    Highlights of a GAO Forum: The Long-Term Fiscal Challenge
    (01-FEB-05, GAO-05-282SP).

    Research on public opinion shows that while the public is aware
    of the Federal Goverment's long-term fiscal challenge, it does
    not have a good handle on the size and implications of this
    challenge. In addition, the public consistently ranks our
    long-term fiscal challenge as low priority relative to other
    issues, such as the current state of the economy. This gap in
    public understanding of the nature and magnitude of the longterm
    fiscal challenge--and how to bridge it--was the subject of GAO's
    December 2, 2004, forum on the long-term fiscal challenge. The
    forum sought to move beyond "the usual suspects" to expand the
    circle of concern. The forum sought to create a space within
    which a rich and meaningful dialogue could take place on how to
    better communicate the long-term fiscal challenge to the public.
    To achieve this kind of dialogue, participants were a select
    group of individuals drawn not only from budget and policy
    experts but also from other key groups both in Washington and
    from "beyond the Beltway." These included opinion leaders from a
    variety of sectors. All brought a commitment to thinking ahead
    and an eagerness to move beyond defining and measuring "the
    problem" to discussing how to broaden understanding and dialogue
    so that action will be both more immediate and more informed. In
    particular, the forum sought to identify some possible approaches
    and strategies that could help elevate the public's understanding
    of the longterm fiscal challenge. Forum discussions focused in
    particular on the roles that media, educators, and leaders
    elsewhere in society will need to play. In so doing, participants
    expressed their views on the possible causes of current gaps in
    public understanding of the long-term fiscal challenge.
    Participants also made numerous suggestions for what types of
    approaches and actions might be effective in bridging the gaps.
    This report summarizes the ideas and themes surfaced at the forum
    and the collective discussion of the forum participants as well
    as subsequent comments received from participants based on a
    draft of this report. Convening this forum is but one small step
    toward elevating public understanding of the challenge and
    acceptance of the need for change. Ultimately it will take the
    combined efforts of many individuals and groups over an extended
    period of time to successfully address the issues. The forum
    provided a venue for people concerned with the long-term fiscal
    challenge to talk with each other about their common interest in
    public dialogue on the issue. One immediate result of the forum
    has been that groups of participants have gotten together. These
    collaborations have the potential to leverage the efforts of its
    individual members in order to increase the likelihood of action
    on this important issue.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-282SP
        ACCNO:   A16598
      TITLE:     Highlights of a GAO Forum: The Long-Term Fiscal Challenge
         DATE:   02/01/2005
      SUBJECT:   Balanced budgets
    	     Budget deficit
    	     Deficit reduction
    	     Economic growth
    	     Financial management
    	     Fiscal policies
    	     Future budget projections
    	     Public officials
    	     Public relations
    	     Social security benefits
    	     CG Forum

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    ******************************************************************
    GAO-05-282SP

                                        Contents

    Introduction from the 1
    Comptroller General of
    the United States

    Section 1 4

    Today's Fiscal Policy Is Unsustainable 5
    The Long-Term Fiscal When Will the Long-Term Fiscal Challenge Begin to
    Have Impact? 9
    Challenge and How the Health Care Is the Largest and Perhaps Most
    Difficult Part of the
    Public Perceives It Long-Term Fiscal Challenge 12

    For the Public, the Long-Term Fiscal Challenge Is an Issue, but Not

    the Issue 14

    Section 2
    How Can We Change
    the Conversation
    About the Long-Term
    Fiscal Challenge?

    16 Media Presentations on the Long-Term Fiscal Challenge Need to "Make the
    Intangible Tangible" 16 Formal Education Can Play Various Roles in Helping
    to Elevate Public Understanding 19 Public Engagement Offers One Approach
    to Elevating Public Understanding of the Long-Term Fiscal Challenge 21 The
    Role of Leaders in Changing the Conversation and Addressing

    the Long-Term Fiscal Challenge 26
    Leadership Will Be Needed in Many Sectors of Society 26
    Budget Process Can Enable Leaders to Make Hard Choices 28

    Section 3
    The Way Forward: A
    Process Needs to Be
    Put in Place to Address
    the Long-Term Fiscal
    Challenge

    Appendixes

    Appendix I: Forum Agenda 37

    Appendix II: Forum Participants 39

    Contents

               Appendix III:  The Nation's Growing Fiscal Imbalance: "Saving
                                                    Our
                                                  Future"                      45
                               National Saving, the Federal Budget, and the
                Appendix IV:                      Current
                                              Account Deficit                  55
                               The Long-Term Fiscal Challenge = A Long-Term
                 Appendix V:                      Public
                                             Opinion Challenge                 57
                Appendix VI:    Rethinking Public Engagement and Countering    73
                                                 Mistrust
    Figures                Figure 1: Composition of Spending as a Share of
                                        GDP under Baseline Extended             8
                              Figure 2: Discretionary Spending Grows with the
                                              Economy and All
                                   Expiring Tax Provisions Are Extended         9

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

             Introduction from the Comptroller General of the United States

    In my role as lead partner on the audit of the U.S. government's
    consolidated financial statements and the de-facto Chief Accountability
    Officer of the United States Government, I have become increasingly
    concerned about the state of our nation's finances. In speeches and
    presentations over the past several years, I have called attention to our
    large and growing long-term fiscal challenge and the risks it poses to our
    nation's future.

    Simply put, our nation's fiscal policy is on an unsustainable course. As
    long-term budget simulations by GAO, the Congressional Budget Office
    (CBO), and others show, over the long term we face a large and growing
    structural deficit due primarily to known demographic trends and rising
    health care costs. Continuing on this unsustainable fiscal path will
    gradually erode, if not suddenly damage, our economy, our standard of
    living, and ultimately our national security. Our current path also will
    increasingly constrain our ability to address emerging and unexpected
    budgetary needs.

    Regardless of the assumptions used, all simulations indicate that the
    problem is too big to be solved by economic growth alone or by making
    modest changes to existing spending and tax policies. Nothing less than a
    fundamental reexamination of all major existing spending and tax policies
    and of priorities is needed. This reexamination should also involve a
    national discussion about what Americans want from their government and
    how much they are willing to pay for those things. This discussion will
    not be easy, but it must take place.

    Within the community of those concerned with the long-term fiscal
    challenge, a broad and bipartisan recognition exists that it should be
    addressed sooner rather than later. Within just the last 18 months, there
    have been increased efforts to call attention to the nature and importance
    of the challenge. For example, I spoke about this at the National Press
    Club in September 2003.1 In December 2003 CBO issued a report detailing
    the results of its long-term budget simulations.2 In addition, GAO
    continues to issue updates of its long-term budget simulations three times
    per year.

    1 Truth and Transparency: The Federal Government's Financial Condition and
    Fiscal Outlook, by the Honorable David M. Walker, Comptroller General of
    the United States, Sept. 17, 2003, at the National Press Club.

    2 Congressional Budget Office, The Long-Term Budget Outlook (Washington,
    D.C.: December 2003).

    Introduction from the Comptroller General of the United States

    Furthermore, organizations ranging across the political spectrum-
    including the Brookings Institution, the Cato Institute, the Center on
    Budget and Policy Priorities, the Committee on Economic Development, the
    Committee for a Responsible Federal Budget, the Concord Coalition, and the
    Heritage Foundation-have taken steps, either individually or with others,
    in a series of efforts to better inform the public of the dangers posed by
    the long-term fiscal challenge and to begin a public discussion that can
    ultimately lead to action.

    As with any major public policy challenge, effective and sustained
    leadership will be critical. But leadership cannot succeed without public
    understanding and support. Research on public opinion, however, shows that
    while the public is aware of the long-term fiscal challenge, it does not
    have a good handle on the size and implications of this challenge. In
    addition, the public consistently ranks our long-term fiscal challenge as
    low priority relative to other issues, such as the current state of the
    economy. This gap in public understanding of the nature and magnitude of
    the longterm fiscal challenge-and how to bridge it-was the subject of
    GAO's December 2, 2004, forum on the long-term fiscal challenge.

    The forum sought to move beyond "the usual suspects" to expand the circle
    of concern. The forum sought to create a space within which a rich and
    meaningful dialogue could take place on how to better communicate the
    long-term fiscal challenge to the public. To achieve this kind of
    dialogue, participants were a select group of individuals drawn not only
    from budget and policy experts but also from other key groups both in
    Washington and from "beyond the Beltway." These included opinion leaders
    from a variety of sectors. (See app. I for the forum's agenda and app. II
    for a list of forum participants.) All brought a commitment to thinking
    ahead and an eagerness to move beyond defining and measuring "the problem"
    to discussing how to broaden understanding and dialogue so that action
    will be both more immediate and more informed.

    In particular, the forum sought to identify some possible approaches and
    strategies that could help elevate the public's understanding of the
    longterm fiscal challenge. Forum discussions focused in particular on the
    roles that media, educators, and leaders elsewhere in society will need to
    play. In so doing, participants expressed their views on the possible
    causes of current gaps in public understanding of the long-term fiscal
    challenge. Participants also made numerous suggestions for what types of
    approaches and actions might be effective in bridging the gaps. This
    report summarizes the ideas and themes surfaced at the forum and the
    collective discussion of

    Introduction from the Comptroller General of the United States

    the forum participants as well as subsequent comments received from
    participants based on a draft of this report.

    Convening this forum is but one small step toward elevating public
    understanding of the challenge and acceptance of the need for change.
    Ultimately it will take the combined efforts of many individuals and
    groups over an extended period of time to successfully address the issues.
    The forum provided a venue for people concerned with the long-term fiscal
    challenge to talk with each other about their common interest in public
    dialogue on the issue. One immediate result of the forum has been that
    groups of participants have gotten together. These collaborations have the
    potential to leverage the efforts of its individual members in order to
    increase the likelihood of action on this important issue.

    I want to thank all the forum participants for taking the time to share
    their knowledge, insights, and perspectives. These will be of value to the
    American people and to their representatives in Congress as they
    communicate with their constituents about the nation's long-term fiscal
    imbalance and the challenges and opportunities it raises. We at GAO will
    also benefit from these insights as we carry out our mission to help
    Congress examine the fiscal sustainability of today's government spending
    and tax policies. I am hopeful that the American people will become fully
    engaged in this long-overdue and much needed national debate as a means to
    facilitate serious, timely, and sustained action that can help save the
    future for our country, children, and grandchildren. I look forward to
    working with the forum's participants on this and other issues of mutual
    interest and concern in the future.

    David M. Walker Comptroller General of the United States

    Section 1

             The Long-Term Fiscal Challenge and How the Public Perceives It

    On December 2, 2004, GAO hosted a forum on the nation's long-term fiscal
    challenge to discuss

    o 	how to facilitate a national dialogue that recognizes the kinds of
    choices that are necessary and the need for timely action;

    o 	innovative approaches to conveying the nature, timing, and magnitude of
    the fiscal challenge;

    o 	possible changes in accounting and reporting that might help to enhance
    public understanding and promote action;

    o 	changes in the budget process, metrics, or other mechanisms that would
    help facilitate action; and

    o 	the role the media, educators, and others can play in changing the
    conversation.

    In his charge to the group, the Comptroller General noted that describing
    the problem to the public presents numerous challenges. For example,
    estimates of future federal spending and deficits are so large-current
    longterm federal liabilities, unfunded commitments, and other obligations
    are estimated at more than $43 trillion1-that the numbers are beyond what
    most people can comprehend or relate to. Translating these numbers into a
    more human scale-such as "burden per capita"-might be helpful in
    communicating the magnitude of the challenge. In addition, how we measure
    the magnitude of the long-term fiscal challenge is complex. For example,
    tax preferences, such as the exclusion of employer-provided health
    benefits from individuals' income, are usually not discussed although in
    some years their value may equal or exceed that of total discretionary
    spending (e.g., defense, homeland security, transportation, judicial
    system, education, environment etc.).

    1 This represents the sum of selected fiscal exposures net of certain
    revenues (e.g., payroll taxes, beneficiary premiums) that fund some of
    these exposures. These fiscal exposures are shown on slide 6 of the
    Comptroller General's presentation in appendix III. While this list
    provides some perspective on the range and magnitude of exposures facing
    the federal government, it is neither meant to be comprehensive nor to
    represent a universally agreedupon list. A broader discussion of fiscal
    exposures can be found in Fiscal Exposures: Improving the Budgetary Focus
    on Long-Term Costs and Uncertainties, GAO-03-213 (Washington, D. C.: Jan.
    24, 2003).

                                       Section 1
                       The Long-Term Fiscal Challenge and How the
                                  Public Perceives It

    The forum and this report address prospects for leaders to connect with
    the public on our long-term fiscal challenge. Simply put, the long-term
    fiscal challenge is that current fiscal policy is unsustainable. As the
    baby boom generation retires, longevity and rising health care costs mean
    that federal spending for retirement and health programs-Social Security,
    Medicare, and Medicaid-will put increasing and ultimately unsustainable
    pressure on the federal budget. The resulting gap between spending and
    revenues will be too large to be eliminated by economic growth alone.
    Absent significant policy changes, a concern exists that a crisis of some
    kind is likely although no one knows when this point might be reached.
    Public perception of the long-term fiscal challenge differs from these
    views in several key respects. At present the public understands that the
    longterm fiscal challenge is a problem and needs to be addressed but does
    not see doing this as urgent relative to other national priorities.

    Today's Fiscal Policy Is Unsustainable

    Comptroller General Walker opened the forum with a presentation entitled
    "The Long-Term Fiscal Imbalance." (The full presentation can be found in
    app. III.) In essence, he said, this forum was about saving our future.
    Changes in the composition of federal spending over the past several
    decades have reduced budgetary flexibility, and our current fiscal path
    will reduce it even further.

    A demographic shift will begin to affect the federal budget in 2008 as the
    first baby boomers are eligible for Social Security benefits. This shift
    will increase as spending for federal health and retirement programs
    swells. Long-term commitments2 for these and other federal programs will
    drive a massive imbalance between spending and revenues that cannot be
    eliminated without tough choices and significant policy changes.

    2 GAO has used the term fiscal exposure to provide a framework to consider
    the long-term costs and uncertainties of federal commitments and
    expectations for future federal spending. Fiscal exposures result from
    federal responsibilities, programs, and activities that may either
    obligate the government to future spending or simply create an expectation
    for such spending.

    Section 1
    The Long-Term Fiscal Challenge and How the
    Public Perceives It

    In the long term, current fiscal policy is unsustainable, and the sooner
    we change course, the better. GAO3 and the Congressional Budget Office4
    (CBO) agree that addressing the long-term fiscal challenge will require
    fundamental changes. These changes could include changes in policies,
    process, transparency, and enforcement mechanisms. A key question is, "How
    much time remains before action must be taken?"

    In the past several decades, federal budgetary flexibility has decreased.
    This has happened because spending for mandatory programs5 such as Social
    Security, Medicare, and Medicaid has grown much faster than spending for
    discretionary programs6 such as defense. In 1964, about twothirds, or 67
    percent, of total federal spending was discretionary; in fiscal year 2004,
    this share had shrunk to about 39 percent.

    In fiscal year 2004, the federal budget deficit increased and the
    long-term outlook worsened significantly. The unified deficit was $413
    billion, or about 3.6 percent of the economy. This deficit includes $151
    billion in Social Security surpluses, without which the deficit would have
    been that much larger.7 Indeed, the on-budget deficit for fiscal year 2004
    was $568 billion, or 4.9 percent of gross domestic product (GDP). Fiscal
    year 2004's deficit followed upon several years of increasingly negative
    federal fiscal outcomes.

    3 For the most recent results of GAO's long-term simulations, see
    http://www.gao.gov/special.pubs/longterm/.

    4 In December 2003 CBO published a report on the long-term fiscal
    challenge that included the results of its long-term budget simulations.
    See CBO, The Long-Term Budget Outlook (Washington, D.C.: December 2003).

    5 Mandatory spending is spending for entitlement programs such as
    Medicare, veterans' pensions, payment of interest on the public debt, and
    certain other programs. Congress controls spending for these programs
    indirectly, by defining eligibility and by setting benefit or payment
    rules, rather than directly through the annual appropriations process.

    6 Discretionary spending is spending that is controlled by Congress
    through the annual appropriations process.

    7 The unified budget, which includes all receipts and outlays from federal
    and trust funds, is comprehensive of the full range of federal activities.
    Unified budget results are the difference between total federal spending
    and revenue in a given year. In this report, the term federal budget
    deficit refers to the unified deficit unless otherwise stated. On-budget
    totals include all federal receipts and outlays except those for Social
    Security and the U.S. Postal Service.

    Section 1
    The Long-Term Fiscal Challenge and How the
    Public Perceives It

    In addition, as the Fiscal Year 2004 Consolidated Financial Statements of
    the U.S. Government show,8 in fiscal year 2004 the federal government
    added $13 trillion in new liabilities, unfunded commitments, and other
    obligations, principally due to the new Medicare prescription drug
    program.9 The federal government's net liabilities, unfunded commitments,
    and other obligations now amount to more than $43 trillion, or about
    $350,000 for every full-time worker, and these unfunded commitments are
    growing larger every day.

    Looking forward, GAO's long-term budget simulation "Baseline Extended"
    extrapolates from CBO's 10-year budget estimates to a longer term view.10
    As shown in figure 1, deficits do not appear large until 2030. Some might
    conclude from this that there is no need to make changes now, but a shift
    in just two assumptions produces a very different budgetary picture.

    8 GAO's audit report on the Consolidated Financial Statements of the
    United States Government was issued on December 14, 2004, subsequent to
    the forum.

    9 Enacted in the Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003 (Pub. L. 108-173, 117 Stat. 2066 [Dec. 8,
    2003]).

    10 In the "Baseline Extended" simulation, discretionary spending is
    assumed to grow at the rate of inflation for the first 10 years and then
    at the rate of economic growth for the rest of the simulation period.

    Section 1
    The Long-Term Fiscal Challenge and How the
    Public Perceives It

    Figure 1: Composition of Spending as a Share of GDP under Baseline
    Extended

    Percent of GDP

    50

    40

    30

    20

    10

    0 2003 2015 2030 2040 Fiscal year

    Net interest

    Social Security

    Medicare and Medicaid

    All other spending

    Source: GAO's September 2004 analysis.

    If we assume that all tax cuts remain in effect rather than expire as
    scheduled under current law, and if we further assume that for the first
    10 years discretionary spending grows with the economy rather than at the
    rate of inflation, a dramatically different picture emerges. This
    simulation is called "Discretionary Spending Grows with the Economy and
    All Expiring Tax Provisions are Extended." (See fig. 2.) Under this
    alternative simulation, by 2040 the government would have only enough
    money to pay interest on the federal debt!

                                       Section 1
                       The Long-Term Fiscal Challenge and How the
                                  Public Perceives It

    Figure 2: Discretionary Spending Grows with the Economy and All Expiring
    Tax Provisions Are Extended

                                   Percent of GDP 50

                                           40

                                           30

                                           20

                          10 0 2003 2015 2030 2040 Fiscal year

    Net interest
    Social Security
    Medicare and Medicaid
    All other spending

                         Source: GAO's September 2004 analysis.

    Economic growth can help improve the long-term fiscal outlook, but it
    cannot solve the long-term fiscal problem. A "status quo" fiscal policy is
    not an option. The sooner we take action, the better. The sooner we act,
    the sooner the miracle of compound interest can work for us rather than
    against us.

    When Will the Long-Participants were generally in agreement that, absent
    action, a crisis would

    ultimately occur. The only question is when. Some were of the view
    thatTerm Fiscal Challenge events in the near term were likely to be
    catalysts for change; others were Begin to Have Impact? less sure when
    this might happen.

    Section 1
    The Long-Term Fiscal Challenge and How the
    Public Perceives It

    Some participants thought that the long-term fiscal challenge would affect
    the budget very soon. For example, one participant suggested that spending
    for long-term federal commitments might begin to affect the budget outlook
    as soon as 2008, the first year in which the oldest members of the baby
    boom generation would first be eligible to receive Social Security
    benefits.11 By 2008, some factors that will affect the federal budget
    include the following.

    o 	The beginning of a long-term downturn in the Social Security cash
    surplus-the difference between payroll taxes and benefits paid---that will
    continue in the coming years. As a result of this downturn, less and less
    cash will be available from payroll tax receipts to finance other
    activities in the federal budget until eventually outlays exceed
    receipts.12

    o 	Certain tax reductions will be about to expire, e.g., reduced tax rates
    on dividends and capital gains.

    o  The Medicare drug benefit will have been fully implemented.

    Under CBO's September 2004 baseline estimates, Medicare spending is
    currently estimated to rise by about 30 percent between 2005 and 2007.

    Alternatively, participants suggested that a crisis could be triggered
    much sooner by events in financial markets. One participant expressed the
    view that a loss of investor confidence in the long-term prospects for the
    U.S. economy was more likely to trigger a crisis than any single domestic
    event. Another participant was of the opinion that this could happen soon:
    today's large trade deficit (current-account deficit13) meant that the
    budget problem was no longer a long-term problem. Several participants
    were of the view that concern by financial markets would spark change.
    These

    11 The baby boom generation is defined as those born between 1946 and
    1964. The oldest baby boomers will turn 62 in 2008, making them eligible
    to receive a reduced retirement benefit from Social Security. Labor force
    growth will begin to slow as the boomers retire. CBO assumes slower
    economic growth after 2009.

    12 Under the 2004 intermediate estimates of the Social Security Trustees,
    the cash flow in Social Security is projected to be negative beginning in
    2018.

    13 The current account balance is defined as the combined balances on
    trade in goods and services, income, and net unilateral current transfers.
    Technically, the trade surplus/deficit is defined as exports less imports
    of goods and services. The current account deficit of recent years is
    often popularly known as the trade deficit.

    Section 1
    The Long-Term Fiscal Challenge and How the
    Public Perceives It

    participants pointed to history: in the 1980s, financial markets' concern
    about large, persistent federal budget deficits had triggered action on
    deficit reduction. Another participant expressed the view that markets
    were currently beginning to demand action on the long-term fiscal
    challenge and cited the recent fall of the dollar as a possible example.

    Other participants were unsure when or how a crisis might occur. One
    participant commented that the market for long-term bonds does not appear
    to have reacted to the fiscal outlook. Another participant noted that
    while today's borrowing from abroad is of a magnitude unprecedented in the
    post-World War II era, it represents a set of arrangements that are
    comfortable for all those involved. Capital inflows from abroad-included
    in the current account deficit-make it possible for Americans to consume
    more than we produce and for other countries to sell their goods in the
    United States. This is comfortable both for the United States and for
    those entities and individuals in other nations who buy U.S. goods and
    securities, including Treasury securities that finance the federal budget
    deficit.14 (See app. IV for a discussion of the relationships between the
    current account balance, the federal budget and national saving.)

    Another participant similarly noted that a smaller nation than the U.S.
    could not have so large a current account deficit measured as a share of
    its economy without this leading to a crisis. As a result it was not clear
    how much longer the U.S. would continue to run large current account
    deficits, how this would ultimately change, and with what effects.

    To avoid a crisis, we will need to save more as a nation-as individuals
    and through fiscal policy-participants emphasized. Such higher national
    saving to finance consumption in the future can only be achieved by
    lowering levels of consumption today. Federal budget deficits are a form
    of dissaving, and individuals are not saving enough. Participants noted
    that the effects of federal legislation aimed at increasing personal
    saving through tax incentives had so far been mixed. Today's culture tends
    to discount the future, participants noted. What was needed was cultural
    change.

    One participant cited recent television coverage of holiday shoppers
    breaking down the door of a major retail store early on the morning after

    14 Between 1993 and 2004, the estimated share of publicly held debt held
    by international investors more than doubled from 19 percent to over 40
    percent.

                                       Section 1
                       The Long-Term Fiscal Challenge and How the
                                  Public Perceives It

    Thanksgiving as an example of today's focus on consumption. This
    participant added that those shoppers were probably not thinking about the
    impact of today's consumption on their future well-being and the wellbeing
    of future generations. Participants generally agreed that people needed to
    recognize how choices made today inform the future. This is true of policy
    choices as well.

    Health Care Is the Largest and Perhaps Most Difficult Part of the
    Long-Term Fiscal Challenge

    Participants generally agreed with the Comptroller General's description
    of the nature, magnitude, and timing of the problem. They shared his sense
    of urgency about the need to take action soon rather than wait until a
    crisis occurred. They emphasized several observations on the nature and
    significance of long-term fiscal challenge.

    Health care is a bigger problem than Social Security. Participants
    acknowledged the need for Social Security reform but emphasized that
    Social Security is a relatively small part of the long-term fiscal
    challenge when compared to spending on health care. One participant noted
    that the estimated Social Security shortfall is about one-third the
    estimated cost of recent tax cuts if made permanent. Several participants
    observed that few members of the public are aware of this. Rather, the
    general public impression is that solving Social Security would solve most
    of the longterm fiscal challenge, and this is not correct. Indeed, one
    forum participant stated that it was only by attending this forum that he
    had learned that health care spending was a much more important, and
    potentially far more difficult, component of the long-term fiscal
    challenge than Social Security.

    Participants expressed the view that in characterizing the long-term
    fiscal outlook, several key distinctions needed to be made between Social
    Security and the largest federal health programs, Medicare and Medicaid.
    Participants observed that the public was largely unaware that health
    spending accounted for a much larger share of the long-term fiscal problem
    than did Social Security.

    In addition, many approaches to reforming Social Security have been
    articulated and were well known. For example, approaches included raising
    the retirement age, changing the indexation of initial benefits from a
    wage-based index to an inflation-based index, modifying the tax base, and
    so on. Many specific proposed solutions had been under discussion for some
    years. In contrast, many participants expressed the view that approaches
    to slowing the growth of health care spending remain elusive.

    Section 1
    The Long-Term Fiscal Challenge and How the
    Public Perceives It

    Changes to federal health care programs cannot be made in isolation:
    Addressing federal health spending will ultimately require restructuring
    the overall health care system. The long-term fiscal challenge cannot be
    successfully addressed without addressing its largest component: federal
    health spending-i.e., for Medicare and Medicaid. Participants expressed
    the view that federal health spending trends could not be viewed in
    isolation from the health care system as a whole. One participant
    explained that Medicare and Medicaid cannot grow over the long term at a
    slower rate than cost in the rest of the health care system without
    resulting in a two-tier health care system or squeezing providers who then
    in turn might seek to recoup costs from other payers elsewhere in the
    health care system. Rather, in order to address the longterm fiscal
    challenge, it will be necessary to find approaches that deal with health
    care cost growth in the overall health care system. Participants agreed
    that this would be very difficult but essential. The linkages between the
    long-term fiscal challenge, federal health care programs, and the health
    care system are not well understood. Educating the public on these
    linkages is of critical importance.

    Participants noted that many sectors of the economy and different levels
    of government are involved in health care. Cost growth in
    employer-provided health insurance is raising costs for employers and
    individuals. Rising health care costs are squeezing the ability of
    businesses to offer higher salaries that would enable employees to save,
    one participant said. Such costs are also having significant
    competitiveness, employment, and revenue implications. In addition to
    affecting federal spending, Medicaid is a major driver of state spending.
    "Few things will be harder than restructuring the health care system,"
    said one participant, but without this restructuring the long-term fiscal
    challenge cannot be solved.

    Participants noted that solutions to health care cost inflation were
    likely to occur through an incremental process. One participant expressed
    the view that changing health care involved profound ethical,
    philosophical, and moral issues. Mr. Walker observed that an earlier
    Comptroller General Forum on Health Care had called attention to many of
    the issues raised by participants.15 The purpose of that forum had been to
    find ways to elevate the nation's understanding of health care cost,
    access, and quality

    15 GAO, Health Care: Unsustainable Trends Necessitate Comprehensive and
    Fundamental Reforms to Control Spending and Improve Value, GAO-04-793SP
    (Washington, D. C.: May 2004).

                                       Section 1
                       The Long-Term Fiscal Challenge and How the
                                  Public Perceives It

    challenges. Participants had noted the need for structural changes in the
    health care system and the likelihood that these changes would be done on
    an incremental basis over a considerable period of time. At the same time,
    we should start now.

    Mr. Walker also noted that the Medicare Prescription Drug, Improvement,
    and Modernization Act of 2003 had established a Citizens' Health Care
    Working Group. The group will lead a nationwide public debate on ways to
    improve the health care system to provide every American with the ability
    to obtain quality and affordable health care coverage. This group is
    required to hold public hearings over a 2-year time frame in preparation
    for making recommendations to the President and the Congress. As
    Comptroller General, Mr. Walker will appoint 14 of the 15 members of the
    Task Force, including the Chair.

    For the Public, the Long-Term Fiscal Challenge Is an Issue, but Not the
    Issue

    Nancy Belden, President of the American Association for Public Opinion
    Research, presented baseline information on what the public knows about
    the long-term fiscal challenge and how it perceives it. There are two
    drivers for change-political will and public will, Ms. Belden said.
    Polling data is important because it can provide information on public
    will. Her presentation summarized the results of several polls conducted
    by various polling organizations within the past few years. (See app. V
    for Ms. Belden's presentation.)

    In general, polling data suggests that the public is "worried but not that
    worried" about deficits, Ms. Belden said. Although aware of the long-term
    fiscal challenge and concerned about it, the public rates the federal
    budget deficit as of lower priority relative to other issues. In addition,
    a majority of those polled supported additional spending for highly valued
    programs over balancing the budget.

    The public's attitude toward federal budget deficits in general is
    complex. About two-thirds of those polled would prefer balancing the
    budget to cutting taxes, and about half of those polled expect today's
    deficits to worsen in years to come. At the same time, the deficit is seen
    as far less prominent than many other issues. These higher-ranked issues
    include the economy, terrorism, jobs, education, and Iraq. In particular,
    over half of those polled indicated concern about the future of the
    economy. Only 4 percent, however, listed the deficit as their biggest
    concern.

    Section 1
    The Long-Term Fiscal Challenge and How the
    Public Perceives It

    When presented with choices and trade-offs, the public's attitude is one
    of "wanting to have its cake and eat it too," Ms. Belden said. On the one
    hand, more than two-thirds of those polled supported postponing future tax
    cuts if doing so would prevent further worsening of the deficit.
    Similarly, about two-thirds of those polled chose balancing the budget
    over further tax reductions. On the other hand, when presented with a need
    for new government spending, e.g., for national security, about half of
    the public thought tax cuts that have been enacted but not yet phased in
    should be left in place. When asked to choose between balancing the budget
    and additional spending on education, health care, and economic
    development, more than half chose the additional spending. From the
    polling data, it is unclear whether the public sees federal budget
    deficits as related to the economy.

    Because the public holds conflicting attitudes with respect to balancing
    the budget, and with respect to tax and spending policy, the federal
    budget deficit is "an issue that cries out for leadership," Ms. Belden
    said. Leaders need to define for the public the urgency and implications
    of the long-term fiscal challenge and the cost and implications of
    inaction. They will need both to develop solutions and persuade the public
    of the need to enact them.

    Section 2

        How Can We Change the Conversation About the Long-Term Fiscal Challenge?

    A major theme of the forum was a need for collaborative leadership to
    change the conversation about our long-term fiscal challenge.

    Forum participants explored possible ways to elevate public understanding
    of the long-term fiscal challenge. Budget experts, media, educators,
    foundations, and other nonprofit or "good government groups" and others
    seeking to promote more active and thoughtful engagement by the public
    would all have roles to play in changing the conversation, but none could
    substitute for leadership from elected officials and the deliberation
    process. Leadership would be key, and leaders would need to reach
    consensus on the types of fiscal policy changes to address the long-term
    fiscal challenge. However, public understanding of our challenge and
    support for the need to take actions to address it are likely to be
    necessary as a precondition for elected officials and other policymakers
    to act. Budget process reform was seen as one potential tool to support
    agreements reached and implement needed changes but not as a way to create
    a consensus on the need for action.

    Media Presentationson the Long-Term Fiscal Challenge Need to "Make the
    Intangible Tangible"

    Representatives of national and local media, both print and nonprint,
    discussed the role of the press with forum participants. Media
    participants were asked to comment on why the long-term fiscal challenge
    generally does not get coverage and what kinds of reactions they get when
    it does.

    The main reason cited to explain limited or lack of coverage was that, as
    one writer put it, "deficits are boring." Too often, jargon and technical
    terminology are used in talking about federal budget deficits. This both
    confuses and intimidates readers. In addition, reducing the deficit is
    often presented as an end in itself, apparently unrelated to anything in
    ordinary people's lives.

    When articles on federal budget deficits did get published, media
    representatives said that many readers did show interest. Reader reactions
    ranged from very positive to expressions of confusion and requests for
    more information. These reactions suggested that a wide range of readers
    needed more information about the long-term fiscal challenge. For example,
    those requesting clarification and more information included journalists
    and elected officials at all levels of government-federal, state, and
    local. One media participant noted that educating local leaders on the
    issues might be particularly important, for these were our future national
    leaders.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    Some media representatives suggested that there may be a sense in some
    editorial circles that deficits are especially "boring" for younger
    people, who increasingly tend to get their news from nonprint sources,
    such as Internet "blogs"-Web logs, or diaries-and television. Journalists
    and opinion writers may feel pressure to choose different material more
    likely to attract younger readers, who are crucial to the future of their
    publications.

    Media representatives and other forum participants suggested that these
    nonprint media should be explored as ways to get the message to younger
    people, who will be most affected if the long-term fiscal challenge is not
    effectively addressed. Television programs that satirize current events
    and public television were also cited as venues for reaching out to
    younger people who do not regularly read print media.

    Forum participants offered many specific suggestions for how to talk about
    the long-term fiscal challenge in media presentations. The main message of
    these suggestions was that presentations need to resonate with ordinary
    people; otherwise, nothing will change.

    Media and other forum participants suggested that presentations should
    encompass the following.

    o 	Start with values and emotion. Values and emotion-not
    abstractions-should be the starting point in explaining the long-term
    fiscal challenge. People can only hear messages that fit with their
    values. If not grounded in people's values, discussions of the long-term
    fiscal challenge will not resonate with the public.

    Participants agreed that a key moral context is the impact federal budget
    deficits will have on future generations. Another key moral context is
    integrity. Some participants called for greater integrity, e.g.,
    transparency, in the federal budget process. Others noted that addressing
    the long-term fiscal challenge would require sacrifice.

    Numbers alone were not useful because they do not evoke an emotional
    response, one media representative said. In discussing the long-term
    fiscal challenge, some participants urged a need for more passion, i.e.,
    "fire and brimstone rhetoric."

    o 	Make "the intangible tangible." Similes and metaphors-not big
    numbers-can help people understand the long-term fiscal challenge.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    Talking about the federal budget using the very big numbers required-
    millions, billions, and trillions-simply does not compute for most
    readers, one writer said. Instead, one participant suggested that
    increasing spending in ways that worsen the long-term fiscal challenge,
    e.g., the Medicare drug benefit, could be compared to buying a plasma TV
    for every household in America on credit. Analogies like this could help
    make the consequences of the long-term fiscal challenge vivid and
    immediate.

    o 	Link to "pocketbook" issues. The federal budget deficit needs to be
    linked to more concrete policy concerns. For example, one writer
    emphasized the need to explain how budget deficits are a drag on the
    economy. Others urged making linkages to the value of the U.S. dollar, to
    interest rates, to Americans' ability to buy imported goods. Another
    suggested approach would be to explain how the long-term fiscal challenge
    poses risks to future economic growth and the standard of living for
    Americans. One participant reminded the forum that, as Nancy Belden's
    presentation illustrated, the economy is the issue people care about most.
    Getting people to understand that the long-term fiscal challenge will
    eventually harm the economy would be one definition of progress.

    Another participant characterized the long-term fiscal challenge as a
    national security issue and suggested a "strategic fiscal reserve" was
    needed to create greater budgetary flexibility to deal with future
    unforeseen threats.

    o 	Use simple language. Economic terms should be avoided. "Fairness" was a
    better word to use than "equity." Participants suggested that one role for
    experts such as those present at the forum could be to devise new ways to
    make the long-term fiscal challenge more transparent. When (or if) the
    crisis came, these experts would be ready to explain it to the public.
    Corporate scandals such as those concerning Enron and WorldCom were cited
    as one example of a situation in which experts had played this kind of
    role.

    o 	Link to the ongoing squeeze on federal spending. Presentations need to
    emphasize the way federal budget deficits will squeeze the ability to fund
    government programs people care about, such as education and programs for
    children and families. Within 10 years the entitlement squeeze will
    dramatically shrink the funds available for other goals, one participant
    said. Even now, federal agencies' budgets

                                       Section 2
                        How Can We Change the Conversation About
                            the Long-Term Fiscal Challenge?

    and programs people care about such as education are being squeezed in
    ways people did not expect.

    Media representatives told forum participants that the role of the press
    is to "speak truth to power" but cautioned that the press cannot lead on
    the issue alone. Leadership will also be needed in other sectors of
    society- from politicians, nonelected officials, and the business
    community, for example. Several participants noted that in the 1990s,
    political leadership had played a key role in triggering and sustaining
    deficit reduction actions. For example, both Paul Tsongas, who competed
    with Bill Clinton for the presidential nomination of the Democratic Party
    in 1992, and Ross Perot, who ran in the 1992 presidential election as an
    independent, made large and persistent deficits a signature issue. The
    press has an obligation to take on the long-term fiscal challenge, but as
    one media representative put it, "the press needs an echo."

    Formal Education Can Play Various Roles in Helping to Elevate Public
    Understanding

    Dan Palazzolo, Associate Professor of Political Science, University of
    Richmond, and Muriel Siebert, President, Muriel Siebert & Co., discussed
    some potential roles formal education at the high school and college
    levels could play based on their respective work in education. At the
    college and university level, educators needed to lead by preparing young
    people to understand the long-term fiscal challenge and how it will affect
    them, and by preparing young people to take leadership roles. At the high
    school level, financial literacy education can help prepare young adults
    to understand the long-term fiscal challenge and the impact it can have on
    their need to plan, save, and invest for their future. Identifying
    "lessons learned" from past leadership on major national issues is another
    way educators can play a part in changing the conversation about the
    long-term fiscal challenge.

    Colleges and universities can help educate both the general public and the
    nation's future leaders on the long-term fiscal challenge. Dan Palazzolo,
    Associate Professor of Political Sciences at the University of Richmond,
    presented his perspective on the potential for colleges and universities
    in elevating public awareness of the long-term fiscal challenge. Colleges
    and universities offer

    o 	key stakeholders. Colleges and universities are where many key
    stakeholders-young people-are to be found. They will be most affected by
    the long-term fiscal challenge, and the discussion needs to be brought to
    them.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    o 	intellectual capital and flexibility. Colleges and universities are
    places where new thinking emerges, even if the institutions themselves may
    be fragmented and knowledge "stovepiped." Moreover, colleges and
    universities can play different roles in the conversation about the
    long-term fiscal challenge. For example, they can provide venues for
    forums and conferences; they can host discussions.

    o 	neutrality. Colleges and universities are perceived as neutral by the
    communities around them. This perception further heightens the value of
    these institutions as appropriate places to host discussions that can help
    elevate public understanding of the long-term fiscal challenge. Professor
    Palazzolo noted that the Exercise in Hard Choices created by the Committee
    for a Responsible Federal Budget had been hosted by colleges and
    universities.1

    Professor Palazzolo discussed the role of colleges and universities in
    preparing future leaders to lead. A course he is currently developing will
    analyze the period beginning in 1987 in which leaders made numerous
    efforts over a period of time that were ultimately successful in reducing
    large, persistent deficits. To answer the question of whether and how
    today's leaders can take on long-term issues, the course will look at how
    leaders have communicated about these issues in the past.

    A key premise of the course is that leadership and change are a process,
    and we can learn by looking at how the process worked. Deficit reduction
    in the 1980s and 1990s was achieved by increments, Professor Palazzolo
    noted. It is important to look at how policymakers focused on solving
    problems-at the incremental process-rather than seek a single big answer.

    Financial literacy education can help prepare young people to understand
    the long-term fiscal challenge. One role for formal education is to teach
    young people personal financial literacy: people cannot understand the
    nation's finances if they do not understand their own. Muriel Siebert, a
    financial expert and the first woman to hold a seat on the New York Stock
    Exchange, described how she had persuaded city educational officials to
    add a course in financial literacy to the required high school curriculum.
    Ms. Siebert emphasized the link between basic

    1 The Exercise in Hard Choices is discussed in the next section of this
    report as one example of a "public engagement" approach.

                                       Section 2
                        How Can We Change the Conversation About
                            the Long-Term Fiscal Challenge?

    financial literacy and the long-term fiscal challenge. People need to
    understand the concept of a household deficit before they can understand
    the federal budget deficit.

    To better prepare young people to manage their money once they became
    adults, the course, devised by Ms. Siebert's organization, covers such
    basic aspects of financial literacy as income tax returns, trade-offs
    between owning and leasing a car, credit, bankruptcy, and what taxes pay
    for. It also includes coverage of the trade-offs between spending today
    versus saving for tomorrow.

    Today's high school students have a stake in how the long-term fiscal
    challenge is addressed. If the long-term fiscal challenge is not
    effectively addressed, they are likely to end up paying the bill. As was
    noted in the forum discussion on public engagement, high school students
    have the capacity to understand and discuss the kinds of choices that will
    need to be made in the federal budget.

    Mr. Walker noted that an earlier Comptroller General Forum on financial
    literacy had focused on the link between financial literacy education and
    the long-term fiscal challenge.2 He called forum participants' attention
    to an ongoing major national initiative by the American Institute of
    Certified Public Accountants (AICPA) on financial literacy education.

    Public Engagement Offers One Approach to Elevating Public Understanding of
    the Long-Term Fiscal Challenge

    Participants described various types of strategies for involving the
    public in the debate and how these had been or might be used in the future
    to increase public understanding of the long-term fiscal challenge.
    Participants also explored how "public engagement" approaches might be
    extended to new venues, e.g., television.

    Participants generally saw value in public engagement strategies but
    expressed various views on how public engagement might be useful and how
    useful it might be. For example, some participants thought public
    engagement could best be used as a tool for better understanding public
    opinion. Other participants saw the values-based dialogue approach used in
    one form of public engagement as a possible tool to help leaders reach
    consensus on solutions to the long-term fiscal challenge.

    2 GAO, Highlights of a GAO Forum: The Federal Government's Role in
    Improving Financial Literacy, GAO-05-93SP (Washington, D. C.: Nov. 15,
    2004).

                                       Section 2
                        How Can We Change the Conversation About
                            the Long-Term Fiscal Challenge?

    What Is "Public Engagement"?

    Public engagement is an approach to elevating the public's understanding
    of an issue through a community or group event, e.g., a town hall meeting.
    It typically focuses on hearing the voices of people usually left out of
    decision making and seeks to involve them in a dialogue. The aim of public
    engagement is to build a common understanding of an issue and the need for
    change and to help people deliberate trade-offs embodied in proposed
    policy changes. In contrast to public relations, public engagement does
    not seek to "sell" a solution but rather help a community or group of
    people work through difficult issues and find areas of agreement. In some
    forms, public engagement seeks to use the results of its public
    deliberations to inform policy choices.

    Yankelovich-Wooden model of public engagement seeks to create a
    values-based dialogue about issues. Daniel Yankelovich, Chairman of Public
    Agenda and Chairman of Viewpoint Learning Inc., and Ruth Wooden, President
    of Public Agenda, described a new model of public engagement they have
    developed. (See app. VI for their presentation.)

    The Yankelovich-Wooden model seeks to counter public mistrust through
    dialogue. As was the case in several other periods of American history-
    for example, the Great Depression and the 1970s-leaders and the public
    have very different perceptions of governance. Conversation is difficult
    across this chasm of mistrust, and consensus on needed changes is
    difficult if not impossible to achieve.

    Mr. Yankelovich explained that a values-based dialogue can build a
    stewardship bridge across the political spectrum and between leaders and
    the public. Stewardship can be understood as the moral obligation people
    have to leave things in better shape for those who come after. A dialogue
    based on the shared value of stewardship can get past the mistrust
    pervasive in the American political environment. The very process of
    dialogue creates trust and a sense of ownership. By focusing on common
    ground instead of differences, a values-based dialogue seeks to counter
    adversarial approaches. Ultimately, people can better understand and weigh
    trade-offs in a fact-based, forthright and thoughtful manner, moving
    beyond public choices based on self-interest.

    Mr. Yankelovich and Ms. Wooden noted that a values-based dialogue is not
    suitable for all issues. Because the model is difficult and expensive to
    use, it is not appropriate for everyday issues but rather for complex
    issues where simpler approaches are unlikely to be effective. The model
    can also be understood as a research tool that can identify trends in
    public opinion

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    and effective presentation approaches that can then be used in other
    settings. For example, research results can be used to develop community
    initiatives, media presentations, or "meetings in a box"-the capacity for
    civic organizations to replicate the same meeting in different locations.
    In contrast to polling and focus groups, dialogue-based research can
    identify the public's preferences once the public has gotten past wishful
    thinking and avoidance of trade-offs.

    Examples and other approaches to public engagement. Participants cited
    several examples of public engagement including projects on which they had
    worked or with which they were familiar as having elements in common with
    the Yankelovich-Wooden model of public engagement. Participants viewed
    these projects as showing that "public engagement is possible."

    o 	The Great Social Security Debate: organized in 1998 by the Concord
    Coalition and the American Association of Retired Persons. This project
    sponsored a series of national discussions on Social Security including
    then-President Clinton, other elected officials, and policy experts
    representing a broad range of views.

    o 	Americans Discuss Social Security: a project of AmericaSpeaks in 1998
    funded by The Pew Charitable Trusts. Members of the general public,
    elected officials including then-President Clinton, and key stakeholder
    groups participated in town meetings that aimed to elevate public
    understanding of Social Security reform options and give feedback. One
    finding from the public deliberations was that the public was able to
    identify some areas of agreement notwithstanding their initial views on
    the issue.

    o 	A biennial town meeting, a "Citizen Summit" by the Mayor of the
    District of Columbia, a project by AmericaSpeaks. This gives the general
    public an opportunity to express views on the trade-offs between different
    budgetary priorities as outlined in the Mayor's strategic plan. Views
    expressed then have impact on the District's actual budget process.

    o 	The Exercise in Hard Choices: a project by the Committee for a
    Responsible Federal Budget. The Exercise in Hard Choices (conducted
    periodically over the last 20 years) is a form of public engagement in
    which the general public and the local Member of Congress participate in
    an exercise in mock budgeting. Participants are asked to make tradeoffs in
    the context of specific information on the long-term fiscal

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    challenge. A key feature of the Exercise is that people with differing
    views are asked to engage with each other in a dialogue about the kind of
    budgetary trade-offs that will have to be made if the long-term fiscal
    challenge is to be addressed. The results of the Exercise show that people
    easily engaged in the activity and valued the opportunity to interact with
    people of opposing views. Moreover, the results of the Exercise show that
    people will make rational and altruistic decisions to solve the long-term
    fiscal challenge.

    The Exercise has also been done with a group of high school students ages
    16 through 18. The results of this Exercise showed that young people
    easily understood the issues involved if not always all the nuances.

    o 	A project on property taxation in New Jersey: a project in 2003 and
    2004 by Public Agenda for the Coalition for the Public Good. In this
    project a group of people selected in various ways came together in a
    mockconstitutional convention to discuss ways to reform taxation in New
    Jersey so as to reduce reliance on the property tax. The result of this
    meeting was a report presenting findings to state officials. Ms. Wooden
    explained that this report was presented to the state legislature, which
    recommended convening an actual constitutional convention. New Jersey
    presently plans to hold a constitutional convention to debate reforming
    the property tax.

    Participants also pointed to other venues that could be used for public
    engagement in the future. For example, events in public television have
    been effective in engaging the public on numerous issues, for example Ken
    Burns' series on the Civil War and Bill Moyers' series on dying.3 One
    participant described this kind of use for television in the new model of
    public engagement as a "proxy dialogue." One participant added that
    "serious games" (following on the Committee for a Responsible Federal
    Budget "Exercise in Hard Choices" model) were another means that could be
    used to elevate public understanding of the long-term fiscal challenge
    both on an individual and collective basis. Such games could be
    potentially useful in reaching the younger generations who are very
    computer literate.

    3 For example, Bill Moyers' series "On Our Own Terms" was accompanied by a
    community action campaign aimed at stimulating dialogue and action on
    issues surrounding end-of-life care.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    One participant noted that public engagement and media coverage were
    complementary. Events that engaged the public could help attract media
    coverage. For example, Concord Coalition has held grass roots events that
    have included the Member of Congress for the district in which the event
    was held, and this has led to media coverage.

    Potential uses and limitations of public engagement. Participants proposed
    several ways the new model of public engagement might help move the nation
    toward a political environment in which the long-term fiscal challenge
    could be addressed. Participants generally agreed on the value of the
    Yankelovich-Wooden model of public engagement as one means to elevate
    public understanding of the long-term fiscal challenge. They also
    generally agreed with Ms. Wooden and Mr. Yankelovich that their model
    could be a valuable research tool for providing leaders with information
    on public opinion. One participant expressed the view that public
    engagement could be useful in surfacing key values. Some participants
    noted that public engagement of the kind described by Ms. Wooden and Mr.
    Yankelovich could be helpful in identifying a baseline for public
    understanding and in identifying trends in public opinion.

    Other participants cautioned against using public engagement as a way to
    make policy. One participant noted that polling data can identify trends-
    they often show how the public is ahead of policymakers-but added that
    these data are too crude and easy to manipulate to be a useful way of
    making policy. Some participants thought an expectation that the public
    should take time from other activities to develop policy solutions was an
    unreasonable burden. Leaders had the responsibility to develop policy
    solutions, some participants said.

    These participants further suggested that a major barrier in moving
    forward on the long-term fiscal challenge was not simply a lack of
    knowledge among the general public but also a lack of consensus among
    leaders on the nature, extent, and timing of the problem as well as
    possible solutions. For example, with Social Security, there were clear
    choices that could be discussed and debated, but participants were
    generally agreed that this was not true of health care, which accounted
    for a much larger share of the long-term fiscal challenge. One possible
    use of the Yankelovich-Wooden model might be to help leaders reach
    consensus.

    Participants pointed to the 1983 reform of Social Security as an example
    where leaders developed solutions and successfully gained public
    acceptance for changes that were "outside the comfort zone." For

                                       Section 2
                        How Can We Change the Conversation About
                            the Long-Term Fiscal Challenge?

    example, one participant said that polling data show that people are
    opposed to raising the retirement age, but this change was included as
    part of the 1983 reforms to Social Security. In the view of these
    participants, the role of leaders was to arrive at solutions; a
    "permissive majority" would then support them.

    The Role of Leaders in Changing the Conversation and Addressing the
    Long-Term Fiscal Challenge

    Regardless of their view on the appropriate form of public dialogue,
    participants agreed on the importance of public understanding and support
    for change; they also stressed that leadership would be essential to
    changing the conversation and moving the nation forward to solutions to
    the long-term fiscal challenge. Leadership would be needed from many
    sectors of society but most importantly from elected officials.

    Participants discussed how the budget process could serve as a tool
    available to leaders to help change the conversation about federal
    budgeting and to promote fiscal discipline. Participants generally agreed
    that incorporating a longer term perspective into federal budget decision
    making could help promote stewardship and intergenerational fairness.
    Participants suggested several approaches to doing this and identified
    possible concerns.

    More generally, participants observed that addressing the long-term fiscal
    challenge will require many actions over an extended period of time.
    Changing the conversation is the first step, but much work will remain to
    develop and implement solutions. Participants emphasized that the longterm
    fiscal challenge is large and complex. Health care is a key driver, and
    solutions that can reduce health care cost growth and gain consensus
    remain elusive. An iterative process will be needed, and progress will
    take time, but the sooner we start, the less wrenching needed changes will
    have to be.

    Leadership Will Be A theme throughout forum discussions was that
    participants saw a need for

    leadership by many different sectors of society-from the White House
    toNeeded in Many "beyond the Beltway." Media representatives noted that
    the press cannot Sectors of Society be expected to change the conversation
    alone. The current "vacuum" in

    the discussion must be filled by others, including members of the business
    community, educators, foundations, budget experts, and-most
    importantly-elected officials.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    One participant expressed the view that the role of elected officials was
    to move the nation towards solutions, and this would require deliberation,
    reconciliation, and increased transparency. This participant noted that
    Members of Congress engage with the public virtually every week when they
    talk with their constituents, and this was one form of "public
    engagement." Budget experts could help elected officials by giving them
    clearer, simpler language with which to describe the long-term fiscal
    challenge, why it matters, and the range of options to address it, this
    participant suggested. This would go a long way toward changing the
    conversation and moving the nation forward.

    This participant added that the dialogue and deliberation that occurs
    within Congress is what matters. The congressional deliberative process is
    an "incredibly important" means for the exchange of ideas. Another
    participant agreed, noting that public debate and the media are important,
    but they are no substitute for congressional deliberation.

    Participants generally agreed that leadership would also be needed from
    elected officials at the state and local level. Participants noted that
    state and local officials would be directly affected by burgeoning federal
    deficits. One participant further noted that it was especially important
    that state and local leaders understand the long-term fiscal challenge,
    for some were future leaders at the federal level.

    Some participants saw a need for a charismatic leader who could dramatize
    the issue and focus public attention. By connecting with the public on an
    emotional level, a charismatic leader can overcome mistrust and gain
    public support for change. These participants cited Ross Perot's calls for
    deficit reduction in the early 1990s.

    Taken together, participants' comments indicated that leadership would
    have to be a shared burden. For example, in his presentation Professor
    Palazzolo noted that he has made frequent use of work done at think tanks
    and by organizations such as GAO on the long-term fiscal challenge. He
    called for tighter relationships going forward between academia and these
    types of organizations.

                                       Section 2
                        How Can We Change the Conversation About
                            the Long-Term Fiscal Challenge?

    Budget Process Can Enable Leaders to Make Hard Choices

    Participants' discussions throughout the forum touched on what kinds of
    tools leaders would need and the flexibility they would need to move the
    nation forward on the long-term fiscal challenge. Several former CBO
    Directors and other forum participants pointed to budget process
    mechanisms as one such tool that in the past has helped to enforce fiscal
    discipline. In addition, budget process mechanisms can enable leaders to
    make hard choices. For example, a budget process can support leaders in
    efforts to take early action. Budget process is about changing behaviors;
    it is about changing the incentives for policymakers as they make tough
    budget decisions.

    In discussing possible budget process reforms, participants generally
    agreed on a need for incorporating greater transparency about the federal
    government's current financial condition and the costs of long-term
    financial commitments (both on the spending and revenue sides of the
    budget). The challenge is in the specifics of achieving this goal. Many
    participants put forward various approaches and many specific suggestions
    while others raised concerns about the approaches.

    Three former CBO Directors-Alice Rivlin, Rudy Penner, and Edward
    Gramlich-led a discussion on the role of the budget process in the
    longterm fiscal challenge.4 They agreed that one role of the budget
    process was to enforce an already existing consensus among policymakers
    about budgetary decisions. They concurred with a statement made some years
    ago by Rudy Penner that "the [budget] process isn't the problem, the
    [budget] problem is the problem." Political will was more important than
    any process. Process cannot force consensus but if consensus on budgetary
    goals is reached, budget process changes can be designed to facilitate
    choices for fiscal discipline. As one former CBO Director put it, if there
    is no agreement on the nature of the budget problem, then no process will
    help.

    The former CBO Directors also agreed, however, that "process matters."
    They agreed that budget mechanisms such as those enacted in the Budget
    Enforcement Act (BEA) of 1990 had played a major part in sustaining fiscal
    discipline over a period of time. One former CBO Director explained that

    4 Alice Rivlin was the Founding Director of CBO, serving from 1975 through
    1983. Rudy Penner was CBO Director from 1983 through 1987. Edward Gramlich
    served as Acting Director of CBO in 1987.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    these mechanisms had been effective in part because they had focused on
    behavior vis-`a-vis the annual appropriations (discretionary caps) and
    proposed changes to mandatory programs or tax policy (the "PAYGO"
    requirement that meant Congress had to find offsets for any increases to
    mandatory spending or reductions to revenue). BEA's focus on actions
    contrasted with the imposition of aggregate deficit limits, which fail to
    distinguish between the results of action and the results of outside
    fiscal shocks such as recession.5 This focus on action facilitated
    enforcement.

    Participants generally agreed with the former CBO Directors both that
    budget process changes should not be viewed as a panacea and also that the
    specifics of the budget process were important. Specifically, many
    participants suggested that greater transparency about the long term
    needed to be incorporated into the budget process.

    Participants generally agreed that greater transparency was needed about
    the nation's fiscal outlook. Some participants characterized this need in
    terms of moral values. Greater transparency would be one means to reflect
    the value of stewardship in the budget process; greater transparency about
    long-term costs would promote an intergenerational perspective in budget
    decision making. Mechanisms that would promote greater transparency would
    increase the integrity of the budget process, some participants noted.
    Some participants suggested various approaches to making the long-term
    costs of proposed legislative change more transparent, but other
    participants raised concerns about suggested approaches.

    Many participants expressed support in principle for reinstituting
    mechanisms like the BEA discretionary caps and PAYGO, but some questioned
    whether these types of mechanisms would fit in today's environment and if
    so, how effective they would be. For example, some participants pointed to
    ongoing needs for defense and homeland security spending in discretionary
    appropriations as creating a very different set of circumstances than in
    the 1990s when policymakers could take advantage of a "peace dividend."
    Some participants saw a need for reinstituting a PAYGO requirement while
    others did not foresee changes in the near future to mandatory spending or
    tax policy. Another participant expressed support for reinstituting PAYGO
    on the grounds it would constitute a

    5 One former CBO Director observed that in practice, aggregate limits, for
    example, as embodied in the 1985 Gramm-Rudman-Hollings legislation or in
    the European Union's Stability and Growth Pact, were difficult if not
    impossible to enforce.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    "speed bump" but noted that applying PAYGO to both spending and revenue
    was controversial.

    Participants put forward several types of budget process changes aimed at
    increasing transparency about the long term. Some suggested that CBO
    scoring6 should make clear to policymakers whether a given legislative
    proposal would make the long-term fiscal outlook better or worse. One
    participant called for an "intergenerational PAYGO" process in federal
    budgeting that would require CBO to score the intergenerational
    consequences of a bill.

    One suggestion was to require CBO to prepare a supplementary estimate in
    present value terms for the cost of major spending and tax legislative
    proposals over a longer time frame, e.g., 75 years.7 This kind of estimate
    would summarize the net of all estimated future costs and savings in
    today's dollars (present value) using a specific discount (interest) rate
    for the chosen time frame. This would be a supplement to, rather than a
    substitute for, current and other potential budget-related information.

    Participants saw both advantages and risks in present value scoring. A
    present value estimate would make information on the long-term costs of
    legislative proposals available to policymakers as they deliberated
    legislative changes. For example, costs that would be incurred beyond the
    projection window would be more transparent. However, present value
    estimates are sensitive to such assumptions as discount rates, which could
    make this type of estimate vulnerable to gaming. In addition, by its very
    nature, present value removes timing from an estimate, but sometimes the
    timing and path of spending and revenues is important. For example, such
    estimates would be more important for items where the "cost" escalates
    after the customary cost projection period.

    One participant expressed the view that a temptation would exist to make
    heroic assumptions of long-term savings as a way to counter near-term
    costs. This participant cited a proposal that reduced federal spending for

    6 CBO is required to present year-by-year estimates in nominal dollars for
    a proposal's budgetary effects over a time frame of 5 years or more, and
    these estimates (scoring) are customarily used in the congressional budget
    process.

    7 In essence, a present value estimate can be understood as the amount of
    money that would need to be invested today at a given discount rate in
    order to pay for the legislative change over the time frame.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    military retirement in the out-years. The proposal was enacted but the
    provisions that would have yielded savings were repealed before they took
    effect. A present value estimate of that proposal would have booked
    longterm savings that were never realized. A second participant supported
    the present value approach but added that it would be difficult to build
    political risk into the discount rate chosen for the calculation. This
    participant suggested viewing present value estimates as instructive, but
    not definitive. As an alternative, one participant suggested requiring CBO
    to show the additional interest costs incurred over the 10-year window
    that would result from enacting a given legislative proposal.

    Participants held divergent views about the use of present value estimates
    for Social Security reform proposals as a supplement to customary
    estimates. Reform proposals such as those with individual accounts may
    raise short-term costs in order to reduce long-term obligations, some
    participants noted. In such cases, a present value estimate may show the
    reform change as beneficial relative to a baseline over a long time frame,
    but the estimate will not show the higher spending needed in the short
    term. One participant favored this type of estimate, noting that it
    involves converting the future Social Security debt implied by current-law
    promises into explicit debt. Another participant expressed the view that
    in practice this conversion of a federal commitment (i.e., an expectation
    of future spending) into an explicit liability could have the effect of
    making future program changes more difficult. A third participant agreed
    that the use of present value estimates for Social Security reform
    proposals presented an opportunity and a risk.

    One participant pointed to an example of budget process change from abroad
    that might help change the conversation about the long-term fiscal
    challenge. This change involves preparing a "pre-budget" report showing
    how aggregate budget totals link to the macroeconomy, not to programs.
    Countries including the United Kingdom had found this simple reform was an
    effective way to change the conversation and prompt debate, this
    participant said.

    One participant suggested applying provisions of the Sarbanes-Oxley
    legislation, which sought to improve accounting for private business
    operations, to the federal government as one approach to increasing the
    integrity of the federal budget process. Another participant noted that
    the legislation requires the chief executive officer of a private firm to
    certify its financial statements, but it was not clear who in the federal
    government

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    should do this. The President was the logical choice, but this could raise
    constitutional issues.

    Mr. Walker called attention to the fact that Sarbanes-Oxley sought to
    remedy deficiencies in financial reporting, not budgeting. He added that
    the Federal Accounting Standards Advisory Board (FASAB) is currently
    considering how the intergenerational aspects of the federal government's
    existing policies and programs could be better presented in the U.S.
    Consolidated Financial Statements.

    Finally, some participants noted that health care spending-the largest
    component of the long-term fiscal challenge-would be particularly
    difficult to address through budget process changes. One participant also
    questioned how present value scoring would work in evaluating proposed
    changes to Medicare. Since perpetual spending growth is clearly
    unsustainable-at some point Medicare spending would absorb the entire
    economy-current estimates assume an eventual slowdown that is contrary to
    historical experience. The timing and rate of this slowdown, in the view
    of this participant, are essentially arbitrary. This participant suggested
    having a 60-vote point of order against any legislative change that would
    increase federal health spending, thereby "making an infinitely large
    number larger."

    Another participant noted that last year when the Medicare Trustees Report
    was published, media reports focused on the deterioration of the financial
    condition of the Hospital Insurance (HI) trust fund as measured by the
    estimated exhaustion date of the fund.8 The Office of Management and
    Budget (OMB), CBO, and GAO have all noted that this focus can be viewed as
    misplaced. This participant noted that a more important change between the
    2003 and 2004 Trustees' estimates of future Medicare spending concerned
    the increase due to the drug benefit enacted in the Medicare Prescription
    Drug, Improvement, and Modernization Act of 2003, which added $8.1
    trillion to new federal commitments. However, the financial condition of
    HI gets attention because of the focus on trust fund solvency. At the same
    time, the signal provided by future trust fund exhaustion, however, does
    get attention and can serve to promote fiscal discipline in

    8 The 2004 Medicare Trustees Report stated that the projected exhaustion
    date for the HI Trust Fund had moved to 2019 from 2026 in the previous
    year's estimate. The HI trust fund pays for inpatient hospital stays,
    skilled nursing care, hospice, and certain home health services.

    Section 2
    How Can We Change the Conversation About
    the Long-Term Fiscal Challenge?

    the HI part of Medicare. This participant further noted that no similar
    signaling mechanism existed for the nonhospital portion of Medicare, which
    is funded by the Supplementary Medical Insurance (SMI) trust fund.9

    Some participants suggested the budget process itself needed broader
    institutional reform. The process needs greater integrity, it needs to set
    priorities, and it needs to incorporate a sense of intergenerational
    equity, which is a key value for the public. Institutional reform was
    needed to restore credibility to the budget process. One participant
    characterized the current budget process as one of "gridlock"; as a
    result, Congress has no time for oversight. Biennial budgeting10 might be
    one approach to making oversight possible again, this participant
    suggested.

    9 The SMI trust fund pays for physician and outpatient hospital services,
    diagnostic tests, and certain other medical services and supplies. The
    Medicare drug benefit enacted in the Medicare Prescription Drug,
    Improvement, and Modernization Act of 2003 and scheduled to begin in 2006
    will be funded by an account in the SMI trust fund.

    10 Under this reform, appropriations bills would be enacted every other
    year, with the idea that authorizing committees would conduct oversight
    and review in the alternate years.

                                       Section 2
                        How Can We Change the Conversation About
                            the Long-Term Fiscal Challenge?

    Federal Trust Funds

    Many forum participants noted that federal trust fund accounting is
    confusing and misleading, creating serious transparency and integrity
    issues in connection with financial reporting and budget matters. For
    example, the amount the federal government owes a trust fund is not
    considered a liability of the federal government under current federal
    accounting standards because it is a claim of one part of the government
    against another.

    Unlike a private trust fund manager, the federal government both owns the
    assets of most trust funds and can, through legislation, raise or lower
    fund collections or payments, or alter the purposes of the trust fund.
    Also unlike a private trust fund, which can set aside money for the
    future, federal trust funds are simply budget and accounting mechanisms
    for the budget as a whole. They record receipts and expenditures earmarked
    for specific purposes.

    When a federal trust fund such as the Old-Age and Survivors Disability
    Insurance (OASDI) trust funds for Social Security or the Medicare HI trust
    fund runs a surplus of payroll tax revenues over benefit payments, that
    surplus is invested in special, nonmarketable U.S. Treasury securities
    that are guaranteed for principal and interest by the full faith and
    credit of the U.S. government, and the cash is used to meet current needs
    of the government. When a federal trust fund runs a cash deficit, as the
    HI trust fund did between 1992 and 1998 and again in 2004, it redeems
    these securities to pay benefit costs that exceed current payroll tax
    receipts. However, in order to redeem these securities, the government as
    a whole must come up with cash by increasing taxes, lower spending,
    increased borrowing from the public, retiring less debt (if the total
    unified budget is in surplus), or some combination thereof.

    While the special Treasury securities in a trust fund do not have any
    current effect on the economy, they do have legal implications for the
    trust fund's capacity to pay benefits. Projections of trust fund
    exhaustion may receive media attention because projected trust fund
    exhaustion has historically been perceived as the primary action-forcing
    event. An exclusive focus on these projections, however, misses the point.
    From a macro perspective, the critical question is not how much a trust
    fund has in assets but whether the government as a whole has the economic
    capacity to finance the trust fund's claims to pay benefits both now and
    in the future and at what cost as it relates to other competing claims for
    scarce resources.

    While projections of trust fund balances provide information on program
    solvency, they do not provide information on sustainability, that is, the
    capacity of the budget and the economy to pay benefits. In some cases
    trust funds may provide a vital signal of imbalances in the long term. A
    shortfall between the long-term projected fund balance and projected costs
    can signal that the fund, either by design or because of changes in
    circumstances, is collecting insufficient monies to finance future
    payments. This signaling device can eventually prompt policymakers to
    action. Trust funds for payroll tax-funded programs such as Social
    Security and Medicare HI can serve as a signal to policymakers in this
    way.

    In other cases, the trust fund mechanism may provide no warning signals.
    For example, unlike the OASDI and HI trust funds, Medicare's SMI trust
    fund is financed not by payroll tax revenues but by a combination of
    beneficiary premiums and general revenue. Under the legislative formulas
    governing SMI financing, the SMI trust fund can never be exhausted because
    general revenue will always fill the gap between payments and premium
    revenues.

    As a result, there is no signal or "speed bump" provided by the trust fund
    mechanism for SMI. The Medicare Prescription Drug, Improvement, and
    Modernization Act of 2003 included a provision that focuses on monitoring
    the share of total Medicare spending financed by general revenues. Under
    certain circumstances, the Medicare Trustees are required to warn the
    President and Congress if the general revenue share is projected to be
    above a certain level. Where this is the case, the President is required
    to make a legislative proposal to address "excess general revenue" in
    Medicare, and Congress must consider the proposal.

    Section 3

      The Way Forward: A Process Needs to Be Put in Place to Address the Long-Term
                                    Fiscal Challenge

    Taken together, participants' comments throughout the forum suggested that
    efforts to address the long-term fiscal challenge will need to proceed in
    discrete steps rather than as a single or one-step solution. Time will be
    needed to change the conversation about the long-term fiscal challenge.
    The disconnect between public perceptions of the challenge and the risk it
    poses to the nation and Americans in the future will need to be bridged.
    Leadership from many sectors of society will be needed to start the
    process of addressing the challenge.

    As many participants observed, contrary to public perceptions, health care
    is the biggest driver of the long-term fiscal challenge while Social
    Security is a relatively small part. For example, one participant noted
    that while Social Security in its current form will grow from 4.3 percent
    of GDP today to 6.6 percent in 2075, Medicare's burden on the economy will
    quintuple- from 2.7 percent to 13.3 percent of the economy.1 Social
    Security also differs from health care in that many specific solutions
    have already been articulated for program reform. For that reason, in the
    words of one participant, it might be easier to begin with Social Security
    since it should be possible to bring groups together to discuss and agree
    on Social Security, it could be a "confidence builder."

    Once Social Security has been reformed in a way that improves the long
    term fiscal outlook, the nation can turn its attention to the more
    difficult problem of escalating health care costs, some participants
    noted. Addressing federal programs such as Medicare and the federal-state
    Medicaid program will need to involve change in the health care system of
    which they are a part-not just within federal programs. This will be a
    societal challenge that will affect all age groups. Because health care is
    so complex, solutions to health care cost growth are likely to be
    incremental and require extensive efforts over time.

    In discussions throughout the forum, many participants drew on history for
    lessons that can help us move forward. Citing events from the 1980s and
    1990s in support of their views, participants seemed agreed that further
    study of this history had the potential to yield useful lessons for the
    future.

    While participants did not know when a failure to address the long-term
    fiscal challenge might turn into a crisis, they were agreed that the time
    to begin is now. One participant called for the establishment of a working

    1 Under the Social Security Trustees' 2004 intermediate estimates.

    Section 3
    The Way Forward: A Process Needs to Be Put
    in Place to Address the Long-Term Fiscal
    Challenge

    group that would build on forum discussions, for example, by developing a
    media strategy and doing outreach to various publics.

    Participants emphasized the need in these efforts to "link the long term
    to the here and now." The costs of waiting need to be made more
    transparent to the public. One approach would be to sketch out the kinds
    of potential "hard landings" for the federal budget, the economy, and the
    nation that will result if the long-term fiscal challenge is not
    effectively addressed. As the budget squeeze tightens in coming years,
    leaders and the public will increasingly be confronted by the need to make
    trade-offs.

    This forum built on other meetings on the long-term fiscal challenge by
    moving beyond problem definition to a search for new ways to prompt and
    inform a much-needed national debate.

    In bringing their professional expertise and perspectives to bear on how
    to better communicate the long-term fiscal challenge to the public,
    participants expressed a shared concern that the stakes of this endeavor
    are high. Building support for addressing these issues is a daunting, but
    critically important, challenge-one that will entail the involvement of a
    wide range of stakeholders, professionals, and leaders at all levels of
    our society throughout the nation. Budget experts and groups both in and
    outside of government will be essential to sustaining information and
    momentum, but clearly the circle of engagement and language of debate
    needs to be broadened for timely action and change to occur. The issues
    raised by the long-term fiscal challenge are issues of significance that
    affect every American. As the forum ended, a number of participants agreed
    to get together in the future to continue efforts at public education and
    public engagement to elevate understanding of the long-term fiscal
    challenge and what it will mean for both individuals and the nation.

    Appendix I

                                     Forum Agenda

    The Long-term Fiscal Thursday, December 2, 2004 Challenge

    Agenda

    8:30 Coffee, continental breakfast

    8:45 David M. Walker, Comptroller General of the United States Opening:
    Welcome, Charge to the Group, Overview-Presentation, Reactions &
    Interaction

    Doug Holtz-Eakin, Director, CBO, and others

    Nancy Belden, American Association for Public Opinion Research, will
    present some baseline information on what the public knows & how it sees
    the long-term fiscal challenge.

    9:15 The Press and Other Media David Wessel, Wall Street Journal, Steve
    Winn, Kansas City Star, and Walter Shapiro, USA Today, will lead off a
    discussion on why this issue generally doesn't get coverage and the
    reactions they get when it does.

    10:15 Break

    10:30 Changing the Conversation Daniel Yankelovich, Viewpoint Learning,
    and Ruth Wooden, Public Agenda, will kick off a discussion of how to
    involve the public(s) and decision makers in a conversation that moves us
    forward. The discussion could deal with questions such as:

    o How could the nation be moved toward a dialogue recognizing the kinds
    and types of choices that will be needed and why they are needed now?

    o Where/how do we start to change the conversation? What kind of processes
    can work? How can the conversation be structured to reach across
    groups-the elderly, young workers, labor, business?

                                Appendix I Forum Agenda

    How can the issues be presented so the problem doesn't feel overwhelming
    or insoluble?

    o What are some innovative approaches to conveying the nature and
    magnitude of the challenge and opening up the public's window so they see
    the relationship between today's decisions and the crisis/problems of
    tomorrow? What "metrics" work for communicating?

    o  What is the role of the media?

    The aim is to identify types of change processes and media strategies that
    can lead to new public judgments on the issues.

    11:45 Break-Pick up Lunch

    12:00Working Lunch: What changes in the budget process would help
    facilitate action? Is the role of the process to shape the debate, to
    enforce decisions, to drive decisions, to "protect" decision makers?

    Former CBO Directors Alice Rivlin, Rudy Penner, and Ned Gramlich will kick
    off this discussion.

    1:00 Break

    1:15 Formal Education: High School and College

    Muriel Siebert, President, Muriel Siebert & Co., and Dan Palazzolo,
    Associate Professor of Political Science, University of Richmond, will
    lead off a discussion on the potential role of formal education in
    changing the conversation.

    2:00 Wrap-up

    What have we learned? Where do we go from here? What are the next steps?

    2:30 Adjourn

    Appendix II

                                  Forum Participants

    The Long-Term Fiscal Thursday, December 2, 2004 Challenge

    ModeratorDavid M. Walker Comptroller General of the United States U.S.
    Government Accountability Office

    ParticipantsDavid M. Abshire President, Center for the Study of the
    Presidency President, Richard Lounsbery Foundation

    Joseph Applebaum

    Chief Actuary, U.S. Government Accountability Office

    Nancy Belden

    Partner, Belden Russonello & Stewart President, American Association for
    Public Opinion Research

    Robert Bixby

    Executive Director, The Concord Coalition

    Jon R. Blo:ndal

    Deputy Head, Budgeting and Management Division	Organization for Economic
    Cooperation and Development (OECD)

    Joshua Bolten

    Director, Office of Management and Budget

    Kelvin Boston

    Executive Producer, Moneywise PBS Series

    Karlyn Bowman

    Resident Fellow, American Enterprise Institute

    Charles A. Bowsher

    Retired Comptroller General-GAO

    Stuart Butler

    The Heritage Foundation

    Appendix II
    Forum Participants

    David Certner

    Director of Federal Affairs, AARP

    Timothy B. Clark Editor and President, Government Executive Magazine

    Stan Collender

    Managing Director, Financial Dynamics

    G. Edward DeSeve

    National Academy of Public Administration

    James C. "Chip" Di Paula, Jr.

    Secretary, Maryland Department of Budget & Management

    Gene Dodaro

    Chief Operating Officer	U.S. Government Accountability Office

    Bill Dudley

    Chief U.S. Economist, Goldman Sachs

    Chris Edwards

    Director of Tax Policy, Cato Institute

    Cindy Fagnoni

    Managing Director, Education, Workforce, and Income Security U.S.
    Government Accountability Office

    Scott Farrow

    Chief Economist, U.S. Government Accountability Office

    Peter R. Fisher

    Managing Director, BlackRock

    Mark Funkhouser

    City Auditor, Kansas City, Missouri

    Edward M. Gramlich

    Federal Reserve Board

    Appendix II
    Forum Participants

    Bob Greenstein

    Executive Director, Center on Budget and Policy Priorities

    John Hamre

    President, Center for Strategic and International Studies

    Sallyanne Harper

    Chief Administrative Officer and Chief Financial Officer U.S. Government
    Accountability Office

    Bill Hoagland

    Senior Advisor to the Senate Majority Leader

    Douglas Holtz-Eakin

    Director, Congressional Budget Office

    Susan Irving

    Director, Federal Budget Analysis	U.S. Government Accountability Office

    Richard Jackson

    Senior Fellow and Director, Global Aging Initiative Center for Strategic
    and International Studies

    Thomas Kahn

    Minority Staff Director, House Budget Committee

    Marjorie Kanof

    Managing Director, Health Care	U.S. Government Accountability Office

    C. Morgan Kinghorn President, National Academy of Public Administration

    Nancy Kingsbury

    Managing Director, Applied Research and Methods U.S. Government
    Accountability Office

    Charles Kolb

    President, Committee for Economic Development

    Appendix II
    Forum Participants

    Ed Lorenzen

    Executive Director, Centrists.Org

    Carolyn J. Lukensmeyer, Ph.D.

    President and Founder, AmericaSpeaks

    Maya MacGuineas

    President, Committee for a Responsible Federal Budget

    Tom McCool

    Managing Director, Financial Markets and Community Investment U.S.
    Government Accountability Office

    Ken Mead

    Inspector General, U.S. Department of Transportation

    J. Christopher Mihm

    Managing Director, Strategic Issues U.S. Government Accountability Office

    Daniel Mulhollan

    Director, Congressional Research Service

    Van Doorn Ooms

    Senior Fellow, Committee for Economic Development

    Daniel J. Palazzolo

    Associate Professor of Political Science, University of Richmond

    John L. Palmer

    Professor, Syracuse University Public Trustee for Medicare and Social
    Security

    Rudy Penner

    Senior Fellow, The Urban Institute

    Tim Penny

    Senior Fellow, Hubert H. Humphrey Institute of Public Affairs

    Peter G. Peterson

    Chairman, The Blackstone Group

    Appendix II
    Forum Participants

    Paul L. Posner

    Managing Director, Federal Budget and Intergovernmental Relations U.S.
    Government Accountability Office

    Alice M. Rivlin

    Senior Fellow, Brookings Institution

    Walter Shapiro Columnist, USA Today

    Muriel Siebert

    President, Muriel Siebert & Co.

    Barry R. Snyder

    Inspector General, Federal Reserve Board

    Elmer Staats

    Retired Comptroller General-GAO

    Jeffrey Steinhoff

    Managing Director, Financial Management and Assurance U.S. Government
    Accountability Office

    Eugene Steuerle

    Senior Fellow, The Urban Institute

    Susan Tanaka

    Independent Consultant

    Sheila A. Weinberg

    Founder & CEO, Institute for Truth in Accounting

    David Wessel

    Deputy Bureau Chief, Washington Bureau

    The Wall Street Journal

    Steve Winn
    Deputy Editorial Page Editor, The Kansas City Star

    Ruth Wooden

    President, Public Agenda

    Appendix II
    Forum Participants

    Paul A. Volcker

    Dan Yankelovich

    Chairman, Viewpoint Learning Chairman, Public Agenda

    Appendix III

               The Nation's Growing Fiscal Imbalance: "Saving Our Future"

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

                                      Appendix III
                         The Nation's Growing Fiscal Imbalance:
                                  "Saving Our Future"

                    Selected Fiscal Exposures: Sources and Examples

    (End of 2003)a Type Example (dollars in billions)

    Explicit Liabilities	Publicly held debt ($3,913) Military and civilian
    pension and post-retirement health ($2,857) Veterans benefits payable
    ($955) Environmental and disposal liabilities ($250) Loan guarantees ($35)
    Explicit Financial Undelivered orders ($596) commitments Long-term leases
    ($47)

    Financial contingencies	Unadjudicated claims ($9) Pension Benefit Guaranty
    Corporation ($86) Other national insurance programs ($7) Government
    corporations e.g., Ginnie Mae

    Exposures implied by current Debt held by government accounts ($2,859)b
    policies or the public's Future Social Security benefit payments ($3,699)c
    expectations about the role Future Medicare Part A benefit payments
    ($8,236)c of government Future Medicare Part B benefit payments ($11,416)c

    Future Medicare Part D benefit payments ($8,119) c Life cycle cost
    including deferred and future maintenance and operating costs (amount
    unknown) Government Sponsored Enterprises e.g., Fannie Mae and Freddie Mac

    a All figures are for end of fiscal year 2003, except Social Security and
    Medicare estimates, which are end of calendar year 2003.

    b This amount includes $774 billion held by military and civilian pension
    funds that would offset the explicit liabilities reported by those funds.

    c Figures for Social Security and Medicare are net of debt held by the
    trust funds ($1,531 billion for Social Security, $256 billion for Medicare
    Part A, and $24 billion for Medicare Part B) and represent net present
    value estimates over a 75-year period. Over an infinite horizon, the
    estimate for Social Security would be $10.4 trillion, $21.8 trillion for
    Medicare Part A, $23.2 trillion for Medicare Part B, and $16.5 trillion
    for Medicare Part D.

    Source: GAO analysis of data from the Department of the Treasury, the
    Office of the Chief Actuary, Social Security Administration, and the
    Office of the Actuary, Centers for Medicare and Medicaid Services.

    Updated 3/30/04.

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

                         Current Fiscal Policy Is Unsustainable

    o  The "status quo" is not an option

    o 	Faster economic growth can help, but it cannot solve the problem

    o 	Tough choices will be required involving entitlement programs,
    discretionary and other mandatory spending, as well as tax policy and
    enforcement programs

    o  The sooner we get started, the better

    Appendix III
    The Nation's Growing Fiscal Imbalance:
    "Saving Our Future"

                                   Today's Discussion

    o 	How can the nation be moved toward a dialogue that recognizes the
    choices that will be needed and the need for action now?

    o 	What are some innovative approaches to conveying the nature, timing and
    magnitude of the fiscal challenge (e.g., per capita, relative tax burden,
    intergenerational impact)?

    o 	What changes in accounting and reporting might help to enhance public
    understanding and promote action (e.g., trust funds, burden reporting, tax
    preferences)?

    o 	What changes in the budget process, mechanisms, or other metrics (e.g.,
    discounted present value numbers) would help facilitate action?

    o 	What is the role of the media, educators and others in changing the
    conversation?

    o  Where do we go from here?

    Appendix IV

    National Saving, the Federal Budget, and the Current Account Deficit

    The federal budget deficit and the current account deficit1 are sometimes
    described as "twin deficits" that may pose severe risks to the U.S.
    economy and standard of living if they become too large relative to the
    economy. While the two deficits are connected, they differ in many
    important respects.

    The two deficits have a relationship to each other through their
    relationship to national saving and to investment.

    Investment = National Saving + Current Account Deficit

    National saving together with any borrowing from abroad (equal to the
    current account deficit) provide the resources for investment that can
    boost productivity and lead to higher economic growth and future living
    standards.

    What is national saving? It is the portion of a nation's income not used
    for consumption during a given period. National saving is defined as the
    sum of private saving, that is, saving by households and businesses, and
    government saving. Federal budget surpluses represent government saving,
    and federal budget deficits represent dissaving. Accordingly, federal
    surpluses or deficits affect the level of national saving.

    In recent years, personal saving by households has reached record lows
    while at the same time the federal budget deficit has climbed.
    Accordingly, national saving has diminished but the economy has continued
    to grow in part because more and better investments were made. That is,
    each dollar saved bought more investment goods and a greater share of
    saving was invested in highly productive information technology. The
    economy has also continued to grow because the United States was able to
    invest more than it saved by borrowing abroad, that is, by running a
    current account deficit. However, a portion of the income generated by
    foreign-owned assets in the United States must be paid to foreign lenders.
    National saving is the only way a country can have its capital and own it
    too.

    While the federal budget and current account deficits are linked, they may
    or may not move in the same direction and budget deficits are not

    1 Technically, the current account is defined as a net measure of U.S.
    international transactions in goods, services, investment income, and
    unilateral transfers. The current account is broader in coverage than the
    trade balance.

    Appendix IV
    National Saving, the Federal Budget, and the
    Current Account Deficit

    necessarily the source of trade deficits. In the 1980s and during the 2001
    recession, the two deficits both increased, but in the last half of the
    1990s, the federal budget improved while the current account deficit
    continued to grow. The two deficits can move independently because the
    international capital flows that drive the trade deficit depend on factors
    beside the U.S. federal budget deficit. For example, during the last half
    of the 1990s, the rise in U.S. productivity made U.S. assets more
    attractive, drawing private capital from abroad. Since 2001 capital
    inflows have come increasingly from official sources, primarily from Asian
    countries purchasing U.S. assets to mitigate or prevent their currencies
    from appreciating against the dollar. During this period, federal budget
    deficits have risen.

    Another key difference between the federal budget deficit and the current
    account deficit is that in the long-term economists believe the current
    account deficit will eventually correct itself as markets seek a new
    equilibrium. Continued large-scale current account deficits could trigger
    equilibrating, and potentially dislocating, changes in prices, interest
    rates, and exchange rates as the adjustment occurs. In contrast, there are
    no similar self-correcting mechanisms for federal budget deficits.

    The persistent U.S. current account deficits of recent years have
    translated into a rising level of indebtedness to other countries.
    However, many other nations currently financing investment in the United
    States also will face aging populations and declining national saving, so
    relying on foreign savings to finance a large share of U.S. domestic
    investment or federal borrowing is not a viable strategy for the long run.

    Appendix V

    The Long-Term Fiscal Challenge = A Long-Term Public Opinion Challenge

                                     The Long-term
                                    Fiscal Challenge
                                           =
                                      A Long-term
                                Public Opinion Challenge

                                      Nancy Belden

              President, American Association for Public Opinion Research

          Belden Russonello & Stewart, Washington, DC nancybelden@brspoll.com

    Appendix V
    The Long-Term Fiscal Challenge = A Long-
    Term Public Opinion Challenge

                                    Two drivers for
                               changing public policies:

                                     Political will
                                      Public will

    Belden Russonello & Stewart

    Appendix V
    The Long-Term Fiscal Challenge = A Long-
    Term Public Opinion Challenge

                               Currents of public opinion

    o  Dim view of the deficit.

    o 	But deficit not highly salient and not understood.

    o 	Tax cuts are hard to take back but not in demand.

    o 	Desire for spending on important priorities, e.g., Medicare, Social
    Security, education.

    Belden Russonello & Stewart

    Appendix V
    The Long-Term Fiscal Challenge = A Long-
    Term Public Opinion Challenge

                              The public takes a dim view
                              of deficits and is worried.

    Signs point to an economy that is going:

    o 	to be in trouble - jobs are moving overseas, budget deficit growing,
    too many

      jobs w/o health insurance or pensions 60% or

    o 	strong- jobs being created, inflation low, the stock market is up 31%

    Belden Russonello & Stewart

    Appendix V
    The Long-Term Fiscal Challenge = A Long-
    Term Public Opinion Challenge

                                  Worried (continued)

      Compared to now, how serious a problem will the budget deficit be in the years
      to come:

    o  More serious 49%

    o  Less 13  o Same 31

    Belden Russonello & Stewart

    Appendix V
    The Long-Term Fiscal Challenge = A Long-
    Term Public Opinion Challenge

      But not that worried.

        To reduce FBD, would you be

    o  Willing to pay more in taxes 34%

    o  Not willing 61

    Belden Russonello & Stewart

                                       Appendix V
                        The Long-Term Fiscal Challenge = A Long-
                             Term Public Opinion Challenge

                            Not highly salient, compared to
                                     other concerns

    "Very important" in deciding for whom to vote

        Economy 78% Terrorism 77 Jobs 76 Education 75 Iraq 74 Social security 65
        Moral values 63 Taxes 59 Federal budget deficit 57 Environment 53

    Belden Russonello & Stewart

    Appendix V
    The Long-Term Fiscal Challenge = A Long-
    Term Public Opinion Challenge

                            Public doesn't see the need for
                             more tax cuts in light of the
                                        deficit.

    o 	Hold off on tax cuts to make sure the budget does not go into a deeper
    deficit 69%

    o 	Pass additional tax cuts stimulate the economy 24

    Belden Russonello & Stewart

                                       Appendix V
                        The Long-Term Fiscal Challenge = A Long-
                             Term Public Opinion Challenge

                            And would prefer to balance the
                                        budget.

          If you had to choose, would you prefer