a bunch of fancy cars from
    Europe. They are using that money to pay for essentials. And I
    think that is why the safety net is so important, and why we
    should oppose any kind of back-door cuts to programs like
    Social Security, Medicare, and Medicaid.
        The other point I just want to make deals with this
    question of tax fairness, and it was raised by Senator Hassan
    very eloquently. So, we have seen substantial evidence just in
    the last few weeks that Donald Trump is a tax cheat. So to me
    it is absurd for Republicans in Congress to tell working people
    they are the ones who ought to sacrifice in order to clean up
    America's finances.
        Americans have not forgotten that, in effect, there was a
    fiscal time bomb put in place in 2017 when Republicans passed
    these tax handouts to corporations and the wealthy. Those tax
    handouts had a deficit-finance price tag of $2 trillion. So,
    folks, that is what we are talking about here, and
    appropriately so: how we can care for the needs of people and
    be fiscally responsible. We were told that tax cut was going to
    pay for itself, and we have seen a price tag of $2 trillion.
        And obviously, you then have people come and say, ``Well,
    we have to slash Medicare and Medicaid and Social Security.''
    That is a Republican playbook we have seen too many times:
    spend freely on corporate goodies, defense contractors, tax
    handouts to the top, but once the recession arrives, then you
    have harsh cuts in programs that matter to working people and
    the middle class.
        And it seems to me that when you have millions of people
    out of work a lot longer than we have seen before, we have got
    to make sure we are putting in place policies that keep it from
    happening again.
        So there is a lot of work for the Congress to do. I see
    colleagues here who worked very closely, particularly Chairman
    Cassidy, to try to find common ground on prescription drugs,
    and I very much appreciate that. The next Congress is going to
    have to keep Medicare out of insolvency and bring down
    prescription drug costs, and I am sure we will talk a little
    bit about some of the challenges of the Medicare trust fund,
    given this dip that the economy has taken, what it has meant
    for those programs.
        Finally, I think we understand--and this is why I
    appreciated Senator Hassan's comments so much--we have got to
    make some important investments, and do that in a way that is
    fiscally responsible. Those investments are in infrastructure:
    roads, ports, clean energy, and broadband. Those are challenges
    that cannot wait.
        So we have a lot of heavy lifting to do. Tax policy has
    always been priority business for the Finance Committee. I will
    just say, as one member, it makes a lot more sense to crack
    down on tax cheats like Donald Trump, rather than inflicting
    harsh cuts on working Americans.
        I look forward to working with my colleagues and appreciate
    this hearing, and particularly to have our experts whom we have
    worked with often, Phil Swagel and Gene Dodaro, here. They do
    it by the book, and they give us good, hard data, and we
    appreciate them and their professionalism.
        Thank you, Mr. Chairman.
        Senator Cassidy. I would say, just for the correction--this
    is an election hear, but I will say, just to correct the
    record, that President Trump has not proposed cuts on either
    Medicare or Social Security, and that tax receipts actually
    went up after the Tax Cuts and Jobs Act.
        Senator Wyden. Mr. Chairman, I will not prolong this. I
    will give you, for the record, the article on the reduction in
    funds for Medicare and entitlement programs I mentioned. If we
    can make that part of the record, I will include it. Okay?
        Senator Cassidy. I would like that.
        [The article appears in the appendix on p. 53.]
        Senator Cassidy. And I will make a part of the record the
    President's public statements as regards protecting those trust
    funds.
        [The President's statements appear in the appendix on p.
    32.]
        Senator Cassidy. So, that said, I want to say one more
    thing. Republicans did propose to continue the unemployment
    benefits while we are negotiating a broader deal, but that was
    not accepted by Speaker Pelosi.
        So let me introduce our witnesses.
        Dr. Swagel became the tenth Director of the Congressional
    Budget Office in June 2019. Previously, he was a professor at
    the University of Maryland School of Public Policy and a
    visiting scholar at the American Enterprise Institute and the
    Milken Institute. He has taught at Northwestern University, the
    University of Chicago's Booth School of Business, and
    Georgetown University. From 2006 to 2009, Dr. Swagel was
    Assistant Secretary for Economic Policy at the Treasury
    Department. He has also served as Chief of Staff and Senior
    Economist at the Council of Economic Advisors in the White
    House, and as an economist at the Federal Reserve Board and the
    International Monetary Fund. He earned his Ph.D. in economics
    from Harvard University and his A.B. in economics from
    Princeton.
        Welcome, Dr. Swagel.
        Mr. Dodaro became the eighth Comptroller General of the
    United States and head of the U.S. Government Accountability
    Office on December the 22, 2010, when he was confirmed by the
    U.S. Senate. He had been serving as Acting Comptroller General
    since March of 2008. Mr. Dodaro has held a number of senior
    leadership positions during his long career at GAO, dating back
    more than 45 years--oh, my gosh--including Chief Operating
    Officer and head of GAO's Accounting and Information Management
    Division. He holds a bachelor's degree in accounting from
    Lycoming College in Williamsport, PA.
        Well, Mr. Dodaro, and thanks to you both for joining. I
    will now turn to Dr. Swagel for his 5-minute statement.

         STATEMENT OF HON. PHILLIP L. SWAGEL, Ph.D., DIRECTOR,
              CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC

        Dr. Swagel. Thank you. Good afternoon, Chairman Cassidy,
    Ranking Member Hassan, and members of the subcommittee. Thank
    you so much for inviting me to testify about the fiscal
    outlook. And it is a pleasure to testify here with Gene Dodaro.
    We benefit so immensely from the work of the GAO.
        The fiscal outlook is a tale of two horizons. Over the
    longer term, the Nation's fiscal challenges are daunting. At
    the same time, the United States is not facing an immediate
    fiscal crisis. The current low interest rates indicate that the
    debt is manageable for now and that fiscal policy could be used
    to address national priorities if the Congress chose to do so.
        In our projections, interest rates remain low as the
    economy recovers from the effect of the pandemic, partly
    because the Federal Reserve is working to keep them low. At the
    same time, the Federal debt is already high, and it is
    projected to rise substantially, reaching 195 percent of GDP by
    2050, at the end of our 30-year long-term budget outlook. That
    far exceeds the previous high of 106 percent recorded just
    after World War II.
        So over the longer horizon, action is needed to address the
    Nation's fiscal challenges. In this year of 2020, we began with
    a strong economy and labor market, but also with a $1-trillion
    projected budget deficit that was already high by historical
    standards. And of course the pandemic changed the situation
    dramatically.
        The deficit for the fiscal year that just ended exceeded $3
    trillion, mostly reflecting the budgetary effects of
    legislation enacted to address the pandemic, and the resulting
    economic downturn. At 16 percent of GDP, the deficit relative
    to the size of the U.S. economy was the largest since 1945.
        In our projections, we see Federal revenues rising from 16
    percent of GDP in 2019 to 19 percent of GDP in 2050, while
    spending grows from 21 percent of GDP last year to 31 percent
    of GDP in 2050. So that is the situation as the horizon
    lengthens.
        After the economy recovers from the effects of the
    pandemic, rising interest costs especially contribute to wider
    deficits, along with rising health costs and other factors.
    Interest rates remain low while the economy recovers from the
    pandemic, and that holds down projected borrowing costs. But we
    still have continued deficits, and those lead to rising debt.
    And then, combined with rising interest rates after we recover
    from the pandemic, that drives up the cost of servicing the
    debt.
        So the bottom line is that the fiscal path over the coming
    decades is unsustainable, because the cost of financing the
    deficit and servicing the debt cannot consume an ever-growing
    proportion of our Nation's income. High and rising debt
    eventually will reduce business investment, will slow economic
    growth, and lead to larger interest payments to foreign holders
    of U.S. debt that subtract from our Nation's income and
    increase the risk of a fiscal crisis when interest rates rise
    abruptly or other disruptions occur.
        Now there is no set tipping point at which a fiscal crisis
    becomes likely or imminent, and there are no identifiable
    points at which interest costs as a percentage of GDP become
    unsustainable. But of course the higher the debt, the greater
    the risks.
        And just one last point is that the status of the Federal
    trust funds is one indication that action may be needed soon.
    In our projections, the highway trust fund is exhausted in this
    fiscal year, in 2021; Medicare's hospital insurance trust fund
    is exhausted in 2024; and Social Security's disability trust
    fund in 2026. And the main fund of Social Security, the Old-Age
    and Survivor's Insurance trust fund, is exhausted in 2031.
        So the fiscal challenge is not over the horizon but is
    really within our sight, within the budget window. Again, just
    to summarize, the current low interest rates on Treasury
    securities indicate that we do not face an immediate fiscal
    crisis. We face considerable fiscal challenges over the longer
    term that will require difficult adjustments after the economy
    has emerged from the effects of the pandemic.
        Thank you. I look forward to questions.
        [The prepared statement of Dr. Swagel appears in the
    appendix.]
        Senator Cassidy. Thank you, Dr. Swagel.
        Mr. Dodaro?

     STATEMENT OF HON. GENE L. DODARO, COMPTROLLER GENERAL OF THE
    UNITED STATES, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

        Mr. Dodaro. Thank you very much, Mr. Chairman, Ranking
    Member Hassan, Senator Wyden, and Senator Scott. I appreciate
    the opportunity to appear today with Phillip Swagel to talk
    about the fiscal outlook of the Federal Government.
        Before the pandemic, I had been concerned about the Federal
    Government because it has become heavily leveraged in debt by
    historic norms. By the end of fiscal year 2019, debt held by
    the public as a percent of gross domestic product was 79
    percent, compared to 46 percent on average from 1946. So the
    Federal Government entered the pandemic already accumulating
    debt at a rapid clip.
        The pandemic obviously has complicated this fiscal
    situation, as the government has taken much-needed action to
    address the public health emergencies and the profound economic
    disruption that have occurred as a result of the pandemic. For
    the immediate future, I believe attention should continue to be
    focused on the public health needs and stabilizing and healing
    our economy. As the country comes out of this situation and it
    has met public health goals, and it has met economic goals, and
    it is on a better glide path,
    policy-makers need to swiftly turn their attention to
    establishing a plan to put the Federal Government on a more
    sustainable long-term path.
        I have been calling for such a plan since 2017. I believe
    it is very much needed. The plan would benefit by having some
    fiscal rules and targets. Right now, the United States has no
    fiscal policy as to how much debt the Federal Government wants
    to accumulate, or believes that it can service over a long
    period of time, while meeting other important goals of serving
    its citizens, protecting vulnerable populations, and promoting
    economic growth. We believe that a plan must have fiscal rules
    such as a debt-to-GDP target.
        Everyone has mentioned so far CBO's estimate that it could
    go up to 195 percent of gross domestic product by 2050, but
    over the longer term it will keep going up, unchecked and
    without a plan. And that, by definition, is not a sustainable
    path.
        Now swiftly I say, for the same reasons that have been
    pointed out already, the trust funds are going to force
    decisions. The highway trust fund is being supported by other
    general appropriations. It has not operated on the user-pay
    premise that it was founded on for a number of years, and is
    now insolvent.
        The Medicare fund, as pointed out, the hospital trust fund,
    will by 2024, according to CBO's projections, only have enough
    to pay 83 cents on the dollar in payments. The Pension Benefit
    Guaranty Corporation, which has not been mentioned yet, is due
    to be insolvent in the multiemployer portion by 2026. This puts
    11 million Americans at risk, and potentially being failed
    because, if their company goes bankrupt, the government will
    not have enough funds to step in and provide them with an
    adequate pension.
        And the Social Security fund, by 2031, will only have
    enough money to pay 75 cents on the dollar. Now, none of this
    will happen, because the United States is not going to allow
    these cuts to affect these programs, but it indicates the
    magnitude of the changes that need to be put in place. And the
    sooner Congress does this, the better, as has been pointed out,
    because it will allow time to adjust.
        Right now, compounding is working against the Federal
    Government as the debt begins to accumulate. And even at low
    interest rates, the base of the debt continues to grow. And so
    over time, as pointed out by CBO's projections, over the long
    run there is tremendous interest rate exposure, and that can
    precipitate a lot of problems.
        The United States paid $376 billion last year in interest
    costs, and conceivably interest costs can get to be a trillion
    dollars over time without a plan.
        We have outlined and issued reports about how a plan can be
    constructed to be in line with the fiscal goals of the Federal
    Government, to be integrated with the budget process, to allow
    for flexibilities for emergencies, and to be able to provide
    for checks and balances over time so that the rules are
    enforced when appropriate, and when not appropriate allow for
    flexibilities to meet emergencies.
        Also, while these issues will not solve existing fiscal
    problems alone without these fiscal policy changes, there are a
    number of areas we have pointed to that could make
    contributions to making these adjustments a lot easier.
        First would be addressing the sizable tax gap. The last
    estimated net tax gap is $381 billion a year on an annual
    basis. The Federal Government is also, last year, continuing an
    accelerating trend. There was over $175 billion in improper
    payments made among 29 different Federal programs in the
    agencies.
        This has been growing over time. These are payments that
    should not have been made, or were made in the wrong amounts.
    There also is over a trillion dollars in tax expenditures that
    are allowed every year without any regular review as to whether
    they are working effectively or not and need to be
    reconsidered.
        There is overlap and duplication in the Federal Government
    that could yield tens of billions of dollars in additional
    benefits. Implementation of our recommendations so far have
    yielded $429 billion in financial benefits to the Federal
    Government, and I think with additional things in the works, it
    will be close to half a trillion dollars this year.
        So, while these things alone can make important
    contributions, they can also begin to impose much-needed fiscal
    discipline in how to manage the country's finances. So having a
    plan in place to guide the Nation, and aggressively addressing
    these areas where there are benefits for the taking in the
    short term, would greatly improve the prospect for putting the
    Federal Government on a more sustainable fiscal path.
        I appreciate the opportunity to be here today. I am very
    pleased that you are holding a hearing on this essential topic.
    I will be happy to respond to questions.
        [The prepared statement of Mr. Dodaro appears in the
    appendix.]
        Senator Cassidy. Thank you very much. Thank you both for
    your testimony. I have to be in this session the entire time,
    so, Maggie, if you are ready, I will let you go first. There
    may be some who have to leave early, and I do not mind kind of
    deferring to colleagues to make their life more convenient, if
    you are ready to go.
        Senator Hassan. Well, I appreciate that very much, Mr.
    Chairman. And let me just draw up my questions for a second. I
    just want to start by thanking both our witnesses again for
    your testimony and for your work.
        And, Mr. Chairman, thank you for your courtesy.
        Let me start with a question to Dr. Swagel. The CBO's long-
    term budget outlook points out that short-term increases in the
    national debt can support the economy during challenging times,
    such as those we are in right now.
        Can you explain to the committee how, especially given
    historically low interest rates, providing fiscal support
    during COVID-19 can have a positive effect on the economy?
        Dr. Swagel. Yes, I can. And we have a report on our website
    that goes through some of the different fiscal actions taken by
    the Congress and looks at the effectiveness of each one.
        The economy, of course right now, is operating far below
    potential. The unemployment rate is much higher than it was
    before the pandemic began. The fiscal actions taken by the
    Congress have supported spending by families, have supported
    businesses, including small businesses, and kept the
    relationships between employees and small businesses together,
    helping those businesses make it through.
        It is in all these ways, on the demand side, both the
    demand side and supply side, we are supporting the economy.
        Senator Hassan. Excellent. Thank you. We all know that
    ultimately, we do need to address the national debt, but it is
    also clear that in the short term, our economy urgently needs
    additional support.
        Mr. Dodaro, last year I led a bipartisan bill titled Acting
    on the Annual Duplication Report Act of 2019. It would take
    action on several recommendations that the GAO made to Congress
    in its annual duplication, fragmentation, and overlap report.
    Two weeks ago, I introduced the 2020 iteration of this bill,
    again with the bipartisan support of some of my colleagues,
    responding to this year's GAO report on duplication,
    fragmentation, and overlap, as well as opportunities to achieve
    financial benefits in government programs.
        Mr. Dodaro, can you explain how adopting GAO's
    recommendations to reduce duplication, fragmentation, and
    overlap would help improve the fiscal outlook?
        Mr. Dodaro. Yes. Since we have been doing that work over
    the last decade, we have made over a thousand recommendations
    to the Congress and the executive branch agencies. Over 57
    percent have been fully implemented. And as I mentioned in my
    opening statement, we are on track to see close to half a
    trillion dollars in financial benefits already being produced
    as a result of acting on our recommendations.
        Now, acting on open recommendations can result in tens of
    billions of dollars in additional savings to the Federal
    Government. The two pieces of legislation that you mentioned
    would go a long way to implementing this and have the potential
    to yield billions of dollars.
        For example, the legislation would allow DoD to capture the
    full cost of providing foreign military sales. Right now, the
    salaries and benefits of people who work on these foreign
    military sales to help sell U.S. equipment to other countries,
    their costs are not included. So the people buying this
    equipment and using the services of the U.S. military are not
    paying for the full cost of using those services. That would
    yield benefits.
        The legislation would also require 17 million tax returns
    that come in to have a scannable bar code that would allow IRS
    to be more effective in enforcing the tax laws in a fair and
    equitable manner.
        Also, the legislation would require the Navy to put more
    emphasis on operations and maintenance costs when they are
    actually acquiring ships. Seventy percent of the cost of these
    multi-billion-
    dollar enterprises are in operations and maintenance costs, and
    the United States accepts ships before they are fully completed
    and tested, and then the operation and maintenance costs go up
    over time.
        So there are a lot of recommendations, and this is a good
    way to deal with this.
        Senator Hassan. Well, thank you very much for that, and I
    appreciate it. And I look forward to working with you and
    others on it.
        I want to see if I can do one more question before my time
    is up, to Dr. Swagel. In its long-term outlook report, CBO
    considers how school closures during COVID-19 will have long-
    term effects on the workforce. Can you explain the importance
    of education for America's economic future and how COVID-19
    could affect the workforce in the long run?
        Dr. Swagel. Yes, I can. It is something we worry a lot
    about, both in the near term and the long term. In the long
    term, productivity growth is a key driver of our economic
    output and our trajectory, and the school closures mean less
    effective or, for many children, utterly ineffective education
    and schooling.
        So I am worried about them in the long term. In the short
    term, it seems to be affecting the quality, with the most
    disadvantaged kids having it the worst. I worry at both
    horizons.
        Senator Hassan. Well, thank you. I think to reduce some of
    these longer-term effects, Congress needs to dedicate Federal
    relief dollars to help the education workforce to continue to
    meet the needs of the students and workers during these
    unprecedented circumstances. Again, thank you for your work,
    and thank you, Mr. Chairman, for your courtesy.
        Senator Cassidy. And, Senator Hassan, I apologize for not
    giving you a heads-up. I had it typed, but I did not hit
    ``send.''
        Is Senator Scott back on?
        [No response.]
        Senator Cassidy. Okay; Senator Wyden?
        Senator Wyden. Mr. Chairman and colleagues, I am just going
    to make a quick statement, and then I have some questions.
        We have a huge crisis coming from Medicare with the
    insolvency of the hospital insurance trust fund. The budget
    experts have already projected it is due to become insolvent in
    as little as 3 years. And I am of the view that the problems
    that they are having are particularly due to the economic
    downturn and the Republicans' downplaying of COVID-19.
        Now, the Affordable Care Act put in place policies to
    secure Medicare's long-term future. It did this by decreasing
    how much Medicare spends, increasing how much money it takes
    in. So the crisis that is already serious is going to be
    compounded if Republicans are successful in gutting the
    Affordable Care Act. So I just want to put on the record--as I
    have indicated with the chairman, in the budgets I am going to
    give him on the Trump cuts to entitlements programs--that
    tearing down the ACA is going to threaten the health-care
    services of millions of American seniors.
        Dr. Swagel, thank you for working with us so often in the
    past. I want to ask you a question about unemployment
    insurance. Where is Dr. Swagel? Is he up there somewhere?
        Dr. Swagel. I am here, sir.
        Senator Wyden. Oh, very good. I think you know I am the
    principal author of the expanded unemployment insurance, the
    extra $600 per week that ran for 4 months through July 31st,
    and the coverage for workers and self-employed independent
    contractors and the like.
        What would have happened, in your view, if these folks had
    not had those benefits? Because I have listened to Mr. Powell
    and others talk about how it would have been really a huge hit
    on the economy, but I would be curious what your take is of
    what life would have been like for those folks if Congress had
    failed to act on that.
        Dr. Swagel. So I agree with what Chair Powell said, and
    with his other statements that were alluded to earlier in the
    hearing as well. And we have some of the CBO analysis in a
    letter to Chairman Grassley which said that, without the extra
    UI benefits, demand would have been weaker, and the economy
    weaker as a result, without the assistance until now. And as
    the economy reopens, then there is more of a push and pull
    between the added spending and the diminished incentives to
    work. But clearly until now, as the economy was essentially
    closed, the extra UI was an important factor in sustaining
    demand in the economy.
        Senator Wyden. Very good. Let me ask you one other
    question, because I think worsening inequality also affects
    entitlement programs, and particularly Social Security
    financing.
        My question to you, Mr. Director, on this issue is, how
    have stagnating middle-class wages since the 1980s impacted the
    long-term financing of Social Security, in your view?
        Dr. Swagel. It affects Social Security in a couple of ways.
    An important one is, stagnating wages mean lower revenues going
    into the Social Security trust fund. With rising inequality, it
    means more of the wages are above the tax maximum, and that
    affects the revenues going in. And wage growth overall is the
    key revenue source for Social Security, so slow wage growth has
    a negative effect on the system.
        Senator Wyden. Thank you. We are going to work closely with
    you and Chairman Cassidy, Senator Hassan, and colleagues,
    because by my reading, if you look at several decades of, in
    effect, wages stagnating--wages and other income of those in
    the top fifth have gone through the roof, while middle-class
    wages have generally been pretty stagnant. And the result is,
    Social Security takes in less and less funding over time, and
    we all understand the demographic tsunami that the program is
    facing.
        So, Mr. Director, thank you for your answer to that. Thank
    you for your answer to the unemployment insurance question. And
    I want to repeat for my colleagues that I thought the Director
    and his team did particularly professional work on the
    prescription drug issue, because nobody thought that the Senate
    Finance Committee could produce a bill which had a fair amount
    of bipartisan support, including Chairman Cassidy. And we took
    a fresh approach, which was to say that we were going to reduce
    subsidies to those drug companies that were engaged in price
    gouging, and we could not have done it without the
    professionalism of Dr. Swagel and his team. So we thank you for
    that.
        Thank you, Mr. Chairman. And I look forward to hearing from
    the rest of our colleagues.
        Senator Cassidy. Great. Is Senator Young on?
        Senator Young. Well, thank you so much.
        Senator Cassidy. I am sorry, Todd. I think Senator Carper
    is next. I apologize.
        Senator Young. No worries.
        Senator Cassidy. Tom?
        Senator Carper. Todd, if you are in a hurry, I am not in a
    hurry.
        Senator Young. No, I will yield to the gentleman from
    Delaware.
        Senator Carper. All right; thanks so much.
        To our chair and ranking member, thank you, more than you
    know, for holding this hearing. I oftentimes describe myself as
    a recovering Governor. Before I was a Governor, I was a
    Congressman. Before that, I was a Treasurer, a State Treasurer.
    I became Treasurer of the State of Delaware in 1976. We had the
    worst credit rating in the country. We could not balance a
    budget for nothing. We had no pension trust fund. We were just
    a mess. We could not--we had the highest marginal income tax
    rate in the country: 19.8 percent was our personal income tax
    rate--19.8 percent.
        And 3, 4, 5, 6 years later, we had begun to address all
    that. Do you know what was the key? Great leadership. The key
    was great leadership. Our Governor, new Governor, was a guy
    named Pete Du Pont, Republican moderate, former Congressman.
    And we had Democrats and Republicans in the House, in the
    Legislature, who worked together to get us on a fiscally
    responsible course. But the key is always leadership.
        And I want to thank Senator Cassidy, and I want to thank
    especially former Governor Hassan, for their leadership that
    brings us here today.
        I also want to say to Senator Wyden, the ranking member on
    the Finance Committee, my thanks to him and Senator Grassley
    for helping us produce and report out a prescription bill that
    was actually fiscally responsible, and I think humane and
    appropriate in terms of our economic development to making sure
    we still provided incentives for investments in pharmaceuticals
    and biopharmacy.
        That legislation unfortunately has not moved on the floor.
    I think that is a good example of the kind of stuff we need to
    be doing.
        Starting with our witnesses today, Director Swagel, we are
    delighted to have you here. Gene Dodaro has been one of my
    heroes for, what has it been since you were at Yale, like 40
    years or something? He has been our Comptroller General for
    about 10 of those. I have loved working with him.
        And one of the things, colleagues, that he and GAO report
    out at the beginning of every new Congress, in the beginning of
    January--January, February of next year they will hand over to
    the administration, hand over to the Congress, something called
    a ``high-risk list.'' A high risk of wasting money, high-risk
    ways of wasting money.
        And when I was chairman of the Homeland Security Committee,
    that was on our to-do list. And I hope when we get that high-
    risk list from General Dodaro and his folks in January/
    February, we will use that as a to-do list as well.
        You already heard people quoting Jay Powell, our Federal
    Reserve Chairman. What he said in the last couple of days makes
    a whole lot of sense to, I hope not just we here in the
    Congress, but I hope the administration, including the
    President, might pay some attention to those words.
        I want to thank Senator Cassidy for allowing me and a
    number of others to join him in supporting legislation that he
    has co-
    authored. Who was your Democratic lead on that, Mr. Chairman,
    on the next COVID package? Who was your Democratic lead?
    Menendez?
        Senator Cassidy. Menendez was on our--yes, sir. Menendez
    was our Democratic lead on the State to local aid bill.
        Senator Carper. I want to thank you for that as well.
        State and local governments are one area that continues to
    be under enormous and unprecedented strain. According to the
    Department of Labor, State and local public loss, I think just
    in September alone, 180,000 jobs--180,000. And without some
    additional Federal support, many more jobs are going to be
    lost, which means fewer front-line workers like firefighters,
    like EMS workers, police, as the pandemic continues to sweep
    through our communities, through our teachers, through our bus
    drivers, our janitors in the school, school nurses, as we try
    to open safely.
        In a recent report, CBO confirmed what former Governors
    like Senator Hassan and myself already know from experience.
    That is, that State and local government aid is one of the most
    effective means of economic stimulus.
        Dr. Swagel, let me just ask you, if I could, the first
    question. Could you tell us why aid to State and local
    governments has such a mutiplier effect, and discuss the
    importance of these governments for economic recovery, please?
    Dr. Swagel?
        Dr. Swagel. Yes, sir, Senator Carper. Our analysis of
    assistance for State and local governments enacted so far,
    especially in the CARES program, found that those monies by and
    large were spent immediately. You know, not every penny, but by
    and large they were spent quickly, and so it had a rapid and
    large impact.
        Additionally, the money given to State and local
    governments headed off, or reduced the tax increases and other
    spending cuts that the State and local governments would have
    had to do. So it had an important part in sustaining demand in
    that way as well.
        Senator Carper. Thanks so much.
        I want to turn to the Comptroller General to talk a little
    bit more about improper payments, something that he and his
    folks have been on forever over, as long as I can remember. We
    handled it too in the Homeland Security and Governmental
    Affairs office.
        General Dodaro--and I think it is just for 2019--agency's
    across the government made an estimated $175 billion in
    improper payments, up from about $151 billion in fiscal year
    2018. It was not that long ago that that number was under $100
    billion. It was not that long ago that number was under $75
    billion.
        Today, we are talking about $175 billion. Further, as part
    of the CARES Act, the Treasury Department, as you know, issued
    over a billion dollars' worth of checks, $1,200 checks, to
    deceased persons, one of them, as I recall, being your late
    mother.
        So, given our current fiscal condition, we are in no
    position to continue issuing these kind of errant payments.
    Earlier this year, legislation was co-authored by Senator
    Cassidy's colleague, our colleague from Louisiana, John Neely
    Kennedy, and also with a hand from Rand Paul, a comprehensive
    update to--no, I am getting ahead of myself.
        I guess that was more recently, but earlier this year
    something called the Payment Integrity and Information Act was
    signed into law--into law. It was a comprehensive update to the
    improper payments law which will provide agencies with the
    tools--provide agencies with the tools--that they need to curb
    improper payments.
        Further, the Stopping Improper Payments to Deceased People
    Act has passed as a separate piece of legislation, has passed
    the Senate and now is pending in the House. That is the one co-
    sponsored by Senator Kennedy, co-sponsored by Senator Paul,
    over in the House now. And this bill will widely share the
    death data available to the Social Security Administration to
    help them prevent payments to deceased people.
        General Dodaro, what actions do the executive branch and
    the Congress need to take in the immediate term to address this
    particular issue? And that is, sending payments to deceased
    people.
        Mr. Dodaro. First, Senator Carper, I think that the
    executive branch needs to effectively implement the Payment
    Integrity and Information Act of 2019 that you alluded to. This
    would require a government-wide effort.
        I am concerned that the $175 billion is an understatement,
    because there are several programs, like Temporary Assistance
    for Needy Families, where there are no estimates made at all.
        Also, it would require more rigor in doing risk
    assessments, because there are some programs that, because of
    their risk assessment, they do not make estimates either. And I
    think that might not be appropriate. And also it would include
    the estimates that will allow for these areas to be able to
    detect what some of the root causes are of the problems so that
    they could be addressed.
        The two largest areas for improper payments are in Medicaid
    and Medicare. And actually the jump between the $150 and $175
    billion in the past year or so has been largely due to Medicaid
    for the review of eligibility determination after the changes
    from the Patient Protection Act and the review of provider
    revalidation screening, to make sure everybody is properly
    screened and enrolled.
        And so, that is why I am very concerned, because those are
    two of the fastest-growing programs in the Federal Government.
    Congress needs to get on top of this.
        There are some recommendations we made. There could be some
    additional prior authorizations in Medicare that would make
    sure that the payments are appropriate before they are being
    made. This has been demonstrated to be effective and to not
    harm anybody's care.
        There should be more timely auditing of the Medicare
    Advantage program. In Medicaid, the big growth has been in the
    Medicaid Managed Care. And that has received virtually little
    scrutiny. And I think that needs to be more rigorously pursued
    in that area, with the help of State auditors. I have been
    trying to work with the Centers for Medicare and Medicaid
    Services to get them more involved in this process over time.
        And the legislation that you mentioned to stop payments to
    deceased people, if Congress could get Treasury the proper
    master file, the more complete master file, this can be done
    very easily, which was what was done with the stimulus payments
    once they decided they were not going to go that route anymore.
    They were given temporary access to this file, and it stopped
    it immediately.
        So those are some of the areas.
        Senator Carper. Has my time expired, Mr. Chairman?
        Senator Cassidy. Yes. Thank you very much, sir.
        Senator Carper. Thank you, sir.
        Senator Cassidy. I cannot read that clock on the bottom
    very well, so I think it is really running long.
        Now, Senator Young?
        Senator Young. Well, I thank you, Mr. Chairman, and I thank
    our witnesses for what you do and for your appearance before
    the committee today.
        Today, the Paycheck Protection Program, what most Americans
    now know as PPP, funded more than 5.2 million loans, for a
    total of $525 billion. But the program closed with almost $135
    billion of funds remaining. For the hardest-hit businesses, the
    PPP funds have run out, and more funds are going to be needed
    to weather this storm.
        In the United States as a whole, data suggests that nearly
    a quarter of all small businesses remain closed. Let me say
    that again. Data suggests that nearly one-quarter of American
    small businesses remain closed.
        These closures, on average, have caused revenues to drop
    around 40 percent, and even up to 70 percent in the hardest-hit
    sectors, for example, the hospitality sector. Some estimates
    indicate that by June, just 3 months after the start of the
    shutdown, more than 400,000 businesses permanently closed,
    which is more than what was typically lost during an entire
    year following the Great Recession.
        To ensure more businesses do not fall through the cracks, I
    introduced the RESTART Act with Senator Bennet. Our legislation
    would provide low-interest, long-term working capital loans to
    cover up to 6 months of payroll, benefits, and other fixed
    operating costs, including rent and utilities. These loans
    would be eligible for forgiveness based on how much their
    revenues declined.
        Now so far, the RESTART Act is widely supported across a
    multitude of sectors, including manufacturing, retail, minor
    league sports, hospitality, even live events. As we wait for a
    vaccine, I still worry of a domino effect of sorts of lost
    jobs, as well as lost services and lost products, to say
    nothing of the lost innovative capacity that can be financially
    catastrophic if small businesses are allowed to fail.
        Dr. Swagel, regardless of the budgetary effects, regardless
    of the CBO score, do you believe it is necessary to provide
    additional stimulus, like my RESTART proposal, for the hardest-
    hit businesses?
        Dr. Swagel. Thank you, Senator Young. You have put your
    finger on the challenge that the economy faces and the policy-
    makers face, that we cannot freeze the economy where it was
    before the pandemic. There will be reallocation. The PPP, as
    you said, played an incredibly important role, both in
    supporting spending and especially in supporting small
    businesses.
        This is needed to provide a buffer to slow down the
    upheaval. And the RESTART Act, as you said, would extend that.
    The economy is still evolving, and hopefully we will have
    scientific progress that will allow us to continue the
    reopening. And the RESTART Act, as you said, would provide a
    further buffer.
        And anything that--I just want to agree with you here--you
    said it is targeted. The PPP was very broad, and incredibly
    rapid. The SBA and Treasury did an incredible job in making
    that happen rapidly and getting the money out. And now what you
    are proposing is targeted, with the most assistance going to
    the most in need to continue to support the economy.
        So we at CBO are ready to work with you and look forward to
    evaluating it, including a cost estimate when the time comes.
        Senator Young. Well, thank you, Dr. Swagel. And I am
    grateful for you and your team's work. You should know that. I
    just wanted you to set aside all the CBO strictures and rules
    that we ask you to live by, and offer your analysis. You of
    course did that.
        As a follow-up, generally speaking, could you quantify, or
    perhaps you would like to qualitatively characterize the direct
    and indirect economic impact of permanent closure of more small
    businesses?
        I spoke to, for example, the innovation effects. One could
    perhaps--and I guess this is a bit of a leading question, as I
    offer some examples--you might also talk about the erosion of
    skills, or what sorts of things ought my colleagues and I be
    thinking about when we contemplate the permanent closure of
    more small businesses?
        Dr. Swagel. I would just second what you are saying, that
    the disruptive effect is playing out especially on small
    businesses, and especially on workers at the bottom of the
    income distribution. And the unusual part of this pandemic
    recession is the skewedness for people at the bottom, and the
    disruption that RESTART is meant to shield against, hitting
    people at the bottom, and small businesses especially--and as
    you said, the innovation and job creation, and of course the
    support for local communities that is focused in small
    businesses.
        So RESTART would buffer against that. And just a last
    thought, which is again you said--we will always give you the
    cost, but as much as possible, CBO is here to help provide
    information to the Congress on other effects, the benefits, and
    other things like that.
        Senator Young. Yes, sir. Yes, sir. If time permits, I am
    going to head down this road, Dr. Swagel, and see where it
    leads. But I have real concerns about State and local debt as
    well. Outside of the Federal budget, States and local
    governments owe over $3 trillion, plus trillions more in
    unfunded State pension liability.
        It is clear that State and local government debt comprises
    a huge collective liability. However, that liability is of
    course spread across numerous municipalities, making the actual
    burden of debt and risk of default less transparent.
        My home State of Indiana was much more prepared than most
    States to weather this crisis by utilizing its rainy day fund.
    And I have to say, this is the rainiest of days. And we have
    been drawing that down.
        Due to the pandemic, debt has surged for some States. And
    while it is unlikely, there is still the possibility of
    defaults, plus corporate bonds, student loans, mortgages, and
    SBA loans that could change CBO's debt projections.
        Dr. Swagel, can you elaborate on some of the consequences
    that the Federal Government would face if State or local
    governments default on their debt obligations?
        Dr. Swagel. Yes, sir. Yes, Senator. As you said, many
    States entered the pandemic in relatively good shape, with
    overall State rainy day funds at an all-time high. If I
    remember right, they are around $75 billion or so. So States
    had some buffer. The Federal Government provided assistance.
    Revenue has actually come in reasonably strongly. And then many
    State and local government property taxes are an important
    source of revenue, and property values have not been negatively
    affected in much of the country as has the overall economy.
        Yet still, of course many State and local governments will
    have trouble. You know, those are localized and can be
    explained to date suggesting that that will not have an effect
    on the country as a whole, or the Federal Government as a
    whole. And we have seen the problems in Illinois and Puerto
    Rico and some other States, and localities in California, for
    example.
        You know, if the problem is broader, well then there could
    be a more meaningful impact. But as long as it is localized and
    the States start in pretty good shape overall, that should not
    have a huge negative effect for the overall economy.
        Senator Young. Okay, so----
        Senator Cassidy. Todd, you are about 3 minutes over. Do you
    mind if we move on? We will have a second round.
        Senator Young. Oh, my apologies to my colleagues. Of
    course, Mr. Chairman; I yield.
        Senator Cassidy. No, believe me, your questions are great
    and I wanted to be lenient, but on the other hand, there would
    be a second round, and folks may want to do that.
        Are there any other of my colleagues on? If not, I will now
    go.
        Gentlemen, several questions. Let me set it up like this.
    It seems as if at least you, Dr. Swagel, are okay with--in
    fact, even endorse--another round of COVID relief. And we are
    talking anywhere from $1 to $2 trillion, maybe more. And yet
    both of you express alarm regarding the debt and deficit, and
    you highlight the trust funds.
        So it tells me, at least it implies to me--and I would like
    both of you to affirm--that the problem is not so much the
    discretionary spending, if you will, that spending over which
    Congress has control, but rather the so-called mandatory
    spending, the trust fund spending, which goes out the door
    without Congress necessarily allocating it. And because all of
    your testimony of alarm has centered around that, and your
    testimony of maybe we need to think about it, even though it is
    deficit spending, has centered around the discretionary
    spending.
        Dr. Swagel, will you go first and address that observation?
        Dr. Swagel. Yes, Senator. And I should start--of course the
    CBO will give you our analysis. We will never say, you know,
    this is the right policy or anything. So I am not endorsing any
    particular policy, even when saying what the beneficial effects
    would be. Of course that is for the Congress to decide.
        As I started with, and as you said, the deficit was large
    even before the pandemic, a trillion dollars a year into the
    future, and those trends continue. We have an aging society,
    and we have health-care costs growing more rapidly than the
    overall economy--excess cost growth, as we call it. And those
    are driving entitlement spending up.
        That challenge was there before the pandemic. It is
    exacerbated by the pandemic, but it still remains just as you
    cited.
        Senator Cassidy. And now, Mr. Dodaro, would you agree with
    my observation?
        Mr. Dodaro. Absolutely. The primary drivers are the
    entitlement programs, as Phil just alluded to, health-care
    costs, and then interest costs because of the growing debt.
        Senator Cassidy. Let me say this--let me ask you this.
        Mr. Dodaro. Yes, sir.
        Senator Cassidy. Based on that now, I have read and been
    told--and I know what I am told, not necessarily what I know--
    that baby boomers becoming eligible for Medicare and Social
    Security at a rate of 10,000 a day is kind of driving this. The
    last boomer turns 82, the average age, I guess, thereabouts, in
    2042 or 2046. And that means boomers begin to die off--I am a
    boomer, so I am speaking of myself--somewhere in the mid-2030s,
    and that there might be some relief upon this demand for
    Medicare and Social Security when that big population of
    boomers begins to decrease relative to the rest of the
    population. That in turn would give relief to the picture.
        Your thoughts on that?
        Mr. Dodaro. I do not think that that will happen, for the
    following reason. Life spans are increasing. We have low
    fertility rates, and the number of people who will continue to
    be hitting Medicare and Social Security will continue. There is
    a chart in my written statement that shows 10,000 people a day,
    going out to at least 2050, will turn 65. It may go out beyond
    that. I am a boomer too--even though I plan to live forever--
    but I want to say that I do think the problem has been
    exacerbated by the boomers, but it is also coinciding with
    longer life spans and fewer children being born.
        And so that is also going to change the financing
    arrangements that the Federal Government has had for these
    retirement systems that have been based upon the working
    population paying payroll taxes to pay the benefits of the
    senior citizens.
        Now, that worked when you had 5, 7, 10 people working for
    every one Social Security beneficiary. Right now, you only have
    a little over 2.8 people working for each Social Security
    beneficiary, and it will eventually get closer to 2 to 1.
        So you are not going to be able to accumulate the type of
    balance that was accumulated in the Social Security fund over
    the past several decades as a buffer to go into that period. So
    I do not think anyone should breathe a sigh of relief when the
    boomer bulge gets through that period of time.
        Senator Cassidy. So let me ask you this. Going back to
    discretionary spending versus mandatory, we are basically
    borrowing money--some people call it ``free money,'' the
    interest rate is so low now. There has been an argument for a
    large infrastructure package, both because it would stimulate
    employment among those who are associated with the service
    industry, construction, manufacturing, and mining, and also it
    would take care of inefficiencies in our economy related to
    inadequate infrastructure.
        Now again, differentiating this sort of discretionary
    spending from mandatory spending, do you think--I will start
    with you, Mr. Dodaro. Would a trillion-dollar over 10 year
    infrastructure package pose the same issues for accumulating
    debt and deficit as the baby boomers retiring, as we just
    described, the so-called mandatory spending?
        Mr. Dodaro. It would not have the same long tail on it that
    those things would have. And hopefully there would be able to
    be some financing arrangements, as there have been in the past,
    with the highway trust fund basically self-financing.
        You could have some self-financing mechanisms also to help
    with the infrastructure package. But it would not pose the same
    issue.
        And just to emphasize the point, the Budget Control Act of
    2011 put limits on discretionary spending. There were some on
    Medicare--it was very little, though. And it was an attempt to
    bring the deficit down. And it helped a bit, but discretionary
    spending is not the problem. The problem is the other areas.
        And so I would feel better if we made the 10-year
    investment in infrastructure, if we had a long-term plan in
    place to address those issues, so that there is not a tendency
    to make decisions on all of the above areas where you then
    complicate things for others.
        This is why you need a plan, so you can make investments in
    infrastructure and national security, and you have flexibility
    to deal with emergencies. Right now, the Federal Government
    does not budget for major natural disasters or economic
    downturns, and all these numbers that CBO is generating do not
    even consider all these other uncertainties and fiscal
    exposures that we have as a Nation.
        Senator Cassidy. Let me impose my discipline on myself for
    time. I will have a second round. I will ask you about the
    disaster relief fund, because that does seem to be a
    prefinancing of natural disasters.
        Let me go back to my colleague with whom--she and I are
    going to come up with a robust plan to address this debt and
    deficit.
        Senator Hassan?
        Senator Hassan. Thanks so much, Senator Cassidy. And thanks
    again to our witnesses.
        I want to just start by expressing my agreement and support
    of Senator Carper's comments about the importance of State and
    local aid, and compliment Senator Cassidy who, along with our
    colleague Senator Menendez, introduced critical legislation on
    State and local aid.
        I just wanted to add my comments before moving on to
    another question, which is simply this: that if we do not add
    and address the need for more State and local aid in this, what
    I hope will be another stimulus package, what I know is
    happening in my State is that revenues are going down. And that
    results in layoffs of critical front-line workers, including
    law enforcement, public safety, teachers, at a critical time.
        I also know how badly hit our local communities are by the
    loss of commercial property taxes. Because, while residential
    property taxes may not have been hit as hard, commercial
    property taxes and tax revenue that comes from large events at
    our entertainment arenas, for instance, are really impacting
    our local communities significantly and will result in, not
    only a critical reduction of services at a time when we need
    them more than ever, but layoffs, which obviously add to a drag
    on the economy, not to mention human misery.
        So I do hope we are able to invest in State and local aid,
    because it is needed, and because, as Dr. Swagel's report
    indicates, it is a very effective way of getting aid out there
    at a time when we need it.
        Dr. Swagel, I wanted to ask you and Mr. Dodaro to really
    drill down on this issue of how we go about addressing the
    debt.
        As I mentioned in my opening remarks, the difficulty of
    addressing the debt only compounds with time. This means that,
    after recovering from COVID-19, the sooner we can come together
    to address the debt, the better.
        So first, Dr. Swagel, and then I will move to Mr. Dodaro.
    Can you explain how addressing the debt sooner rather than
    later would mean that we need a smaller amount of deficit
    reduction to reach our long-term objectives?
        Dr. Swagel. Yes. And we have some information on this in
    our long-term budget outlook report. The intuition is that the
    longer we wait, that means that there are some generations, or
    some people within a generation who in a sense do not share in
    the burden of the fiscal adjustment. And so that is why waiting
    means that the burden of the adjustment is concentrated in a
    smaller number of people, and therefore is a larger adjustment,
    a bigger burden on each generation that does have to pay for
    the adjustment.
        Senator Hassan. Well, thank you.
        In a recent report on the Nation's fiscal health, GAO
    recommended that Congress adopt a long-term fiscal plan with
    fiscal rules and budget targets. And, Mr. Dodaro, you began to
    reference this in the answer to the last set of questions. Can
    you outline some more of the key considerations that Congress
    should use in establishing a fiscal plan and how this plan
    would facilitate appropriately timed deficit reduction?
        Mr. Dodaro. The anchor of the plan would be a fiscal rule
    which is designed, according to the International Monetary
    Fund, to be a sustainable rule that is in place over a long
    period of time. The Federal Government is not going to be able
    to address this issue, so big and so problematic, in a short
    period of time.
        So you would have a debt-to-GDP ratio target--let's say,
    not being in a position to owe more than the economy is
    producing. So that would be a target of 100 percent debt-to-
    GDP. The goal would be to not go above that, or if it happens
    for a little bit, bring it back down. So we have to set a
    target. Right now, there are no boundaries. It is what it is.
    We spend the money we need.
        Secondly, the fiscal rule would then--because you are
    putting it in place, you could then look at some targets.
    Mandatory spending and discretionary spending and tax
    expenditures all are going to be needed to be adjusted to deal
    with the scope of the problem that we have.
        Then you would take this fiscal rule--that would be our
    goal as a country--and these targets for revenues and
    expenditures over a period of time, as sort of interim
    benchmarks, and then we could move toward this. You would
    integrate it with the budget process. You would have
    enforcement mechanisms. You would have independent people like
    CBO to say we are meeting our targets, we are meeting our
    goals, here is how we need to adjust it. But we would have a
    plan. Right now there is no game plan.
        This basically sets out a game plan and provides some
    rules. Other countries do this, and it has helped them,
    according to the IMF, to constrain their debt. It has not
    helped a lot of people to actually reduce it from what it was,
    but it constrained it from growing larger. And that is really
    what is needed.
        Senator Hassan. And I take it--and I'm running over, so I
    am just going to say quickly, I take it that the fiscal rule
    would also have appropriate escape clauses for a national
    emergency or something like that; but again, it is a way of
    getting us to a plan with this rule in place, and then being
    very specific about when we needed to adjust it.
        Mr. Dodaro. Yes, that would be one of the design features:
    escape clauses and emergency clauses. For example, the European
    Union has these kind of rules, and they have waived them for
    the COVID-19 situation.
        So yes, it definitely would have escape clauses for
    emergencies.
        Senator Hassan. Thank you very much. And thank you for your
    indulgence, Mr. Chairman.
        Senator Cassidy. Let me observe that, with Senator Carper,
    I have been presiding in the Senate when he has given very good
    speeches about the need to truly finance infrastructure in a
    fiscally accountable way.
        So hats off to Senator Carper for being an advocate for
    fiscal responsibility for some time.
        Senator Carper?
        Senator Carper. Can you hear me?
        Senator Cassidy. Yes, sir.
        Senator Carper. That is great. Thanks for those kind words.
    I again, with my recovering Treasurer hat on, I am a long-time
    believer that if things are worth having, they are worth paying
    for. As it turns out, I think we have reported, unanimously, a
    5-year surface transportation bill out of the Environment and
    Public Works Committee coauthored by Senator Grassley and
    myself, supported bipartisanly by folks.
        It never came up for a vote on the Senate floor. And the
    Finance Committee did not do their job. The Commerce Committee
    did not do their job. The other committees of jurisdiction did
    not do their job, so we did not have a bill to report out,
    which is unfortunate. The hardest part in passing
    transportation legislation is figuring out how to pay for it.
        As it turns out, we have not raised the gas or diesel taxes
    in this country in, I want to say, 20, 25 years. And they are
    worth about half of what they were when they were enacted all
    those years ago. If we would simply restore the purchasing
    power of the gas and user tax, we could make great progress in
    terms of actually paying for the roads and highways and transit
    systems that we badly need.
        I think 10 years from now most of the cars, most of the
    vehicles bought and sold in this country will be powered by
    batteries, be electric vehicles. A lot of them will be powered
    by hydrogen, vehicles powered by fuel cells to move largely
    cargo. But what I think we are going to need to do in the long
    term is move to a vehicle-miles-traveled approach. So the
    actual amount of money that we pay for use of our roads will be
    determined by how many miles we traveled on those roads and
    highways.
        That is a story for another day, but let me talk about the
    tax gap again. We talked about it a little bit today. The tax
    gap is monies that are owed, the taxes that are not being
    collected.
        Comptroller General Dodaro, my information here indicates
    that the IRS has estimated the tax gap to be about $440 billion
    this year--$440 billion. And we have had testimony before the
    Finance Committee where folks have come in, including former
    IRS Commissioners, who said that if you would give, if the
    Congress, the administration would provide an extra dollar for
    the IRS to do their job, we could reduce the deficit by maybe
    $5, $10 with each extra dollar.
        General Dodaro, give us a number for that. For every dollar
    that we would provide to the IRS for doing their job--
    additional, marginal dollars--how much would they be able to
    do?
        Mr. Dodaro. According to the fiscal year 2020 Congressional
    Budget Justification, IRS's enforcement and collection programs
    had a return on investment of about $10.7 for each dollar spent
    on these programs in fiscal year 2018, up from $9.7 in 2017.
    But we have had a lot of recommendations too about how they
    could use some of the information they have to evaluate their
    compliance programs to also leverage whatever resources
    Congress decides to give to them.
        Senator Carper. As a Congressman, I used to have a lot of
    town hall meetings--hundreds of them. And every now and then we
    would have town hall meetings where people would go through an
    exercise on the budget and figure out how to reduce deficits.
        I remember this one lady--I mentioned to the group, I said,
    ``You know, one of the ways to reduce the deficit is to
    increase revenues.'' And the lady said, ``I don't mind paying
    extra taxes, I just don't want to waste my money.''
        So I do not want to waste her money either. She also said,
    ``I want to make sure that other people pay their fair share of
    taxes.'' We were told by The New York Times last week that our
    President paid $750--not millions of dollars--$750 last year on
    Federal income taxes. That's not the kind of example we need to
    set.
        Are there any comments you want to make on the tax gap,
    what we can and should be doing, how we in Congress could help
    IRS and work with you?
        Mr. Dodaro. Yes. There are a number of things that Congress
    could do to help. One is to give IRS what is called math error
    authority. Where IRS has administrative records, they could
    correct the tax return rather than start an audit and then
    explain to the taxpayer what they did, and then the taxpayer
    would have a right to appeal. It would be less intrusive and
    burdensome to the taxpayer than audits, making IRS more
    efficient by correcting obvious noncompliance errors.
        Secondly, there could be more third-party reporting, which
    IRS can use to compare to the tax return filings. This is
    particularly true for businesses, for example, on commercial
    real estate in terms of repairs that could be reported by the
    service provider. Same thing for services of the corporations.
        Also, Congress can give IRS the authority to regulate paid
    tax preparers. IRS data indicate, particularly for the Earned
    Income Tax Credit, where there is about $17 billion in improper
    payments, that paid tax preparers actually have a higher error
    rate than people who prepare their own taxes.
        Now I do not know if Senator Wyden is still on the line,
    but I know the State of Oregon has this in place, and they have
    found they have greatly benefited their revenue collection
    agency.
        We have recommended this to IRS. They did it in the past,
    but then the courts ruled they did not have the authority to do
    it. So Congress really needs to give them the legislative
    authority to do this. I think it would be very effective.
        So those are the things Congress could do.
        Senator Carper. Well, you have given us a great to-do list.
    I will just close with this thought.
        Earlier this year, the Treasury Inspector General for Tax
    Administration found that the IRS failed to audit nearly
    900,000 high-
    income taxpayers who did not file a complete tax return for tax
    years 2014 to 2016--900,000--resulting in over $45 billion in
    unpaid taxes.
        There is a great to-do list here. And, God willing, we will
    make it to the new calendar year, hopefully with a new
    President and a new Congress, and we will work with you and
    with Dr. Swagel as we tackle what is an enormous problem, an
    enormous challenge. We want to do it in a way that is fiscally
    responsible, but we also want to do it in a way that is
    sensitive to the needs of the least of these in our society.
        I think one of--and actually, I will close with this. If
    you say, ``What kind of Democrat are you, Tom Carper?'' I would
    say, ``I am the kind of Democrat who believes we have a fiscal
    responsibility to the least of these in our society, and I
    think we have a fiscal obligation to meet that need in fiscally
    sustainable ways.''
        I think most everybody would agree with that. But I look
    forward to that mission. Thank you all.
        Senator Cassidy. Thank you, Senator Carper. I think I am
    the last questioner. I do not see Todd Young still on. Are you
    still there? Okay.
        Dr. Swagel, let me start with you. I am getting the sense,
    because both of you are speaking about the amount of money we
    are putting toward interest payments increasing, that you have
    an interest rate forecast that obviously interest rates are
    rising over time. Right now we have this incredibly low
    interest rate.
        What is your interest rate forecast? I presume that at some
    point it must be rising, because you have incorporated such a
    higher expense level relative to that.
        Dr. Swagel. Yes, that is right. And essentially we have
    interest rates remaining low for the next couple of years and
    then starting to rise as the economy reaches potential,
    meaning, we get back to where we were before the pandemic in
    our projection in the middle of 2022. So not next year, but the
    year after. But we are still below potential, because our
    potential has kept going. So that is more like 2028. So as we
    approach 2028, when the labor market is back, you know, fully
    back in our projection, that is when interest rates start to
    inflect upward.
        Senator Cassidy. So if we--now let me go to my next
    question. I want to build upon what I spoke of earlier about a
    large infrastructure package. We could actually, therefore,
    borrow the money at an extremely low interest rate and do an
    infrastructure package with minimal impact upon the amount of
    money being applied towards debt service.
        Now does CBO have a multiplier effect that they commonly
    use for infrastructure investment? We have to say what impact
    would a large infrastructure package have upon the economy in
    terms of economic growth, tax receipts, reduced efficiencies of
    the economy, et cetera.
        Dr. Swagel. We have the ability to do that, that sort of
    dynamic analysis. It works on the spending side just like on
    the tax side that a well-targeted infrastructure program, as
    you said, would expand the productive capacity of the country,
    increase GDP, increase revenues, and the spending would cost
    less than the full amount of the dynamic estimate. We have the
    ability to do that. We do not have a rule of thumb, but we
    would look at the particulars of the legislation to do that.
        Senator Cassidy. And to say though, therefore, that with
    interest rates being so low, obviously you are more likely to
    describe it from the principal as opposed to the principal plus
    interest, again because interest rates are so low.
        Dr. Swagel. That is exactly right. I mean, the long-term
    interest rate now is below our projected rate of inflation. So
    there is a negative real interest rate for a while. And of
    course the challenge is that the primary deficit is still
    pretty wide. So our debt ratio keeps going up. But like you
    said----
        Senator Cassidy. I am not an economist, but I just read an
    article that said if your interest rate is less than your rate
    of inflation, actually you can borrow to increase growth
    without economic consequence per se. Now again, that is about
    as far as I understand that concept, but I am sure you must be
    familiar with that idea.
        Any comments on that?
        Dr. Swagel. That is right. It is something that former
    Treasury Secretary Larry Summers has made a point of, and
    others--former Obama advisor Jason Furman has made the point
    recently. And of course, the challenge is making sure that the
    spending is effective.
        You know, if interest rates are low and we just burn
    resources with ineffective investment spending, that does not
    improve our productive capacity. So that is the challenge. But
    the way you put it is spot-on, just conditional on effective
    investment.
        Senator Cassidy. So going back to an effective
    infrastructure package, that would meet that criteria? And by
    the way, you come from a more conservative background than
    Furman and Summers, but do you agree with their assertion? They
    are left-of-center; you are right-of-center, I gather, so is it
    fair to say that this analysis would find agreement on both
    sides of the political spectrum?
        Dr. Swagel. Yes. I mean, their analysis is spot-on. And of
    course the challenge is that, depending on how quickly we pay
    off the debt, we may have to refinance. And you know, if we
    borrow for 10 years and then in the 11th year we have not paid
    it off and we have to refinance it at a higher rate, that is
    always the challenge.
        But you know, I quickly have to present the downsides here,
    the other considerations, because that is part of my job.
        Senator Cassidy. And, Mr. Dodaro, you raised something
    earlier that we have not discussed that much, except for one
    hearing that we had in Finance, which is the Medicaid Managed
    Care. With lack of scrutiny, for the first time there are more
    improper payments relative to Medicaid. And this relates to
    eligibility determination.
        Again, I am familiar with people in Louisiana doing an
    analysis on that, but you suggest that it is pretty widespread.
    And as you said, it is now surpassing Medicare in terms of
    improper payments.
        Will you elaborate on that, please? And tell me what you
    are gathering your data from. That is what I am really
    interested in.
        Mr. Dodaro. The estimates are coming from the Centers for
    Medicare and Medicaid Services. After the Affordable Care Act
    was passed in 2010 and became effective in 2014, they did not
    do any reviews of beneficiary eligibility determinations until
    they started about a year or so ago. And they are doing 17
    States at a time.
        So the first tranche of 17 States' error rates showed up in
    the 2019 estimates. And they increased the improper payments
    about $25 billion, I believe--somewhere around that
    neighborhood.
        Senator Cassidy. Can I ask, those States, were they small
    States or big States? Can you tell me some of those?
        Mr. Dodaro. I think it is a mixture of States. These States
    are Arkansas, Connecticut, Delaware, Idaho, Illinois, Kansas,
    Michigan, Minnesota, Missouri, New Mexico, North Dakota, Ohio,
    Oklahoma, Pennsylvania, Virginia, Wisconsin, and Wyoming. So
    they still have 33 more States and the District of Columbia to
    go before they have one round of these reviews.
        Senator Cassidy. Now that $25 billion, is that from the
    inception of Obamacare? Or is that only for 2019 or 2018? What
    is the time frame for that $25 billion?
        Mr. Dodaro. I believe it's a 2018 time frame.
        Senator Cassidy. So it is $25 billion in 1 year, and
    potentially we could multiply that times three and we would
    come up with the improper eligibility Medicaid recipients.
    Federal taxpayers are out $75 billion. You cannot say that, but
    you might be able to imply that?
        Mr. Dodaro. Correct. Well, we do not know what it is. That
    is the problem I have had, is that, we do not know what it is.
    And Managed Care spending for Medicaid is over 50 percent. That
    has been growing. When it first started, it was more like 15
    percent. And those Managed Care reviews are not being carried
    out at all.
        In fact, I have worked with Daryl Purpera, the State
    Auditor in Louisiana, and we have been trying to work with the
    State Auditors Association and CMS to get the State Auditors to
    do more like what Daryl is doing in Louisiana. And we are
    moving in that direction, but that is going to take some period
    of time. I think they could help address this and reduce the
    improper payments if they are given the proper authority and
    the proper data to do matching and to provide some fiscal
    discipline.
        Senator Cassidy. Are the States obligated to pay back the
    money the Federal taxpayer puts up if they are not auditing to
    ensure appropriate enrollment into Medicaid programs?
        Mr. Dodaro. I do not think they are if they are not
    auditing. I think they are if they are found not to be paying
    properly. And some of that is offset against their future
    spending. But my experience is that that does not happen that
    often, that there are not that many penalties put on States in
    the Medicaid program.
        Senator Cassidy. So you could, theoretically, but in
    reality it does not seem to be the case in practice?
        Mr. Dodaro. That is correct.
        Senator Cassidy. So really, with the Federal Government
    picking up 90 percent, then that means that that limits the
    incentive for the States to go after these folks. They are only
    getting 10 percent of the investment, so to speak.
        Mr. Dodaro. That is correct. Although, the Medicaid program
    is the fastest-growing program in the State's budget as well.
    So there is some sort of incentive for them. In fact, we were
    talking earlier about the State and local fiscal positions from
    a debt standpoint. We do a projection of the State and local
    fiscal sector like we do the Federal Government's long-term
    fiscal path. The State and local sector as a whole is on the
    same path as the Federal Government, is on an unsustainable
    basis, largely for the same reason, which is rising health-care
    costs, not just for Medicaid but for their own employees, both
    current employees and retirees.
        Senator Cassidy. I would have thought for those folks it
    would have been more the unfunded accrued liability and pension
    plans. Is that not the case?
        Mr. Dodaro. Well, the pension plans are part of the
    problem, but that is more isolated in particular States that
    have taken different paths on that issue. The health-care
    impact is across the board.
        Senator Cassidy. So if we can reduce health-care costs,
    that would do positive things for State and local governments--
    obviously problem things for the average American--and positive
    things for the Federal fisc.
        Mr. Dodaro. Health care is the key. It is the key to fiscal
    sustainability. We need to manage health care, because costs
    are growing faster than the economy, even though it has slowed
    a little bit more. And the cost for beneficiaries is rising.
    And with an aging population, if we do not do that, we are only
    going to have relatively modest effects on this fiscal path
    that we are on as a Nation.
        Senator Cassidy. Okay. Well, that is probably the best way
    to summarize this. The primary problem driving it for all
    levels of society down to the individual is health-care costs.
    And I say that as a physician.
        Well, thank you, everybody. Maggie, I saw your light just
    lit up. Do you have one more comment?
        Senator Hassan. Yes, I do. Well, I wanted to thank you, Mr.
    Chairman, for the hearing, and the witnesses again for
    excellent testimony which reflects the long-term excellent work
    that you and your teams do.
        But I also was just going to thank you for raising the
    issue of health-care costs, Mr. Chairman, and also reiterate
    what Senator Wyden said, which is our entire Finance Committee
    passed out of committee a bipartisan prescription drug price
    reduction bill. Senator Cassidy and I both voted in favor of
    it. And by estimates, it would reduce spending by about $100
    billion on prescription drugs.
        So there is some common ground to be had on, certainly,
    making sure that we lower the cost of prescription drugs. There
    is some common ground to be had as well in overseeing Medicaid
    expenditures. I will say that one of my experiences as Governor
    when we expanded Medicaid was talking to the number of people
    who got on Medicaid, for instance for substance use disorder,
    and got treated and then got jobs and moved off of Medicaid
    into private insurance in a situation they never would have had
    if they had not had the access to Medicaid to begin with.
        So I look forward to studying this issue some more with
    you, Senator Cassidy, because I do think if we cannot get a
    handle on health-care costs, a lot of the rest of our
    discussion will be more marginal.
        Senator Cassidy. Yes, I agree with that.
        I would like to thank everybody. I would like to thank our
    witnesses, Ranking Member Hassan, the rest of my colleagues,
    for joining us this afternoon for discussion on such an
    important issue. It was incredibly illuminating. So I really
    thank our witnesses who provided a lot of good information.
        The numbers and implications are clear. The current course
    is not sustainable. Congress needs to start thinking about
    solutions of how to head off the negative consequences of
    inaction.
        I again thank colleagues for being here. I look forward to
    continued partnerships and commitment to finding pragmatic and
    common-sense solutions.
        There is a time period by which additional questions can be
    submitted. I was not putting that in my closing remarks, so
    arbitrarily I am going to say we have 5 days.
        The hearing is now adjourned.
        [Whereupon, at 3:38 p.m., the hearing was concluded.]

                                A P P E N D I X

                  Additional Material Submitted for the Record

                                  ----------

                   Prepared Statement of Hon. Bill Cassidy,
                         a U.S. Senator From Louisiana
        Good afternoon, and thank you all for being here for today's
    hearing on the Nation's fiscal outlook. I am grateful to the witnesses
    who took the time to testify today.

        Today's hearing will discuss a topic that we prefer to shy away
    from seriously addressing: our Nation's runaway debt and deficit
    issues.

        When it comes to our health, we make choices that aren't so easy.
    We choose to exercise when we want to relax, and we choose to eat
    healthy when we'd prefer to splurge. But these things promote our
    health and fitness, and it's worth it for our overall well-being.

        Similarly, if we want to be strong as a Nation, we must monitor our
    fiscal position and keep our revenues in balance with our spending.
    Unfortunately, we have become fiscally soft and flabby.

        CBO expects debt to rise to 107 percent of GDP in 2023, which would
    be the highest in our Nation's history. They also project that debt
    held by the public will be equal to 195 percent of GDP in 2050, if all
    goes well.

        Meanwhile, the highway, Medicare, and Social Security trust funds
    are on a glide path to insolvency. All are expected to be depleted by
    2031.

        CBO's long-term report says to get us back just to 2019 levels by
    2050 would require some combination of spending cuts and tax increases
    amounting to $2,700 per person per year. The longer we wait, the worse
    it gets. So, this is not going to be an easy fix.

        The current coronavirus pandemic reminds us that we live in an
    impermanent and unpredictable world. Even in our country's relatively
    short history, we have seen powerful nations decline. Most recently, we
    saw the Soviet Union go from the first nation to put a satellite in
    space to collapse in a little over 30 years. I'll note that that's the
    time frame of the long-term CBO report.

        I am not saying that the United States is like the Soviet Union or
    that debt led to its downfall. Instead, I'm saying that the unthinkable
    happens all the time. We should not be so arrogant as to think our
    current position will last forever.

        Since World War II, the United States has become the greatest
    economic power in history. We have used this power to maintain a long
    period of relative global peace. As part of our success, we have
    enjoyed the benefits of a prosperous economy and a dominant position in
    foreign affairs.

        I worry that we take our status for granted. One way we show our
    complacency is by spending without thinking about the future. We are
    wasting our inheritance.

        History assures us nations rise and fall. To face threats, we need
    to stay lean and strong. I think we all agree that our children and
    grandchildren will face new and unprecedented challenges. Surely, one
    contribution we can make to the next generation is to not put them in a
    financial bind.

        Right now, we are in a unique situation, and I have advocated for
    additional fiscal stimulus. Most other members of this body have as
    well. Our failure to pass another relief package has much more do with
    politics and priorities than a willingness to spend.

        Whether or not another relief package gets passed, we will spend
    trillions in coronavirus relief this year--a number so massive we can
    hardly fathom. None of it is paid for. So, there is disagreement on
    exactly how much should be spent, but Congress is not being stingy.

        When it comes to our current fiscal situation, there's plenty of
    blame to go around. I hope this will not devolve into a discussion of
    who's more at fault. That is not a productive conversation. Nothing
    will get done without collaboration and give and take.

        I've seen recent polling that suggests people want to see action to
    reign in the national debt. But I think we all know that actually
    addressing this challenge involves tough choices and tradeoffs. There
    is no easy answer. That's why it's something we have to lead on in
    Congress.

        The first step is to acknowledge the problem. Some in the public
    square have made the argument that deficits do not matter.

        I hope to hear details from the witnesses about the scope of what
    we're up against and a frank appraisal of the consequences of not
    acting.

        Thank you all for being here today, and I will now turn to Senator
    Hassan for her opening statement.

                                     ______

                       REFUTATION OF PARTISAN ATTACKS ON

                         PRESIDENT TRUMP'S POLICIES ON

                          SOCIAL SECURITY AND MEDICARE

    In recent weeks, some on the left have argued that President Trump
    plans to cut Social Security, Medicare and other entitlements.
    Unfortunately, Ranking Member Wyden raised this attack in the October
    7, 2020 hearing on ``The Fiscal Outlook'' in the Senate Finance
    Committee.

    These claims are flat-out bogus. President Trump has always protected
    entitlement programs, and few have been as emphatic in their advocacy.
    As President, candidate for President, and as a private citizen, he has
    been a vocal and passionate supporter of the Social Security and
    Medicare programs.

    President's public statements:

    Press Briefing--August 13, 2020

    ``When we win the election--when I win the election, I'm going to
    completely and totally forgive all deferred payroll taxes without in
    any way, shape, or form hurting Social Security. That money is going to
    come from the General Fund. We're not going to touch Social Security. I
    said from day one that we're going to protect Social Security, and
    we're going to protect our people. And Social Security is one of the
    things that will be protected. Pre-existing conditions will be
    protected. Medicare will be protected.''

    Roundtable Discussion on Fighting for America's Seniors--June 15, 2020

    ``We're strongly defending Medicare and Social Security, and we always
    will. We'll always protect our senior citizens and everybody against
    pre-existing conditions.''

    Protecting Seniors with Diabetes event--May 26, 2020

    ``Nothing will ever stop me from fulfilling my solemn duty to America's
    seniors. I'll use every power at my disposal to lower drug prices, and
    my administration will always protect Medicare and Social Security--
    and, by the way, pre-existing conditions.''

    Twitter--March 15, 2020

    ``I must say, that was a VERY boring debate. Biden lied when he said I
    want to cut Social Security and Medicare. That's what they ALL said 4
    years ago, and nothing happened, in fact, I saved Social Security and
    Medicare. I will not be cutting, but they will. Be careful!''

     Signing of an Executive Order Protecting and Improving Medicare for
                        our Nation's

    Seniors--October 3, 2019

    ``So in my campaign for President, I made you a sacred pledge that I
    would strengthen, protect, and defend Medicare for all of our senior
    citizens. And you see it's under siege, but it's not going to happen.''

    Remarks before bilateral meeting with the Amir of Kuwait--September 5,
                        2018

    ``We're saving Social Security. The Democrats will destroy social
    security. We're saving Medicare. The Democrats want to destroy
    Medicare. If you look at what they're doing, they're going to destroy
    Medicare. And we will save it.''

    Weekly Address--May 26, 2017

    ``We will balance the budget without making cuts in Social Security and
    Medicare.''

    Republican Presidential Debate--March 11, 2016

    ``And it's my absolute intention to leave Social Security the way it
    is. Not increase the age and to leave it as is.''

    Republican Presidential Debate--February 13, 2016

    ``There's tremendous waste, fraud and abuse, and we're going to get it.
    But we're not going to hurt the people that have been paying into
    Social Security their whole life and then all the sudden they're
    supposed to get less.''

    Campaign event in Birch Run, Michigan--August 12, 2015

    ``We're going to save social security. You are going to love President
    Trump.''

    Twitter--May 21, 2015

    ``I am going to save Social Security without any cuts. I know where to
    get the money from. Nobody else does."

    Twitter--May 7, 2015

    ``I was the first and only potential GOP candidate to state there will
    be no cuts to Social Security, Medicare, and Medicaid. Huckabee copied
    me.''

    Remarks at CPAC--March 15, 2013

    ``As Republicans, if you think you're going to change very
    substantially for the worse Medicare, Medicaid, and Social Security in
    any substantial way, and at the same time you think you're going to win
    elections, it just really is not going to happen.''

    Twitter--August 28, 2012

    ``I am very worried that if @BarackObama is re-elected then Medicare
    will be destroyed. We must take care of our seniors.''

    Twitter--July 8, 2011

    ``House GOP wants to cut Medicare, Obama took $500 billion from
    Medicare for Obamacare. Both Wrong!''

    Press and ``fact check'' organizations:

    Politifact--August 12, 2020

    ``Social Security Works said, `Donald Trump says he will `terminate'
    Social Security if re-elected.' Trump never said he will terminate
    Social Security. . . .''

    USA Today--September 21, 2020

    ``Trump recently signed an order offering temporary relief from the
    payroll tax that funds Social Security, and he has repeatedly said he'd
    terminate the tax entirely if he's reelected. But ending the tax that
    pays for Social Security and ending the Social Security program itself
    are not the same. When asked, Trump said the measures would have `zero
    impact' on Social Security, and he said he'd `protect' the program.''

    Factcheck.org--September 14, 2020

    ``A Biden campaign TV ad falsely claims that a government analysis of
    President Donald Trump's `planned cuts to Social Security' shows that
    `if Trump gets his way, Social Security benefits will run out in just 3
    years from now.' ''

                                     ______

        Prepared Statement of Hon. Gene L. Dodaro, Comptroller General
             of the United States, Government Accountability Office

                 The Nation's Fiscal Health: A Long-Term Plan
                      Is Needed for Fiscal Sustainability

                             why gao did this study
        By the end of fiscal year 2019, debt held by the public had climbed
    to 79 percent of GDP. The Congressional Budget Office (CBO) projects
    debt to reach 107 percent of GDP by 2023, its highest point in history.
    In addition, CBO projects that annual deficits will exceed $1 trillion
    in each of the next 10 years.

        As currently structured, the Federal debt limit is not a control on
    debt, but a legal limit on the total amount of Federal debt that can be
    outstanding at one time. It restricts the Department of the Treasury's
    (Treasury) authority to borrow to finance fiscal decisions that have
    already been made. Uncertainty around the debt limit increases
    borrowing costs and decreases demand for Treasury securities, among
    other things.

        This statement focuses on (1) the Federal Government's
    unsustainable long-term fiscal path, (2) actions needed to address the
    Federal Government's fiscal challenges, and (3) executive agencies'
    opportunities to contribute to fiscal health.

        This statement is based upon GAO's September 2020 report on fiscal
    rules and targets, and GAO's March 2020 annual report on the Nation's
    fiscal health. GAO updated certain information with new data from CBO
    and others.
                              what gao recommends
        GAO has previously suggested that Congress (1) establish a long-
    term plan that includes fiscal rules and targets and (2) consider
    alternative approaches to the debt limit.
                                 what gao found
        The Federal Government faced an unsustainable long-term fiscal
    path--even before complications resulting from COVID-19--caused by an
    imbalance between revenue and spending built into the structure of
    current law. Congress and the administration have taken necessary
    actions--which totaled $2.6 trillion--to respond to COVID-19 and the
    resulting severe economic downturn. Once public health goals have been
    attained and the economy has substantially recovered, Congress and the
    administration should swiftly implement a broad plan to address the
    long-term fiscal outlook.

        This plan could benefit from the inclusion of fiscal rules and
    targets, which guide fiscal policy by controlling factors like
    expenditures, revenue, or the ratio of debt to gross domestic product,
    as well as from an alternative approach to the debt limit.

        The Nation also faces impending fiscal pressures for major
    programs, which add to the need for action (see figure).

    [GRAPHIC] [TIFF OMITTED] T3020.001

        .epsThe Federal Government also faces certain fiscal exposures--
    including unforeseen events like COVID-19 and natural disasters--that
    present risks to its future fiscal condition. In addition, executive
    agencies could achieve billions of dollars in financial benefits by
    reducing improper payments and the tax gap; increasing scrutiny of tax
    expenditures; and continuing to address duplication, overlap, and
    fragmentation in Federal programs.

                                     ______

        Chairman Cassidy, Ranking Member Hassan, and members of the
    subcommittee, I appreciate the opportunity to be here today to discuss
    our Nation's fiscal health and the actions needed to chart a more
    sustainable long-term fiscal path.

        I have long been concerned about the Federal Government's long-term
    fiscal outlook. Recently, the Coronavirus Disease 2019 (COVID-19)
    pandemic has necessitated a major Federal response to address our
    national public health emergency and resulting economic turmoil. While
    it is essential to confront COVID-19 and heal our economy, these
    efforts further complicate our government's fiscal condition.

        Congress and the administration have taken action on multiple
    fronts to address challenges that have contributed to the loss of life
    and profound economic disruption. These actions have directed much-
    needed Federal assistance--totaling $2.6 trillion--to support
    individuals and many public and private entities, including local
    public health systems and private-sector businesses. These short-term
    fiscal decisions have appropriately focused on protecting public health
    and the economy, and more assistance will likely be warranted. However,
    over the longer term, Congress and the administration need to take
    action to address the Federal Government's fiscal challenges.

        This necessary fiscal response, combined with the severe economic
    contraction from the pandemic, have generated a substantial increase in
    Federal debt which is expected to continue, as expenditures increase
    and tax revenues fall. These fiscal challenges will require attention
    once the economy has substantially recovered and public health goals
    have been attained.

        Once the current crisis abates, Congress and the administration
    need to swiftly put in place a broad plan to put the Federal Government
    on a sustainable long-term fiscal path. Such a plan is needed to ensure
    that the United States remains in a strong economic position to meet
    its social and security needs, as well as to preserve flexibility to
    address unforeseen events like COVID-19. This plan could benefit from
    the inclusion of fiscal rules and targets--which guide fiscal policy by
    controlling factors like expenditures, revenue, or the ratio of debt to
    gross domestic product (GDP)--as well as an alternative approach to the
    debt limit as currently structured.

        My statement today focuses on (1) the Federal Government's
    unsustainable long-term fiscal path, (2) actions needed to address the
    Federal Government's fiscal challenges, and (3) executive agencies'
    opportunities to contribute to fiscal health. My statement is based
    upon our September 2020 report on fiscal rules and targets and our
    March 2020 annual report on the Nation's fiscal health.\1\
    ---------------------------------------------------------------------------
        \1\ See GAO, The Nation's Fiscal Health: Effective Use of Fiscal
    Rules and Targets, GAO-20-561 (Washington, DC: September 23, 2020); and
    The Nation's Fiscal Health: Action Is Needed to Address the Federal
    Government's Fiscal Future, GAO-20-403SP (Washington, DC. March 12,
    2020). We plan to issue our next annual report on the Nation's fiscal
    health in January 2021.

        For the September 2020 report, we analyzed Congressional Budget
    Office (CBO) data on the Nation's fiscal condition, analyzed relevant
    literature, and interviewed experts, among other things. For the March
    2020 report, we leveraged our fiscal year 2019 audit of the U.S.
    government's consolidated financial statements and our 2019 High-Risk
    List, among other things.\2\ More information about our objectives,
    scope, and methodology for that work can be found in the issued
    reports. We updated certain information in this statement with the most
    recent available data from CBO and other sources. Our work was
    performed in accordance with all sections of GAO's Quality Assurance
    Framework that are relevant to our objectives.
    ---------------------------------------------------------------------------
        \2\ GAO, High-Risk Series: Substantial Efforts Needed to Achieve
    Greater Progress on High-Risk Areas, GAO-19-157SP (Washington, DC:
    March 6, 2019); and Financial Audit: Fiscal Years 2019 and 2018
    Consolidated Financial Statements of the U.S. Government, GAO-20-315R
    (Washington, DC: February 27, 2020).
    ---------------------------------------------------------------------------
          the federal government's unsustainable long-term fiscal path
    Federal Debt Is Rising to Historic Levels
        Even before the pandemic, the Federal Government was on an
    unsustainable long-term fiscal path caused by an imbalance between
    revenue and spending that is built into the structure of current law.
    Both spending and revenue have increased in recent years; however,
    growth in spending has outpaced modest revenue growth, deepening the
    Federal Government's fiscal imbalance. CBO projects that the annual
    deficit will exceed $1 trillion in each of the next 10 years.

        This imbalance has contributed to growing Federal debt. By the end
    of fiscal year 2019, Federal debt held by the public had climbed to 79
    percent of GDP. In September 2020, CBO estimated that it will continue
    to grow in the coming years, reaching 107 percent of GDP in 2023, its
    highest point in history (see fig. 1). CBO projects that debt held by
    the public will reach 195 percent of GDP in 2050. That the debt is
    growing faster than GDP means that the Federal Government is on an
    unsustainable fiscal path.

    [GRAPHIC] [TIFF OMITTED] T3020.002

    .epsHealth-Care Spending Is a Key Driver of the Long-Term Outlook
        Federal spending on major health-care programs and Social Security
    each exceeded $1 trillion in fiscal year 2019. Together, they accounted
    for more than half of total noninterest spending. Spending on these
    programs is expected to grow over the coming decade.

        Over the long term, Federal spending on health care is a key driver
    of growth in spending on Federal programs. In March 2020, even before
    the fiscal and economic effects of COVID-19, we projected that Federal
    spending on major health-care programs would continue to grow faster
    than the economy. This spending has exceeded the growth of GDP
    historically and is expected to continue to do so (see fig. 2).\3\
    ---------------------------------------------------------------------------
        \3\ CBO's September 2020 long-term projections of real GDP growth,
    which reflect the effects of COVID-19, are comparable to its pre-
    pandemic long-term projections. In September 2020, CBO slightly lowered
    its projections of long-term spending for major health-care programs.

    [GRAPHIC] [TIFF OMITTED] T3020.003

        .epsGrowth in Federal spending on health care is driven by
    increasing enrollment, particularly in Medicare, stemming primarily
    from the aging population, and by the increase in health-care spending
    ---------------------------------------------------------------------------
    per beneficiary.

            Aging population. In its 2020 long-term budget outlook report,
    CBO projected that by 2050, 22 percent of the population will be age 65
    or older, compared to 16 percent in 2019. This demographic trend is
    driven largely by lower fertility rates and increases in life
    expectancy. This trend has been accelerated by the relatively large
    baby boom generation, which began turning 65 in 2011 (see fig. 3).
    Medicare enrollment is expected to increase over the next decade as the
    number of people older than 65 increases.

    [GRAPHIC] [TIFF OMITTED] T3020.004

        .eps    Per-beneficiary spending. The amount of money spent on
    health care per person historically has risen faster than per capita
    economic output and is projected to do so in the future. In its 2020
    long-term budget outlook report, CBO projected that the growth in
    health-care spending per person will account for about two-thirds of
    the increase in spending for the major health-care programs as a share
    of GDP between 2019 and 2050. During the past several years, health-
    care spending per person grew more slowly than it has historically, but
    CBO and the Medicare Trustees both project that spending per enrollee
    in Federal health-care programs will grow more rapidly over the coming
    decade. Various factors can affect per beneficiary spending, including
    the emergence of new medical procedures and treatments.
    Net Interest Spending Is Growing Over the Long Term
        Growth in spending on Federal programs contributes to long-term
    growth in Federal outlays both directly and indirectly, as spending
    financed by debt leads to increased payments of interest. Spending on
    net interest totaled $376 billion--or 8.4 percent of total Federal
    spending--in fiscal year 2019. As net interest grows with the Federal
    Government's mounting debt, it is projected to exceed several types of
    spending, including Medicare, Social Security, and total discretionary
    spending over the long term.

            Net Interest

            Net interest primarily consists of interest costs on the
            Federal Government's debt held by the public. The amount of net
            interest spending is a function of the size of the debt to be
            financed and the level of interest rates. Spending on net
            interest means less room in the budget for Federal programs to
            support national goals and priorities or for tax cuts.

            Source: GAO analysis. | GAO-21-161T

        CBO estimated that spending on net interest will fall to $338
    billion in fiscal year 2020, primarily due to historically low interest
    rates. CBO projects that average interest rates on debt held by the
    public will be 2.0 percent in 2020, falling to 1.2 percent in the
    middle of the decade and subsequently increasing to 2.1 percent in
    2030.

        However, CBO anticipates that interest rates will rise over the
    long term. For example, CBO projects interest rates on 10-year Treasury
    notes will rise from an average of 0.7 percent in mid-2020 to 3.2
    percent in 2030 and 4.8 percent in 2050. For any given level of debt, a
    change in interest rates changes interest costs. Interest rates also
    have a compounding effect on the debt when the Federal Government
    borrows to make interest payments.

            Treasury Securities

            The Department of the Treasury (Treasury) issues securities in
            a wide range of maturities to appeal to a broad range of
            investors to support its goal of borrowing at the lowest cost
            over time. Treasury refinances maturing debt by issuing new
            debt in its place at prevailing interest rates.

            Source: GAO analysis. | GAO-21-161T

        Future interest costs will also depend, in part, on the outstanding
    mix of Treasury securities the public holds. At the end of fiscal year
    2019, 61 percent of the outstanding amount of publicly held marketable
    Treasury securities (about $9.9 trillion) was scheduled to mature in
    the next 4 years.\4\ If interest rates are higher when securities
    mature than when they were issued, and Treasury refinances these
    securities at the higher interest rates, the higher interest costs will
    add to the growing Federal debt. As of March 2020, international
    investors held 37.5 percent of Treasury securities.
    ---------------------------------------------------------------------------
        \4\ Marketable securities are securities that can be resold by
    whomever owns them. At the end of fiscal year 2019, 97 percent of the
    outstanding amount of securities that constitute debt held by the
    public was marketable. For more information, see GAO, Financial Audit:
    Bureau of the Fiscal Service's Fiscal Years 2019 and 2018 Schedules of
    Federal Debt, GAO-20-117 (Washington, DC: November 8, 2019).

        Since the outbreak of COVID-19, the major credit rating agencies
    have maintained their rating of U.S. debt at AAA or, in the case of
    Standard and Poor's, AA+.\5\ The agencies note the continued strength
    and resilience of the U.S. economy and institutions. However, in July
    2020, the credit rating agency Fitch revised the U.S. outlook from
    stable to negative, citing the ongoing deterioration in the outlook for
    Federal debt. The absence of a credible plan to address it, according
    to Fitch, may weaken institutions and has already started to erode the
    traditional credit strengths of the Treasury market.\6\
    ---------------------------------------------------------------------------
        \5\ In August 2011, Standard and Poor's lowered its long-term
    sovereign credit rating on the United States from AAA to AA+, citing
    the United States' rising public debt burden and greater policy-making
    uncertainty.
        \6\ See Fitch Ratings, Fitch Revises United States' Outlook to
    Negative; Affirms at `AAA' (New York: July 31, 2020). A stable outlook
    indicates a low likelihood of a rating change over the medium term. A
    negative, positive, or developing outlook indicates a higher likelihood
    of a rating change over the medium term.

        Although Moody's U.S. outlook remains stable, in June 2020 the
    rating agency noted that despite low interest rates, over the longer
    term, it expects U.S. debt affordability to deteriorate, driven mainly
    by lower government revenues, higher average levels of unemployment,
    and higher debt accumulation.\7\
    ---------------------------------------------------------------------------
        \7\ See Moody's Investors Service, Rating Action: Moody's affirms
    United States' AAA rating; maintains stable outlook, (New York: June
    19, 2020).
    ---------------------------------------------------------------------------
    COVID-19 Has Complicated the Fiscal Outlook
        In response to the unprecedented global crisis caused by COVID-19,
    the Federal Government has taken actions that have helped direct much-
    needed assistance to support many aspects of public life, including
    local public health systems and
    private-sector businesses. Specifically, four relief laws were enacted
    as of September 2020 that appropriated $2.6 trillion across the
    government to fund response and recovery efforts, as well as to
    mitigate the public health, economic, and security effects of COVID-
    19.\8\
    ---------------------------------------------------------------------------
        \8\ The four relief laws are the Coronavirus Preparedness and
    Response Supplemental Appropriations Act, 2020, Pub. L. No. 116-123,
    134 Stat. 146 (2020); Families First Coronavirus Response Act, Pub. L.
    No. 116-127, 134 Stat. 178 (2020); Coronavirus Aid, Relief, and
    Economic Security Act, Pub. L. No. 116-136, 134 Stat. 281 (2020); and
    Paycheck Protection Program and Health Care Enhancement Act, Pub. L.
    No. 116-139, 134 Stat. 620 (2020).

        In addition, COVID-19 prompted serious economic repercussions,
    which has caused tax revenue to fall. In July 2020, CBO estimated that
    real (inflation-
    adjusted) GDP will contract by 3.8 percent in fiscal year 2020. CBO
    also expects revenues to be sharply lower in 2020 than in 2019. In
    September 2020, CBO estimated that revenues for fiscal year 2020 will
    ---------------------------------------------------------------------------
    be about $3.3 trillion, or $167 billion less than in fiscal year 2019.

        As we reported in September 2020, State and local governments also
    face deteriorated fiscal conditions due to COVID-19.\9\ Similar to the
    Federal Government, they have experienced increased expenditures and
    decreased revenues stemming from the pandemic and the resulting
    economic effects. Increased unemployment and reduced consumption and
    economic activity contributed to reduced state and local revenues. In
    addition to updating their revenue forecasts, State and local
    governments have taken actions to respond to these fiscal challenges,
    including freezing hiring, furloughing staff, restricting contracts and
    new spending, and freezing discretionary spending.
    ---------------------------------------------------------------------------
        \9\ GAO, COVID-19: Federal Efforts Could Be Strengthened by Timely
    and Concerted Actions, GAO-20-701 (Washington, DC: September 21, 2020).
    For more information on the State and local fiscal outlook, see GAO,
    Intergovernmental Issues: Key Trends and Issues Regarding State and
    Local Sector Finances, GAO-20-437 (Washington, DC: March 23, 2020) and
    State and Local Governments' Fiscal Outlook: 2019 Update, GAO-20-269SP
    (Washington, DC: December 19, 2019).

        In addition, as the number of continuing unemployment claims
    remains historically high, more States are facing increased financial
    strain, and some have sought loans from the Federal Government to pay
    unemployment insurance (UI) benefits.\10\ As of September 29, 2020, 6
    months since the March 2020 spike in UI claims, 18 States and the U.S.
    Virgin Islands have taken out Federal loans totaling about $33.7
    billion to pay UI benefits.
    ---------------------------------------------------------------------------
        \10\ While the CARES Act UI programs are federally funded, regular
    UI is primarily funded through State and Federal taxes on employers.
    When a State exhausts the funds available for regular UI benefits, it
    may borrow from the Federal Government. According to Department of
    Labor data, even before the pandemic, many States were not taking in
    enough UI tax revenue to satisfy the solvency standard specified in the
    Department's regulations providing for interest-free loans to States.
    See 20 CFR Sec. 606.32 (2019).

        A number of States also tapped their reserve funds to balance
    budgets for fiscal year 2020. The four COVID-19 relief laws provided an
    estimated $335 billion in funds to agencies for assisting U.S. States,
    localities, territories, and tribes, including the Coronavirus Relief
    Fund, which provided $150 billion in direct assistance to help offset
    costs of their response to the COVID-19 pandemic.
              fiscal sustainability will require a long-term plan
        Since 2017, we have stated that the Federal Government needs a
    long-term plan to help put it on a sustainable fiscal path. Once the
    current crisis abates, having a long-term plan with clear goals and
    objectives agreed to by Congress and the administration, as well as
    strategies for achieving those goals and objectives, would provide
    transparency over the fiscal impacts of budget decisions for each year
    as well as over the long term.
    Fiscal Rules Could Help Form a Long-Term Plan
        According to the International Monetary Fund (IMF), a fiscal rule
    is a long-lasting constraint on fiscal policy through numerical limits
    on budgetary aggregates, such as expenditures and revenue. Fiscal
    targets are the interim benchmarks that may be established within the
    parameters set by the fiscal rules. There are various types of fiscal
    rules. For example, a debt rule sets an explicit limit or target for
    debt held by the public, typically as a share of GDP. A budget balance
    rule constrains deficit levels or targets a budget surplus.

        In September 2020, we suggested that Congress consider including
    fiscal rules and targets, such as a debt-to-GDP target, as part of a
    long-term fiscal plan.\11\ According to the IMF and the Organisation
    for Economic Co-Operation and Development (OECD), fiscal rules have the
    potential to contribute to fiscal sustainability.
    ---------------------------------------------------------------------------
        \11\ GAO-20-561.

        The IMF has reported that well-designed fiscal rules have been
    effective in containing excessive deficits in other countries. In
    addition, the OECD has reported that debt-to-GDP targets can serve as a
    fiscal policy anchor for a country's government to help ensure the
    sustainability of fiscal policy and maintain sufficient policy room for
    ---------------------------------------------------------------------------
    the government to cope with adverse shocks.

        The two Federal fiscal rules currently in effect--the Statutory
    Pay-As-You-Go Act of 2010 (Statutory PAYGO Act) and the Budget Control
    Act of 2011 (BCA)--have not corrected the imbalance between spending
    and revenues that has led to rising debt.\12\ From fiscal year 2012
    through fiscal year 2019, when both laws were in effect, Federal debt
    held by the public continued to grow (from 70 percent to 79 percent of
    GDP), even though the economy was expanding during this period.\13\
    ---------------------------------------------------------------------------
        \12\ Pub. L. No. 111-139, 124 Stat. 8 (2010) and Pub. L. No. 112-
    25, 125 Stat. 240 (2011). The Statutory PAYGO Act has been in effect
    since 2010 and does not have an expiration date. The BCA is in effect
    for fiscal years 2012-2021 for discretionary spending and fiscal years
    2012-2030 for direct (i.e., mandatory) spending.
        \13\ Other factors being equal, increasing GDP lowers the debt-to-
    GDP ratio, while decreasing GDP raises this ratio.

        These fiscal rules have not put the Nation on a sustainable fiscal
    path because they were not designed to encompass the entire range of
    factors that contribute to the Federal Government's fiscal imbalance.
    ---------------------------------------------------------------------------
    Specifically:

            The Statutory PAYGO Act requires that new direct (or
    mandatory) spending and revenue legislation cannot increase the deficit
    in any given year.\14\ However, Federal spending can increase as a
    result of programs established by previously enacted laws, such as
    Medicare.
    ---------------------------------------------------------------------------
        \14\ The Senate and the House of Representatives also have PAYGO
    rules, which generally provide that legislation affecting direct
    spending or revenues may not be considered if it would increase the
    deficit over a given period. These rules are internal rules that are
    not enforceable by the Statutory PAYGO Act.

            The BCA set limits on annual discretionary spending, which
    constituted only about 30 percent of Federal outlays in fiscal year
    2019.\15\ In addition, the BCA addresses only the spending side of the
    Federal Government's fiscal imbalance and does not address revenues.
    ---------------------------------------------------------------------------
        \15\ Implementation of the BCA also resulted in automatic, across-
    the-board spending reductions--known as sequestration--because Congress
    and the President did not reach agreement on further deficit reduction
    as required by the BCA. However, in fiscal year 2019 these reductions
    totaled less than $20 billion, or about 2 percent of the $984 billion
    deficit for that year.

        Likewise, Congress has passed and the President has signed numerous
    laws amending the BCA that have limited its effectiveness. Most of
    these laws increased the BCA's discretionary spending limits, which in
    ---------------------------------------------------------------------------
    turn increased annual deficits.

        The Federal Government's experience with fiscal rules illustrates
    that no process can force choices that policymakers are unwilling to
    make. In other words, Congress cannot be forced to pass and the
    president cannot be forced to sign into law decisions that may lead the
    Nation towards fiscal sustainability.

        To help formulate such a plan, we identified seven key
    considerations based on a literature review and interviews with experts
    on fiscal policy and fiscal rules. These key considerations are
    intended to help Congress if it were to adopt new fiscal rules and
    targets (see table 1).\16\
    ---------------------------------------------------------------------------
        \16\ For more information on these key considerations, including
    examples from Australia, Germany, and the Netherlands, see GAO-20-561.

         Table 1: Key Considerations for the Design, Implementation, and
                     Enforcement of Fiscal Rules and Targets
    ------------------------------------------------------------------------
           Key consideration                 Supporting explanation
    ------------------------------------------------------------------------
    Alignment With Fiscal Policy    Setting clear goals and objectives can
     Goals and Objectives            anchor a country's fiscal policy.
                                     Fiscal rules and targets can help
                                     ensure that spending and revenue
                                     decisions align with agreed-upon goals
                                     and objectives.
    ------------------------------------------------------------------------
    Design Tradeoffs and Features   The weight given to tradeoffs among
                                     simplicity, flexibility, and
                                     enforceability depends on the goals a
                                     country is trying to achieve with a
                                     fiscal rule. In addition, there are
                                     tradeoffs between the types and
                                     combinations of rules, as well as the
                                     time frames over which the rules apply.
    ------------------------------------------------------------------------
    Legal Framework and Permanence  The degree to which fiscal rules and
                                     targets are binding, such as being
                                     supported through a country's
                                     constitution or non-P binding political
                                     agreements, can impact their
                                     permanence, as well as the extent to
                                     which ongoing political commitment is
                                     needed to uphold them.
    ------------------------------------------------------------------------
    Integration With Budgetary      Integrating fiscal rules and targets
     Processes                       into budget discussions can contribute
                                     to their ongoing use and provide for a
                                     built-in enforcement mechanism. The
                                     budget process can include reviews of
                                     fiscal rules and targets.
    ------------------------------------------------------------------------
    Flexibility to Address          Fiscal rules and targets with limited,
     Emerging Issues                 well-defined exemptions, clear escape
                                     clauses for events such as national
                                     emergencies, and adjustments for the
                                     economic cycle can help a country
                                     address future crises.
    ------------------------------------------------------------------------
    Clear Roles for Supporting      Institutions supporting fiscal rules and
     Institutions                    targets need clear roles and
                                     responsibilities for supporting their
                                     implementation and measuring their
                                     effectiveness. Independently analyzed
                                     data and assessments can help
                                     institutions monitor compliance with
                                     fiscal rules and targets.
    ------------------------------------------------------------------------
    Transparency and Communication  Having clear, transparent fiscal rules
                                     and targets that a government
                                     communicates to the public and that the
                                     public understands can contribute to a
                                     culture of fiscal transparency and
                                     promote fiscal sustainability for the
                                     country.
    ------------------------------------------------------------------------
    Source: GAO analysis of literature review and interviews. | GAO-21-161T.

    Alternative Approaches to the Debt Limit Could Improve Debt Management
        We also have previously suggested that Congress consider
    alternative approaches to the debt limit as part of a long-term fiscal
    plan.\17\ Such action would avoid serious disruptions to the Treasury
    market and increases in borrowing costs, as well as allow Congress to
    better manage the Federal Government's level of debt. As currently
    structured, the Federal debt limit only restricts Treasury's authority
    to borrow and finance the decisions already passed by Congress and
    signed into law by the President.
    ---------------------------------------------------------------------------
        \17\ See GAO, The Nation's Fiscal Health: Actions Needed to Achieve
    Long-Term Fiscal Sustainability, GAO-19-611T (Washington, DC: June 26,
    2019).
    ---------------------------------------------------------------------------
            The Federal Debt Limit

            The Federal debt limit is a legal limit on the total amount of
            Federal debt that can be outstanding at one time.

            Source: GAO analysis of applicable laws. | GAO-21-161T.

        The debt limit is not a fiscal rule because it does not restrict
    Congress's ability to pass spending and revenue legislation that
    affects the level of debt.\18\ Without legislation to suspend or raise
    the debt limit, Treasury cannot continue issuing debt to finance the
    decisions already passed by Congress and signed into law by the
    President.
    ---------------------------------------------------------------------------
        \18\ The debt limit is codified at 31 U.S.C. Sec. 3101(b), as
    amended, and applies to Federal debt issued pursuant to authority under
    31 U.S.C. chapter 31. However, the debt limit was suspended and is
    scheduled for reinstatement on August 1, 2021, with the debt limit
    increased to the amount of obligations outstanding on that date.
    Bipartisan Budget Act of 2019, Pub. L. No. 116-37, Sec. 301, 133 Stat.
    1049 (2019), codified at 31 U.S.C. Sec. 3101 note.

        We have reported on the negative impacts of uncertainty around the
    debt limit that includes (1) increased Treasury borrowing costs, (2)
    decreased demand for Treasury securities, and (3) constrained Treasury
    cash management.\19\ Delays in raising the debt limit could lead to a
    default on legal debt obligations, which would have devastating effects
    on U.S. and global economies and the public. We have stated numerous
    times that the full faith and credit of the United States must be
    preserved.
    ---------------------------------------------------------------------------
        \19\ GAO, Debt Limit: Market Response to Recent Impasses
    Underscores Need to Consider Alternative Approaches, GAO-15-476
    (Washington, DC: July 9, 2015).

        In prior work, we identified three options that would enable
    Congress to delegate its borrowing authority, avoid impasses on the
    ---------------------------------------------------------------------------
    debt limit, and minimize disruptions to the Treasury securities market:

        1.  Link action on the debt limit to the budget resolution.

        2.  Provide the administration with the authority to propose a
    change in the debt limit that would take effect absent enactment of a
    joint resolution of disapproval within a specified time frame.

        3.  Delegate broad authority to the administration to borrow as
    necessary to fund enacted laws.\20\
    ---------------------------------------------------------------------------
        \20\ More detail on these ideas and a discussion of the advantages
    and challenges to each can be found in GAO-15-476.

        Each of these options has strengths and weaknesses but would
    maintain congressional control and oversight of Federal borrowing and
    better align decisions about the level of debt with decisions on
    ---------------------------------------------------------------------------
    spending and revenue.

        Congress is considering legislation that, if enacted, could help
    avoid impasses on the debt limit and provide a fiscal target to help
    manage the debt. For example, a Senate bill would automatically adjust
    the debt limit to conform to levels established in the budget
    resolution and would require budget resolutions every 2 years rather
    than annually. It would also specify target ratios for debt as a share
    of GDP and track legislation against that target.\21\
    ---------------------------------------------------------------------------
        \21\ Bipartisan Congressional Budget Reform Act, S. 2765, title II,
    Sec. 202(e)(5), 116th Cong. (2019). As of October 2020, the bill has
    been reported out of committee but has not passed the Senate.
    ---------------------------------------------------------------------------
    Impending Fiscal Pressures Will Require Action
        Action is also needed to address impending financial challenges for
    major programs and fiscal exposures that are both straining the Federal
    budget and contributing to the growing debt (see fig. 4).\22\
    ---------------------------------------------------------------------------
        \22\ In April 2020, the trustees for Social Security and Medicare
    published projections for when the Social Security Old-Age and
    Survivors Insurance trust fund and the Medicare hospital insurance
    trust fund will be depleted. These projections do not reflect the
    effects of COVID-19 and differ from CBO's projections, which were
    published in September 2020 and reflect the effects of the pandemic.

    [GRAPHIC] [TIFF OMITTED] T3020.005

        .epsThe Federal Government faces certain additional fiscal
    exposures that present risks to its future fiscal condition. Fiscal
    exposures are responsibilities, programs, and activities that may
    legally commit the Federal Government to future spending or create
    expectations for future spending based on current policy, past
    practices, or other factors. It is important to have budgetary
    flexibility to respond to these and other unforeseen events, like
    ---------------------------------------------------------------------------
    COVID-19.

        These crises often cannot be predicted and are difficult to budget
    for. A more complete understanding of fiscal risks can help
    policymakers anticipate changes in future spending and can enhance
    oversight of Federal resources.

            Pension Benefit Guaranty Corporation

            The Pension Benefit Guaranty Corporation (PBGC) insures
            benefits, up to statutory limits, in private-sector defined
            benefit pension plans. PBGC's single-employer program covers
            defined benefit pension plans that are generally sponsored by
            individual employers, while the multiemployer program covers
            defined benefit pension plans created through collective
            bargaining agreements generally between labor unions and two or
            more employers.

            Source: GAO analysis. | GAO-21-161T

        The following are examples of fiscal exposures or risks:\23\
    ---------------------------------------------------------------------------
        \23\ For additional examples of fiscal risks, see GAO-20-403SP.

            The Pension Benefit Guaranty Corporation. The Pension Benefit
    Guaranty Corporation (PBGC) faces an uncertain financial future. PBGC
    reported that its liabilities exceeded its assets by more than $56
    billion as of the end of fiscal year 2019.\24\ The multiemployer
    program reported a deficit of about $65 billion for that year. PBGC
    projects that without structural legislative reforms, there is a high
    likelihood the multiemployer program will become insolvent during
    fiscal year 2026 and that insolvency is a near certainty by the end of
    fiscal year 2027.\25\
    ---------------------------------------------------------------------------
        \24\ Pension Benefit Guaranty Corporation, Annual Report 2019
    (Washington, DC: November 15, 2019).
        \25\ PBGC's projection does not take into account the effects of
    the COVID-19 pandemic. For more information on PBGC insurance programs,
    see Pension Benefit Guaranty Corporation, FY 2019 PBGC Projections
    Report (Washington, DC: September 14, 2020), and GAO-19-157SP, 267.

        In addition, PBGC estimated that its exposure to potential
    additional future losses for underfunded plans was $155 billion for the
    single-employer program and $11 billion for the multiemployer program.
    Although the single-employer program is currently in surplus--about
    $8.7 billion for fiscal year 2019--its financial position is highly
    sensitive to prevailing economic conditions, and past experience with
    large claims shows that its condition can change quickly and
    ---------------------------------------------------------------------------
    precipitously.

            Natural Disasters and Climate Change. The rising number of
    natural disasters and increasing state, local, and tribal reliance on
    Federal disaster assistance also pose a risk to the Federal fiscal
    outlook. Since 2005, Federal funding for disaster assistance has
    totaled at least $460 billion, which consists of obligations for
    disaster assistance from 2005 through 2014 totaling about $278 billion
    \26\ and select appropriations for disaster assistance from 2015
    through 2019 totaling $183 billion.\27\ In 2019 alone, 14 weather and
    climate disaster events had losses exceeding $1 billion each, with
    total costs of at least $45 billion, according to the National Oceanic
    and Atmospheric Administration (NOAA). As of July 8, 2020--the most
    recent date for which data are available--NOAA reported that the U.S.
    experienced 10 weather and climate disasters that incurred losses
    exceeding $1 billion each.
    ---------------------------------------------------------------------------
        \26\ See GAO, Federal Disaster Assistance: Federal Departments and
    Agencies Obligated at Least $277.6 Billion During Fiscal Years 2005
    Through 2014, GAO-16-797 (Washington, DC: September 22, 2016).
        \27\ This total includes, for fiscal years 2015 through 2019, $143
    billion in supplemental appropriations to Federal agencies for disaster
    assistance and approximately $40 billion in annual appropriations to
    the Disaster Relief Fund. It does not include other annual
    appropriations to Federal agencies for disaster assistance.

    ---------------------------------------------------------------------------
            Federal Disaster Assistance

            Federal disaster assistance can come from Federal
            responsibilities, programs, and activities, such as the
            National Flood Insurance Program, that may legally commit or
            create the expectation for future Federal spending. Federal
            agencies can become involved in responding to a disaster when
            effective response and recovery are beyond the capabilities of
            the affected state and local governments.

            The Disaster Relief Fund is the primary source of Federal
            disaster assistance for State, local, territorial, and tribal
            governments when a major disaster or emergency is declared.

            Source: GAO analysis. | GAO-21-161T

        Although the Disaster Relief Fund receives funding through the
    annual appropriations process, the Federal Government does not budget
    fully for the costs of disaster assistance. According to Congressional
    Research Service data, since 1964 more than 82 percent of overall net
    appropriations for disaster relief has been through supplemental
    appropriations.\28\ These appropriations, as well as most annual
    appropriations to the disaster relief fund, generally do not count
    toward existing discretionary budget limits.\29\
    ---------------------------------------------------------------------------
        \28\ Congressional Research Service, The Disaster Relief Fund:
    Overview and Issues, R45484 (Washington, DC: November 22, 2019).
        \29\ The Budget Control Act of 2011 allows spending limits to be
    adjusted upward to accommodate appropriations for disaster relief. Pub.
    L. No. 112-25, tit. I, Sec. 101, 125 Stat. at 244-45.

        Disaster costs are projected to increase as extreme weather events
    become more frequent and intense because of climate change.\30\
    Limiting the Federal Government's fiscal exposures to climate change
    has been on our High-Risk List since 2013, in part because of concerns
    about the increasing costs of disaster response and recovery
    efforts.\31\
    ---------------------------------------------------------------------------
        \30\ See USGCRP, 2018: Impacts, Risks, and Adaptation in the United
    States: Fourth National Climate Assessment, Volume II [Reidmiller,
    D.R., C.W. Avery, D.R. Easterling, K.E. Kunkel, K.L.M. Lewis, T.K.
    Maycock, and B.C. Stewart (eds.)]. U.S. Global Change Research Program,
    Washington, DC, USA, 1515 pp. DOI: 10.7930/NCA4.2018, and National
    Research Council 2020, Climate Change: Evidence and Causes: Update
    2020; Washington, DC: The National Academies Press, https://doi.org/
    10.17226/25733.
        \31\ GAO-19-157SP, 110.
    ---------------------------------------------------------------------------
       executive agencies have opportunities to contribute toward fiscal
                                     health
        Changes in spending and revenue to ensure long-term fiscal
    sustainability require legislative actions to alter fiscal policies,
    but in our prior work we have also identified numerous actions for
    executive agencies to contribute toward a sustainable fiscal future.
    Although executive actions alone cannot put the U.S. government on a
    sustainable fiscal path, it is important for agencies to act as
    stewards of Federal resources.\32\
    ---------------------------------------------------------------------------
        \32\ GAO-20-403SP.

    ---------------------------------------------------------------------------
            Improper Payments

            Improper payments are payments that should not have been made
            or that were made in an incorrect amount.

            Source: GAO analysis. | GAO-21 161T

            Reduce Improper Payments. Since fiscal year 2003, cumulative
    improper payment estimates have totaled almost $1.7 trillion.\33\ For
    fiscal year 2019, agencies reported total improper payment estimates of
    about $175 billion. To address this issue, agencies should first
    identify the root causes of improper payments and then implement
    internal controls aimed at both prevention and detection. However, the
    government's ability to understand the scope of the issue is hindered
    by incomplete, unreliable, or understated estimates; risk assessments
    that may not accurately assess the risk of improper payment; and
    noncompliance with statutory improper payments criteria.\34\
    ---------------------------------------------------------------------------
        \33\ Certain agencies were required by statute to begin reporting
    estimated improper payments for certain programs and activities
    beginning in 2003.
        \34\ See 31 U.S.C. Sec. Sec. 3351-3353.

    ---------------------------------------------------------------------------
            Tax Gap

            The tax gap is the difference between tax amounts that
            taxpayers owe and what they actually pay voluntarily and on
            time. It arises when taxpayers, whether intentionally or
            inadvertently, fail to (1) accurately report tax liabilities on
            tax returns (underreporting), (2) pay taxes due from filed
            returns (underpayment), or (3) file a required tax return
            altogether or on time (nonfiling).

            Source: GAO analysis. | GAO-21-161T

            Address the Persistent Tax Gap. The net tax gap--after late
    payments and Internal Revenue Service enforcement--amounted to $381
    billion per year for tax years 2011-2013, according to the Internal
    Revenue Service's most recent estimates.\35\ This persistent issue has
    been on our High-Risk List since its inception in 1990.\36\ Even
    marginal reductions in the gap between taxes owed and those paid would
    increase tax collections by billions of dollars annually.
    ---------------------------------------------------------------------------
        \35\ IRS released its most recent tax gap estimate in September
    2019 for tax years 2011 to 2013.
        \36\ For more information on addressing the tax gap, see GAO-19-
    157SP, 235.

    ---------------------------------------------------------------------------
            Tax Expenditures

            Tax expenditures are provisions of the tax code that reduce
            taxpayers' tax liability and therefore the amount of tax
            revenue paid to the government. Examples include tax credits,
            deductions, exclusions, exemptions, deferrals, and preferential
            tax rates.

            Source: GAO analysis. | GAO-21-161T

            Increase Scrutiny of Tax Expenditures. In fiscal year 2019,
    tax expenditures reduced income tax revenues by approximately $1.32
    trillion based on our calculation summing Treasury estimates for each
    tax expenditure.\37\ Although they are routinely used as a policy tool,
    tax expenditures are not regularly reviewed and their outcomes are not
    measured as closely as spending programs' outcomes. Since 1994, we have
    recommended greater scrutiny of tax expenditures.\38\
    ---------------------------------------------------------------------------
        \37\ The sum of the specific tax expenditure estimates is useful
    for gauging the general magnitude of reduced revenue through provisions
    of the tax code, but aggregate tax expenditure estimates must be
    interpreted carefully. Summing revenue loss estimates does not take
    into account possible interactions between individual provisions or
    potential behavioral responses to changes in these provisions on the
    part of taxpayers. Additionally, Treasury's tax expenditure estimates
    include the effect of certain tax credits on receipts only and not the
    effect of the credits on outlays, which Treasury reports separately,
    but do not take into account interactions between individual
    provisions.
        \38\ For more information on our work on tax expenditures, see GAO,
    Key Issues: Tax Expenditures, accessed on October 1, 2020, http://
    www.gao.gov/key_issues/tax_expenditures/issue_
    summary.

            Continue to Address Duplication, Overlap, and Fragmentation.
    Federal agencies also have the potential to achieve billions in
    financial benefits by continuing to address duplication, overlap, and
    fragmentation. Actions taken by the executive branch and Congress on
    these issues have resulted in roughly $429 billion financial benefits
    since fiscal year 2010.\39\ As of March 2020, about 57 percent of the
    actions we have identified to address duplication, overlap, and
    fragmentation were fully addressed, about 22 percent were partially
    addressed, and about 12 percent were not addressed.\40\
    ---------------------------------------------------------------------------
        \39\ The $429 billion includes about $393 billion from 2010 through
    2019 and $36 billion projected to accrue in 2020 or later. In
    calculating these totals, we relied on individual estimates from a
    variety of sources, which considered different time periods and
    utilized different data sources, assumptions, and methodologies. These
    totals represent a rough estimate of financial benefits and have been
    rounded down to the nearest $1 billion.
        \40\ Nine percent of the actions have been consolidated or other--
    replaced or subsumed by new actions based on additional audit work or
    other relevant information--or closed as not addressed because the
    action is no longer relevant due to changing circumstances. For more
    information, see GAO, 2020 Annual Report: Additional Opportunities to
    Reduce Fragmentation, Overlap, and Duplication and Achieve Billions in
    Financial Benefits, GAO-20-440SP (Washington, DC: May 19, 2020); and
    Duplication and Cost Savings: Action Tracker, updated on May 19, 2020,
    https://www.gao.gov/duplication/overview#t=1.

    ---------------------------------------------------------------------------
            Duplication, Overlap, and Fragmentation

            Since 2011, we have reported on Federal programs, agencies,
            offices, and initiatives that have duplicative goals or
            activities as well as opportunities to achieve greater
            efficiency and effectiveness that result in cost savings or
            enhanced revenue collection. In our 10 annual reports from 2011
            through 2020, we presented more than 1,000 actions for
            executive branch agencies or Congress to reduce, eliminate, or
            better manage fragmentation, overlap, or duplication; achieve
            cost savings; or enhance revenue.

            Source: GAO analysis. | GAO-21-161T

        In summary, responding to COVID-19 and the resulting severe
    economic downturn must continue to be the national priorities. However,
    a broad plan to address the long-term fiscal outlook needs to be
    swiftly implemented once public health goals have been attained and the
    economy has substantially recovered. It is essential and prudent to
    move toward a sustainable fiscal path.

        To do this, policy-makers will need to consider policy changes to
    the entire range of Federal activities (including tax expenditures) and
    spending (entitlement programs, other mandatory spending, and
    discretionary spending). As we and CBO have both reported, the longer
    we postpone actions to address the Federal debt, the more drastic
    changes to spending and revenues will need to be.

        Chairman Cassidy, Ranking Member Hassan, and members of the
    subcommittee, this completes my prepared statement. I would be pleased
    to respond to any questions.

                                     ______

                   Prepared Statement of Hon. Maggie Hassan,
                       a U.S. Senator From New Hampshire
        Thank you, Senator Cassidy, and thank you to Director Swagel and
    Comptroller General Dodaro for testifying today.

        This subcommittee is charged with promoting fiscal responsibility
    and economic growth, because the two go hand-in-hand. As a Nation, we
    must be concerned about the growth in the national debt. If not handled
    carefully, it could threaten to slow the economy and jeopardize our
    ability to make key investments in everything from innovation to
    national security.

        The first step to improving our Nation's fiscal outlook is
    improving the economic outlook of families, businesses, communities,
    and States that have been hit hard by the COVID-19 crisis. Yesterday,
    Federal Reserve Chair Powell warned that ``too little support would
    lead to a weak recovery, creating unnecessary hardship for households
    and businesses.''

        Providing assistance to families who can't make ends meet and
    helping hard-hit businesses stay afloat is not only the right thing to
    do--it is also the fiscally responsible thing to do. It will help
    ensure that families can pay their rent or buy groceries at their local
    stores, and that small businesses can continue employing their
    workers--which will help to keep local economies moving and improve our
    Nation's economic outlook.

        The second step to getting our Nation's fiscal house in order--
    after the recovery from COVID-19--is for Congress to implement common-
    sense, bipartisan measures that promote fiscal responsibility and
    reduce the national debt.

        As recommended by GAO, we need to address the so-called ``tax
    gap,'' which comes from corporations and millionaires avoiding taxes by
    underreporting income to the Treasury. We need to revisit the partisan
    tax giveaways that were jammed through Congress in 2017, in order to
    ensure that major corporations are paying their fair share in taxes.
    And we need to eliminate waste, fraud, and abuse across the Federal
    Government--one of my top priorities as the ranking member of the
    Homeland Security and Governmental Affairs Subcommittee on Federal
    Spending Oversight.

        In seeking a bipartisan path to improving our fiscal standing,
    Congress must also strengthen and protect Social Security and
    Medicare--while making it absolutely clear that seniors will receive
    the full benefits that they earned over a lifetime of work.

        Overall, it is clear that--once we have recovered from COVID-19--
    the sooner we address the national debt, the better. As shown by CBO
    and GAO, the difficulties of addressing the fiscal outlook only
    compound over time--making it all the more pressing that we work
    together in a bipartisan way to get through this crisis and then
    develop a fiscally responsible long-term plan for the Federal budget.

        Senator Cassidy, I look forward to working with you and the other
    members of the Finance Committee, and I look forward to hearing from
    Director Swagel and Comptroller General Dodaro on ways to improve our
    fiscal outlook.

                                     ______

             Prepared Statement of Hon. Phillip L. Swagel, Ph.D.,
                     Director, Congressional Budget Office
                       the 2020 long-term budget outlook
        Chairman Cassidy, Ranking Member Hassan, and members of the
    subcommittee, thank you for inviting me to testify about the
    Congressional Budget Office's most recent long-term budget projections,
    which the agency released in September in the report The 2020 Long-Term
    Budget Outlook. Today, I will focus on the long-term fiscal challenges
    facing the nation that are the subject of that report.

        Each year, CBO issues a set of long-term budget projections--often
    referred to as the extended baseline projections--that provide
    estimates of what Federal debt, deficits, spending, and revenues would
    be over the next 30 years if current laws generally remained unchanged.
    Relative to the size of the economy, Federal debt is higher in this
    year's projections than it was in last year's projections. The economic
    disruption caused by the 2020 coronavirus pandemic and the Federal
    Government's response to it contribute significantly to that
    difference.

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    .epsThe 2020 Long-Term Budget Outlook is one of a series of reports on
    the state of the budget and the economy that the Congressional Budget
    Office issues each year. This testimony summarizes that report. In
    keeping with CBO's mandate to provide objective, impartial analysis,
    neither that report nor this testimony makes any recommendations.

    The full report and supplemental data files, which were prepared by
    many people at CBO, are available on the agency's website at
    www.cbo.gov/publication/56516. This testimony is available at
    www.cbo.gov/publication/56665.

                                     ______

            Submitted by Hon. Ron Wyden, a U.S. Senator From Oregon

                   From The New York Times, January 22, 2020

      Trump Opens Door to Cuts to Medicare and Other Entitlement Programs

                     By Alan Rappeport and Maggie Haberman

     The President signaled a willingness to scale back Medicare, a shift
           from his 2016 platform of protecting entitlement programs.

    WASHINGTON--President Trump suggested on Wednesday that he would be
    willing to consider cuts to social safety-net programs like Medicare to
    reduce the federal deficit if he wins a second term, an apparent shift
    from his 2016 campaign promise to protect funding for such
    entitlements.

    The President made the comments on the sidelines of the World Economic
    Forum in Davos, Switzerland. Despite promises to reduce the federal
    budget deficit, it has ballooned under Mr. Trump's watch as a result of
    sweeping tax cuts and additional government spending.

    Asked in an interview with CNBC if cuts to entitlements would ever be
    on his plate, Mr. Trump answered yes.

    ``At some point they will be,'' Mr. Trump said, before pointing to
    United States economic growth. ``At the right time, we will take a look
    at that.''

    Mr. Trump suggested that curbing spending on Medicare, the government
    health care program for the elderly, was a possibility.

    ``We're going to look,'' he said.

    The interview left many questions unanswered, including whether Mr.
    Trump would consider touching Social Security or what part of Medicare
    he would be willing to shave. The President veered from answering the
    question about entitlements to talking about the robustness of the
    American economy and how his policies have helped alleviate poverty and
    boost jobs for minorities, perhaps suggesting that the need for
    entitlement programs at their current levels had waned.

    The President has already proposed cuts for some safety-net programs.
    His last budget proposal called for a total of $1.9 trillion in cost
    savings from mandatory safety-net programs, like Medicaid and Medicare.
    It also called for spending $26 billion less on Social Security
    programs, the federal retirement program, including a $10 billion cut
    to the Social Security Disability Insurance program, which provides
    benefits to disabled workers.

    Spending on Social Security, Medicare and Medicaid is expected to cost
    the federal government more than $30 trillion through 2029, according
    to the Congressional Budget Office.

    Mr. Trump's willingness to consider such cuts marks a shift from four
    years ago, when he stood out in a field of deficit-minded Republicans
    in the 2016 primary race with a promise to shield entitlements from
    cuts.

    In a tweet in May 2015, a month before he formally began his campaign,
    Mr. Trump discussed another Republican's promises to keep entitlements
    intact, former Gov. Mike Huckabee of Arkansas.

    ``Huckabee is a nice guy but will never be able to bring in the funds
    so as not to cut Social Security, Medicare and Medicaid,'' Mr. Trump
    tweeted. ``I will.''

    In his formal campaign announcement that year, he said, ``Save
    Medicare, Medicaid and Social Security without cuts. Have to do it. Get
    rid of the fraud. Get rid of the waste and abuse, but save it.''

    Democrats are also wrangling over entitlement programs, which are among
    the fastest growing federal expense. Senator Bernie Sanders from
    Vermont and former Vice President Joseph R. Biden Jr. have been arguing
    for days over Mr. Biden's past comments about cuts to Social Security,
    a reminder of how sensitive the issue is for voters.

    Republicans have largely avoided talking about rolling back entitlement
    programs since Mr. Trump became President, assuming that doing so would
    be a non-starter. Following the $1.5 trillion tax cut that Republicans
    passed in 2017, some suggested that they would quickly turn to reduce
    the cost of Social Security, Medicare and Medicaid.

    Those ideas gained little traction and federal spending has continued
    to grow.

    The Treasury Department said last week that the federal budget deficit
    surpassed $1 trillion in 2019. It was the first calendar year since
    2012 that the deficit topped that threshold. To help finance deficits,
    which require the government to sell debt, the Treasury Department
    plans to begin issuing 20-year bonds.

    Other Trump administration officials have been more careful in
    discussing the need to cut spending on entitlement programs. Treasury
    Secretary Steven T. Mnuchin demurred earlier this month when pressed on
    CNBC about how to scale back spending on entitlements.

    ``All I'm going to say is that we talked about there needs to be
    bipartisan review of government spending and that's something at the
    appropriate time we'll look at,'' Mr. Mnuchin said.

                                     ______

    President Trump proposed a $493.7-billion cut in Medicare spending
    (2019-2028) in the FY 2019 Budget (https://www.hhs.gov/sites/default/
    files/fy-2019-budget-in-brief.pdf)

    President Trump proposed an $858.7-billion reduction in Medicare
    spending (2020-2029) in the FY 2020 budget (https://www.hhs.gov/sites/
    default/files/fy-2020-budget-in-brief.pdf)

    President Trump proposed a $450-billion reduction in Medicare spending
    (2020-2029) in the FY 2020 budget (https://www.hhs.gov/sites/default/
    files/fy-2021-budget-in-brief.pdf)

    President Trump's Budget document, on p. 119, shows some of the cuts to
    Social Security that Senator Wyden mentioned in his statement and said
    he wanted to include in the hearing record (https://www.govinfo.gov/
    content/pkg/BUDGET-2021-MSV/pdf/BUDGET-2021-MSV.pdf)

                                     ______

                                 Communication

                                  ----------

                            Center for Fiscal Equity

                            14448 Parkvale Road, #6

                           Rockville, Maryland 20853

                        Statement of Michael G. Bindner

    Chairman Cassidy and Ranking Member Hassan, thank you for the
    opportunity to submit our comments, which reflect those previously made
    to the Senate Budget Committee and the Ways and Means Social Security
    Subcommittee.

    GAO and CBO estimates are the gold standard in budget forecasting. In
    the near term, they hit the mark the closest. This year, however, their
    work is complicated by business closures, social distancing, and a
    pandemic that is out of control.

    The reason the pandemic is out of control is not mask wearing or young
    people at parties. People who rarely get sick do not spread the virus.
    To be an asymptomatic spreader, you must first be infected with stage
    one of the virus, which is a cold most people mistake for really bad
    hay fever. Because no one want to believe they have had Coronavirus due
    to the social stigma of having had it (people consider it to be a
    plague), few are willing to admit infection or the possibility of it.

    Denial leads to infection of others, because there is an asymptomatic
    period between nasal symptoms and Sudden Acute Respiratory Syndrome #2.
    This is a misnomer--the symptoms occurred early (as stated) and, in the
    meantime--the virus has moved to the lower respiratory system, and from
    there, to the entire body. When symptoms come, an immune reaction has
    kicked in and spread is less likely.

    Science is supposed to banish fear. With this pandemic, it multiplied
    the fear. The best preventative for SARS2 is to have colds prior to
    this pandemic and to be around children with colds. The second-best
    preventative is to get sick. Those under forty-five will hardly notice
    it as more than a cold, while those under 70 will rarely die. I had the
    disease. During the fatigue period coincident with SARS symptoms, I
    only wished for death or felt like I was already dead. I don't
    recommend getting this once a vaccine is available, but few will be
    able to make the decision to wait.

    Worse, having had cold symptoms have been left off of the screening
    criteria for entering buildings, from the doctor's office to the
    supermarket. The worst place to have nasal symptoms or ignore them is a
    restaurant. Some of us sneeze when we eat hot food. If we have the
    virus or someone else does, everyone does unless previously exposed.
    Eating with another person at home is another sure spreader. Not
    knowing or admitting that sneezes are the primary symptom and the
    tendency to rationalize being contagious away is why the spread is out
    of control.

    The desire to beat the virus with masks leads to optimistic models. Any
    model that does not assume 400,000 deaths or more is inadequate. A
    second shutdown, at least in some states, should also be included. The
    virus will go away sooner than later, likely before the vaccine is
    ready and the dead are buried.

    This is half of the story. The rest of it has to do with the long-term
    fiscal outlook. The usual tale of woe concerns how bad the debt will
    be, specifically entitlements (as a caution against Medicare for All)
    and as code for doing something about Social Security. To this I
    respond, nonsense!

    Visibility into how the national debt, held by both the public and the
    government at the household level, sheds light on why Social Security,
    rather than payments for interest on the public debt, are a concern of
    so many sponsored advocacy institutions across the political spectrum.

    Direct household attribution exists through direct bond holdings,
    provided by Social Security payments and secondary financial
    instruments backed with debt assets. Using the Federal Reserve Consumer
    Finance Survey and federal worker and Social Security payment and tax
    information, we have calculated who owes and who owns the national debt
    by income quintile. Federal Reserve and Bank holdings are attributed
    based on household checking and savings account sizes.

    Responsibility to repay the debt is attributed based on personal income
    tax collection. Payroll taxes create an asset for the payer, so they
    are not included in the calculation of who owes the debt. Calculations
    based on debt held when our study on the debt was published,
    distributed based on the latest data (2017) from the IRS Data Book show
    a ratio of $16.5 of debt for every dollar of income tax paid.

    This table shows a summary level distribution of income, national debt
    and debt assets in three groupings based on share of Adjusted Gross
    Income received, rather than by number of households. This answers the
    perennial question of who is in the middle class.

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Amounts (Billions)
                                                                    ----------------------------------------------------------------------------------------
                                           Millions of  Millions of                                   Held by
      Descending cumulative percentiles      Returns      Returns                        Gross Debt   Federal             Held in     Held in     Assets Net
                                              Filed      Paying Tax    AGI     Income     (Factor)    Reserve   Held in   Personal   Government    of Debt
                                                                              Tax Paid     16.55        and      Bonds    Accounts      Debt      Liability
                                                                                                       Banks
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    All returns, total                           143.3         99.4   10,937     1,601       26,500     5,238     4,222      3,854        5,384      (7,802)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Top 5% IRS, 8.5% CPS, $208,053                 7.2          7.2    3,995       947       15,671     2,926     3,693      2,411          294      (6,347)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    5%-25%IRS, 8.5%-37.2% CPS, $83,682            28.7         28.3    3,566       432        7,146     1,399       529      1,046        1,238      (2,934)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Bottom 75% IRS, 62.8% CPS, $0                107.5         63.9    3,375       223        3,683       913         -        397        3,852        1,479
    --------------------------------------------------------------------------------------------------------------------------------------------------------

    The bottom 75% of taxpaying units hold few, if any, public debt assets
    in the form of Treasury Bonds or Securities or in accounts holding such
    assets. Their main national debt assets are held on their behalf by the
    Government. They are owed more debt than they owe through taxes. The
    next 20% (the middle class), hold few bonds, a third of bond-backed
    financial assets and a quarter of government held retirement assets.

    The top 5% (roughly 8.5% of households) own the vast majority of non-
    government retirement holdings and collect (and roll-over) most net
    interest payments. This stratum owns very little of retirement assets
    held by the government, hence their interest in controlling these
    costs. Their excess liability over assets is mostly attributable to
    internationally held debt. Roughly $4 Trillion of this debt is held by
    institutions, with the rest held by individual bond holds, including
    debt held by members of this stratum in off-shore accounts.

    Source: Settling (and Squaring) Accounts: Who Really Owes the National
    Debt? Who Owns It?

    Thank you for the opportunity to address the committee. We are, of
    course, available for direct testimony or to answer questions by
    members and staff.

                                       [all]