[Senate Hearing 116-521]
[From the U.S. Government Publishing Office]
S. Hrg. 116-521
THE FISCAL OUTLOOK
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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
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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
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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
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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\
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\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).
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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\
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\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.
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\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\
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\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).
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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\
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\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
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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.
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\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\
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\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.
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\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.
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\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\
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\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.
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\17\ See GAO, The Nation's Fiscal Health: Actions Needed to Achieve
Long-Term Fiscal Sustainability, GAO-19-611T (Washington, DC: June 26,
2019).
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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.
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\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.
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\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
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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\
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\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
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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\
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\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.
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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\
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\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
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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\
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\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\
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\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
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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.
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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\
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\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\
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\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.
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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\
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\32\ GAO-20-403SP.
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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\
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\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.
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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.
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\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.
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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\
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\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\
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\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.
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Duplication, Overlap, and Fragmentation
Since 2011, we have reported on Federal programs, agencies,
offices, and initiatives that have duplicative goals or
activities as well as opportunities to achieve greater
efficiency and effectiveness that result in cost savings or
enhanced revenue collection. In our 10 annual reports from 2011
through 2020, we presented more than 1,000 actions for
executive branch agencies or Congress to reduce, eliminate, or
better manage fragmentation, overlap, or duplication; achieve
cost savings; or enhance revenue.
Source: GAO analysis. | GAO-21-161T
In summary, responding to COVID-19 and the resulting severe
economic downturn must continue to be the national priorities. However,
a broad plan to address the long-term fiscal outlook needs to be
swiftly implemented once public health goals have been attained and the
economy has substantially recovered. It is essential and prudent to
move toward a sustainable fiscal path.
To do this, policy-makers will need to consider policy changes to
the entire range of Federal activities (including tax expenditures) and
spending (entitlement programs, other mandatory spending, and
discretionary spending). As we and CBO have both reported, the longer
we postpone actions to address the Federal debt, the more drastic
changes to spending and revenues will need to be.
Chairman Cassidy, Ranking Member Hassan, and members of the
subcommittee, this completes my prepared statement. I would be pleased
to respond to any questions.
______
Prepared Statement of Hon. Maggie Hassan,
a U.S. Senator From New Hampshire
Thank you, Senator Cassidy, and thank you to Director Swagel and
Comptroller General Dodaro for testifying today.
This subcommittee is charged with promoting fiscal responsibility
and economic growth, because the two go hand-in-hand. As a Nation, we
must be concerned about the growth in the national debt. If not handled
carefully, it could threaten to slow the economy and jeopardize our
ability to make key investments in everything from innovation to
national security.
The first step to improving our Nation's fiscal outlook is
improving the economic outlook of families, businesses, communities,
and States that have been hit hard by the COVID-19 crisis. Yesterday,
Federal Reserve Chair Powell warned that ``too little support would
lead to a weak recovery, creating unnecessary hardship for households
and businesses.''
Providing assistance to families who can't make ends meet and
helping hard-hit businesses stay afloat is not only the right thing to
do--it is also the fiscally responsible thing to do. It will help
ensure that families can pay their rent or buy groceries at their local
stores, and that small businesses can continue employing their
workers--which will help to keep local economies moving and improve our
Nation's economic outlook.
The second step to getting our Nation's fiscal house in order--
after the recovery from COVID-19--is for Congress to implement common-
sense, bipartisan measures that promote fiscal responsibility and
reduce the national debt.
As recommended by GAO, we need to address the so-called ``tax
gap,'' which comes from corporations and millionaires avoiding taxes by
underreporting income to the Treasury. We need to revisit the partisan
tax giveaways that were jammed through Congress in 2017, in order to
ensure that major corporations are paying their fair share in taxes.
And we need to eliminate waste, fraud, and abuse across the Federal
Government--one of my top priorities as the ranking member of the
Homeland Security and Governmental Affairs Subcommittee on Federal
Spending Oversight.
In seeking a bipartisan path to improving our fiscal standing,
Congress must also strengthen and protect Social Security and
Medicare--while making it absolutely clear that seniors will receive
the full benefits that they earned over a lifetime of work.
Overall, it is clear that--once we have recovered from COVID-19--
the sooner we address the national debt, the better. As shown by CBO
and GAO, the difficulties of addressing the fiscal outlook only
compound over time--making it all the more pressing that we work
together in a bipartisan way to get through this crisis and then
develop a fiscally responsible long-term plan for the Federal budget.
Senator Cassidy, I look forward to working with you and the other
members of the Finance Committee, and I look forward to hearing from
Director Swagel and Comptroller General Dodaro on ways to improve our
fiscal outlook.
______
Prepared Statement of Hon. Phillip L. Swagel, Ph.D.,
Director, Congressional Budget Office
the 2020 long-term budget outlook
Chairman Cassidy, Ranking Member Hassan, and members of the
subcommittee, thank you for inviting me to testify about the
Congressional Budget Office's most recent long-term budget projections,
which the agency released in September in the report The 2020 Long-Term
Budget Outlook. Today, I will focus on the long-term fiscal challenges
facing the nation that are the subject of that report.
Each year, CBO issues a set of long-term budget projections--often
referred to as the extended baseline projections--that provide
estimates of what Federal debt, deficits, spending, and revenues would
be over the next 30 years if current laws generally remained unchanged.
Relative to the size of the economy, Federal debt is higher in this
year's projections than it was in last year's projections. The economic
disruption caused by the 2020 coronavirus pandemic and the Federal
Government's response to it contribute significantly to that
difference.
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.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.
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Amounts (Billions)
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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
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All returns, total 143.3 99.4 10,937 1,601 26,500 5,238 4,222 3,854 5,384 (7,802)
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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)
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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)
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Bottom 75% IRS, 62.8% CPS, $0 107.5 63.9 3,375 223 3,683 913 - 397 3,852 1,479
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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]