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
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
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 [email protected]
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