[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.

[GRAPHIC] [TIFF OMITTED] T3020.006


.eps[GRAPHIC] [TIFF OMITTED] T3020.007


.eps[GRAPHIC] [TIFF OMITTED] T3020.008


.eps[GRAPHIC] [TIFF OMITTED] T3020.009


.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]