This is the accessible text file for GAO report number GAO-05-282SP 
entitled 'Highlights of A GAO Forum: The Long-Term Fiscal Challenge' 
which was released on February 1, 2005.

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Contents:

Introduction from the Comptroller General of the United States:

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

Today's Fiscal Policy Is Unsustainable:

When Will the Long-Term Fiscal Challenge Begin to Have Impact?

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

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

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

Media Presentations on the Long-Term Fiscal Challenge Need to "Make the 
Intangible Tangible:"

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

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

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

Leadership Will Be Needed in Many Sectors of Society:

Budget Process Can Enable Leaders to Make Hard Choices:

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:

Appendix II: Forum Participants:

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

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

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

Appendix VI: Rethinking Public Engagement and Countering Mistrust:

Figures:

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

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

[End of section]

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.[Footnote 1] In December 2003 CBO 
issued a report detailing the results of its long-term budget 
simulations.[Footnote 2] In addition, GAO continues to issue updates of 
its long-term budget simulations three times per year. 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 long-term 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 long-term 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.

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.

Signed by: 

David M. Walker: 
Comptroller General of the United States:

[End of section]

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:

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

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

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

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

* 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 long-term federal liabilities, unfunded commitments, 
and other obligations are estimated at more than $43 trillion[Footnote 
3]--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.).

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 long-term 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 commitments[Footnote 4] 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.

In the long term, current fiscal policy is unsustainable, and the 
sooner we change course, the better. GAO[Footnote 5] and the 
Congressional Budget Office[Footnote 6] (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 
programs[Footnote 7] such as Social Security, Medicare, and Medicaid 
has grown much faster than spending for discretionary programs[Footnote 
8] such as defense. In 1964, about two-thirds, 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.[Footnote 9] 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.

In addition, as the Fiscal Year 2004 Consolidated Financial Statements 
of the U.S. Government show,[Footnote 10] 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.[Footnote 11] 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.[Footnote 12] 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.

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

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003;
All other spending; Percent of GDP: 10.3%;
Medicare & Medicaid; Percent of GDP: 3.8%;
Social Security; Percent of GDP: 4.4%;
Net interest; Percent of GDP: 1.4%;
Revenue; Percent of GDP: 16.4%.

2015;
All other spending; Percent of GDP: 8.5%;
Medicare & Medicaid; Percent of GDP: 5.4%;
Social Security; Percent of GDP: 4.8%;
Net interest; Percent of GDP: 1.8%;
Revenue; Percent of GDP: 19.8%.

2030;
All other spending; Percent of GDP: 8.5%;
Medicare & Medicaid; Percent of GDP: 8.1%;
Social Security; Percent of GDP: 6.7%;
Net interest; Percent of GDP: 3.3%;
Revenue; Percent of GDP: 19.8%.

2040;
All other spending; Percent of GDP: 8.5%;
Medicare & Medicaid; Percent of GDP: 9.9%;
Social Security; Percent of GDP: 7.4%;
Net interest; Percent of GDP: 6.8%;
Revenue; Percent of GDP: 19.8%.

Source: GAO's September 2004 analysis. 

[End of figure] 

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!

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

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003;
All other spending; Percent of GDP: 10.3%;
Medicare & Medicaid; Percent of GDP: 3.8%;
Social Security; Percent of GDP: 4.4%;
Net interest; Percent of GDP: 1.4%;
Revenue; Percent of GDP: 16.4%.

2015;
All other spending; Percent of GDP: 9.8%;
Medicare & Medicaid; Percent of GDP: 5.4%;
Social Security; Percent of GDP: 4.9%;
Net interest; Percent of GDP: 3%;
Revenue; Percent of GDP: 17.4%.

2030;
All other spending; Percent of GDP: 9.8%;
Medicare & Medicaid; Percent of GDP: 8.1%;
Social Security; Percent of GDP: 7.1%;
Net interest; Percent of GDP: 8.5%;
Revenue; Percent of GDP: 17.4%.

2040;
All other spending; Percent of GDP: 9.8%;
Medicare & Medicaid; Percent of GDP: 9.9%;
Social Security; Percent of GDP: 8.6%;
Net interest; Percent of GDP: 17.8%;
Revenue; Percent of GDP: 17.4%.

Source: GAO's September 2004 analysis.

[End of figure]

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-Term Fiscal Challenge Begin to Have Impact?

Participants were generally in agreement that, absent action, a crisis 
would ultimately occur. The only question is when. Some were of the 
view that events in the near term were likely to be catalysts for 
change; others were less sure when this might happen.

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.[Footnote 13] By 2008, some factors that will 
affect the federal budget include the following.

* 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.[Footnote 14]

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

* 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 
deficit[Footnote 15]) 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 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.[Footnote 16] (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 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 
well-being 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 long-term 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.

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 long-term 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.[Footnote 17] The purpose of that 
forum had been to find ways to elevate the nation's understanding of 
health care cost, access, and quality 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.

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.

[End of section]

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 Presentations on 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.

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.

* 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."

* Make "the intangible tangible." Similes and metaphors--not big 
numbers--can help people understand 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.

* 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.

* 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.

* 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 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:

* 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.

* 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.

* 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.[Footnote 18]

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 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.[Footnote 19] 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.

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 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."

* 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.

* 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.

* 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.

* 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 trade-
offs in the context of specific information on the long-term fiscal 
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.

* 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 
mock-constitutional 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.[Footnote 20] 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.

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 
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 long-term 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 Needed in Many Sectors of Society:

A theme throughout forum discussions was that participants saw a need 
for leadership by many different sectors of society--from the White 
House to "beyond the Beltway." Media representatives noted that the 
press cannot 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.

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.

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 
long-term fiscal challenge.[Footnote 21] 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 these mechanisms had been effective in part because they 
had focused on behavior vis-à-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.[Footnote 
22] 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 "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 
scoring[Footnote 23] 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.[Footnote 24] 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 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 long-term 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 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.[Footnote 25] 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 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.[Footnote 26]

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 budgeting[Footnote 27] might be one approach to making 
oversight possible again, this participant suggested.

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.

[End of table]

[End of section]

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.[Footnote 28] 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 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.

[End of section]

Appendixes:

Appendix I: Forum Agenda:

The Long-term Fiscal Challenge:

Thursday, December 2, 2004:

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:

* 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?

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

* 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?

* 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:

12:00:

Working 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:

[End of section]

Appendix II: Forum Participants:

The Long-Term Fiscal Challenge:

Thursday, December 2, 2004:

Moderator:

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

Participants:

David 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:

Jón R. Blöndal: 
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:

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:

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:

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:

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:

Paul A. Volcker:

Dan Yankelovich: 
Chairman, Viewpoint Learning: 
Chairman, Public Agenda:

[End of section]

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

GAO: 

The Nation’s Growing Fiscal Imbalance: 
“Saving Our Future:” 

The Honorable David M. Walker: 
Comptroller General of the United States: 

U.S. Government Accountability Office: 

December 2, 2004: 

[See PDF for image] - graphic text:

3 pie charts with 5 items each.

1964:
Defense: 46.0%.
Social Security: 14.0%.
Medicare & Medicaid: 0%.
Net interest: 7.0%.
All other spending: 33.0%.

1984:
Defense: 27.0%.
Social Security: 21.0%.
Medicare & Medicaid: 9.0%.
Net interest: 13.0%.
All other spending: 30.0%.

2004:* 
Defense: 20.0%.
Social Security: 21.0%.
Medicare & Medicaid: 20.0%.
Net interest: 7.0%.
All other spending: 33.0%.

* Current services estimate.

Note: Numbers may not add to 100 percent due to rounding.

Source: Budget of the United States Government, Fiscal Year 2005 
(February 2004) and Budget of the United States Government, Fiscal Year 
2005, Mid-session Review (July 2004), Office of Management and Budget.

[End of figure]

[See PDF for image] - graphic text:

3 pie charts with 3 items each.

1964:
Discretionary: 67%;
Mandatory: 26%;
Net Interest: 7%.

1984:
Discretionary: 45%;
Mandatory: 42%;
Net Interest: 13%.

2004:* 
Discretionary: 54%;
Mandatory: 39%;
Net Interest: 7%.

* Current services estimate.

Note: Numbers may not add to 100 percent due to rounding.

Source: Budget of the United States Government, Fiscal Year 2005 
(February 2004) and Budget of the United States Government, Fiscal Year 
2005, Mid-session Review (July 2004), Office of Management and Budget.

[End of figure]

Fiscal Year 2004 Deficit Numbers: 

On-Budget Deficit: ($568 billion); (4.9%) of GDP.
Social Security Surplus: $151 billion; 1.3% of GDP.
Unified Deficit: ($413 billion); (3.6%) of GDP.

[End of table]

[See PDF for image] - graphic text:

Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars.

Fiscal year: 1962; 
On-budget: -1%; 
Off-budget: -0.2%; 
Unified: -1.3%.

Fiscal year: 1963; 
On-budget: -0.7%; 
Off-budget: -0.1%; 
Unified: -0.8%.

Fiscal year: 1964; 
On-budget: -1%; 
Off-budget: 0.1%; 
Unified: -0.9%.

Fiscal year: 1965; 
On-budget: -0.2%; 
Off-budget: No data; 
Unified: -0.2%.

Fiscal year: 1966; 
On-budget: -0.4%; 
Off-budget: -0.1%; 
Unified: -0.5%.

Fiscal year: 1967; 
On-budget: -1.6%; 
Off-budget: 0.5%; 
Unified: -1.1%.

Fiscal year: 1968; 
On-budget: -3.2%; 
Off-budget: 0.3%; 
Unified: -2.9%.

Fiscal year: 1969; 
On-budget: -0.1%; 
Off-budget: 0.4%; 
Unified: 0.3%.

Fiscal year: 1970; 
On-budget: -0.9%; 
Off-budget: 0.6%; 
Unified: -0.3%.

Fiscal year: 1971; 
On-budget: -2.4%; 
Off-budget: 0.3%; 
Unified: -2.1%.

Fiscal year: 1972; 
On-budget: -2.2%; 
Off-budget: 0.3%; 
Unified: -2%.

Fiscal year: 1973; 
On-budget: -1.2%; 
Off-budget: No data; 
Unified: -1.1%.

Fiscal year: 1974; 
On-budget: -0.6%; 
Off-budget: 0.1%; 
Unified: -0.4%.

Fiscal year: 1975; 
On-budget: -3.5%; 
Off-budget: 0.1%; 
Unified: -3.4%.

Fiscal year: 1976; 
On-budget: -4.1%; 
Off-budget: -0.2%; 
Unified: -4.2%.

Fiscal year: 1977; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%.

Fiscal year: 1978; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%.

Fiscal year: 1979; 
On-budget: -1.5%; 
Off-budget: -0.1%; 
Unified: -1.6%.

Fiscal year: 1980; 
On-budget: -2.7%; 
Off-budget: No data; 
Unified: -2.7%.

Fiscal year: 1981; 
On-budget: -2.4%; 
Off-budget: -0.2%; 
Unified: -2.6%.

Fiscal year: 1982; 
On-budget: -3.7%; 
Off-budget: -0.2%; 
Unified: -4%.

Fiscal year: 1983; 
On-budget: -6%; 
Off-budget: No data; 
Unified: -6%.

Fiscal year: 1984; 
On-budget: -4.8%; 
Off-budget: No data; 
Unified: -4.8%.

Fiscal year: 1985; 
On-budget: -5.3%; 
Off-budget: 0.2%; 
Unified: -5.1%.

Fiscal year: 1986; 
On-budget: -5.4%; 
Off-budget: 0.4%; 
Unified: -5%.

Fiscal year: 1987; 
On-budget: -3.6%; 
Off-budget: 0.4%; 
Unified: -3.2%.

Fiscal year: 1988; 
On-budget: -3.9%; 
Off-budget: 0.8%; 
Unified: -3.1%.

Fiscal year: 1989; 
On-budget: -3.8%; 
Off-budget: 1%; 
Unified: -2.8%.

Fiscal year: 1990; 
On-budget: -4.8%; 
Off-budget: 1%; 
Unified: -3.9%.

Fiscal year: 1991; 
On-budget: -5.4%; 
Off-budget: 0.9%; 
Unified: -4.5%.

Fiscal year: 1992; 
On-budget: -5.5%; 
Off-budget: 0.8%; 
Unified: -4.7%.

Fiscal year: 1993; 
On-budget: -4.6%; 
Off-budget: 0.7%; 
Unified: -3.9%.

Fiscal year: 1994; 
On-budget: -3.7%; 
Off-budget: 0.8%; 
Unified: -2.9%.

Fiscal year: 1995; 
On-budget: -3.1%; 
Off-budget: 0.9%; 
Unified: -2.2%.

Fiscal year: 1996; 
On-budget: -2.3%; 
Off-budget: 0.9%; 
Unified: -1.4%.

Fiscal year: 1997; 
On-budget: -1.3%; 
Off-budget: 1%; 
Unified: -0.3%.

Fiscal year: 1998; 
On-budget: -0.3%; 
Off-budget: 1.1%; 
Unified: 0.8%.

Fiscal year: 1999; 
On-budget: No data; 
Off-budget: 1.4%; 
Unified: 1.4%.

Fiscal year: 2000; 
On-budget: 0.9%; 
Off-budget: 1.5%; 
Unified: 2.4%.

Fiscal year: 2001; 
On-budget: -0.3%; 
Off-budget: 1.6%; 
Unified: 1.3%.

Fiscal year: 2002; 
On-budget: -3.1%; 
Off-budget: 1.5%; 
Unified: -1.5%.

Fiscal year: 2003; 
On-budget: -4.9%; 
Off-budget: 1.5%; 
Unified: -3.5%.

Fiscal year: 2004; 
On-budget: -4.9%; 
Off-budget: 1.3%; 
Unified: -3.6%.

Source: Office of Management and Budget and Congressional Budget 
Office.

[End of figure]

Selected Fiscal Exposures: Sources and Examples (End of 2003)[A]:

[See PDF for image] - graphic text:

Type: Explicit liabilities; 
Example (dollars in billions): Publicly held debt: ($3,913).

Type: Explicit liabilities; 
Example (dollars in billions): Military and civilian pension and post-
retirement health: ($2,857).

Type: Explicit liabilities; 
Example (dollars in billions): Veterans benefits payable: ($955).

Type: Explicit liabilities; 
Example (dollars in billions): Environmental and disposal liabilities: 
($250).

Type: Explicit liabilities; 
Example (dollars in billions): Loan guarantees: ($35).

Type: Explicit financial commitments; 
Example (dollars in billions): Undelivered orders: ($596).

Type: Explicit financial commitments; 
Example (dollars in billions): Long-term leases: ($47).

Type: Explicit financial contingencies; 
Example (dollars in billions): Unadjudicated claims: ($9).

Type: Explicit financial contingencies; 
Example (dollars in billions): Pension Benefit Guaranty Corporation: 
($86).

Type: Explicit financial contingencies; 
Example (dollars in billions): Other national insurance programs: ($7).

Type: Explicit financial contingencies; 
Example (dollars in billions): Government corporations e.g., Ginnie 
Mae.

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government; 
Example (dollars in billions): Debt held by government accounts: 
($2,859)[B].

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government; 
Example (dollars in billions): Future Social Security benefit payments:
($3,699) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Future Medicare Part A benefit payments:
($8,236) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Future Medicare Part B benefit payments:
($11,416) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Future Medicare Part D benefit payments:
($8,119) [C].

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): Life cycle cost including deferred and:
future maintenance and operating costs (amount unknown).

Type: Implicit exposures implied by current policies or the public’s 
expectations about the role of government; 
Example (dollars in billions): 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.

[End of table]

Composition of Spending as a Share of GDP Under Baseline Extended:

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003; 
All other spending; Percent of GDP: 10.3%; 
Medicare & Medicaid; Percent of GDP: 3.8%; 
Social Security; Percent of GDP: 4.4%; 
Net interest; Percent of GDP: 1.4%; 
Revenue; Percent of GDP: 16.4%.

2015; 
All other spending; Percent of GDP: 8.5%; 
Medicare & Medicaid; Percent of GDP: 5.4%; 
Social Security; Percent of GDP: 4.8%; 
Net interest; Percent of GDP: 1.8%; 
Revenue; Percent of GDP: 19.8%.

2030; 
All other spending; Percent of GDP: 8.5%; 
Medicare & Medicaid; Percent of GDP: 8.1%; 
Social Security; Percent of GDP: 6.7%; 
Net interest; Percent of GDP: 3.3%; 
Revenue; Percent of GDP: 19.8%.

2040; 
All other spending; Percent of GDP: 8.5%; 
Medicare & Medicaid; Percent of GDP: 9.9%; 
Social Security; Percent of GDP: 7.4%; 
Net interest; Percent of GDP: 6.8%; 
Revenue; Percent of GDP: 19.8%.

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2014 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2014, revenue as a share of GDP 
is held constant. Budgetary effects due to passage of the Working 
Families Tax Relief Act of 2004 are not reflected in this simulation.

Source: GAO's September 2004 analysis.

[End of figure]

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP After 2004 and All Expiring Tax Provisions Are 
Extended:

[See PDF for image] -graphic text:

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group.

2003; 
All other spending; Percent of GDP: 10.3%; 
Medicare & Medicaid; Percent of GDP: 3.8%; 
Social Security; Percent of GDP: 4.4%; 
Net interest; Percent of GDP: 1.4%; 
Revenue; Percent of GDP: 16.4%.

2015; 
All other spending; Percent of GDP: 9.8%; 
Medicare & Medicaid; Percent of GDP: 5.4%; 
Social Security; Percent of GDP: 4.9%; 
Net interest; Percent of GDP: 3%; 
Revenue; Percent of GDP: 17.4%.

2030; 
All other spending; Percent of GDP: 9.8%; 
Medicare & Medicaid; Percent of GDP: 8.1%; 
Social Security; Percent of GDP: 7.1%; 
Net interest; Percent of GDP: 8.5%; 
Revenue; Percent of GDP: 17.4%.

2040; 
All other spending; Percent of GDP: 9.8%; 
Medicare & Medicaid; Percent of GDP: 9.9%; 
Social Security; Percent of GDP: 8.6%; 
Net interest; Percent of GDP: 17.8%; 
Revenue; Percent of GDP: 17.4%.

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2014 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2014, revenue as a share 
of GDP is held constant.

Source: GAO's September 2004 analysis.

[End of figure]

Current Fiscal Policy Is Unsustainable:

* The "Status Quo" is Not an Option: 

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

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

* The sooner we get started, the better; 

Today’s Discussion: 

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

* 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)? 

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

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

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

* Where do we go from here? 

[End of slide presentation]

[End of section]

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

The federal budget deficit and the current account deficit[Footnote 29] 
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 
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.

[End of section]

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

Nancy Belden: 

President, American Association for Public Opinion Research: 

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

Two drivers for changing public policies:

Political will: 
Public will: 

Currents of public opinion: 
* Dim view of the deficit.
* But deficit not highly salient and not understood.
* Tax cuts are hard to take back but not in demand.
* Desire for spending on important priorities, e.g., Medicare, Social 
Security, education.

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

Signs point to an economy that is going:

* to be in trouble – jobs are moving overseas, budget deficit growing, 
too many jobs w/o health insurance or pensions: 60%; or, 
* strong— jobs being created, inflation low, the stock market is up: 
31%. 

Compared to now, how serious a problem will the budget deficit be in 
the years to come:
* More serious: 49%; 
* Less: 13; 
* Same: 31; 

But not that worried.

To reduce FBD, would you be: 
* Willing to pay more in taxes: 34%; 
* Not willing: 61. 

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%; 

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

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

* Pass additional tax cuts/stimulate the economy: 24%; 

And would prefer to balance the budget.

If you had to choose, would you prefer:

* Balancing the budget: 66%;

* Cutting taxes: 31%;

But once given, tax cuts are hard to take back.

Given recent events and the need for new government spending, the tax 
cuts that have not been phased in yet:

* Should be rolled back: 35%;

* Left in place: 49%; 

Plus, there is a desire to spend on popular programs.

If you had to choose, would you prefer: 

* Balancing the budget: 44%;

* Spending more on education, health care and economic development: 
55%; 

This conflict among attitudes on balanced budget, taxes and spending on 
popular programs makes the FBD an issue that cries out for leadership 
-- to define for the public its urgency and implications.

Citations: 

Slide: 

4. NBC News/Wall Street Journal poll, May 2004. N=1012.
5. CBS/New York Times poll, March 2004. N=1206.
6. CBS/New York Times poll, March 2004. N=1206.
7. Pew Research Center poll, October 2004. N=1568.
8. “How Americans Feel about the Economy, Taxes, and the Budget.” Poll 
conducted by Mark J. Penn, March 2002. N=500.
9. Associated Press poll, November 2004. N=1000.
10. “How Americans Feel about the Economy, Taxes, and the Budget.” Poll 
conducted by Mark J. Penn, March 2002. N=500.
11. Associated Press poll, November 2004. N=1000.

Belden Russonello & Stewart is a research and communications firm 
providing public opinion research and communications strategy to 
progressive organizations, foundations, government and corporations 
since 1982.

Belden Russonello & Stewart
1320 19th Street NW, Suite 700
Washington, DC 20036
202.822.6090 www.brspoll.com

Addendum: The Deficit and Public Perception: 

[See PDF for image] –graphic text:

1985; 
Deficit (billions of dollars) (c): -$212; 
Percent saying "very serious problem" (b)58.0%. 

1989; 
Percent saying "most important problem" (a): 19%; 
Deficit (billions of dollars) (c): -$153; 
Percent saying "very serious problem" (b)63.0%. 

1992; 
Percent saying "most important problem" (a): 4%; 
Deficit (billions of dollars) (c): -$290; 
Percent saying "very serious problem" (b)67.0%. 

1998; 
Percent saying "most important problem" (a): 6%; 
Deficit (billions of dollars) (c): $69; 
Percent saying "very serious problem" (b)40.0%. 

2002; 
Percent saying "most important problem" (a): 1%; 
Deficit (billions of dollars) (c): -$158; 
Percent saying "very serious problem" (b)42.5%. 

2004; 
Percent saying "most important problem" (a): 2%; 
Deficit (billions of dollars) (c): -$413; 
Percent saying "very serious problem" (b)50.0%. 

[End of figure]

Citations for Addendum Slide 15: 
* The Pew Research Center for the People & the Press. Feb. 1989, Jan. 
1992, May 1998, March 2002, and Nov. 2004. What do you think is the 
most important problem facing the country today? 

* Gallup Organization. April 1985, Jan. 1989, Jan. 1998, and Sept. 
1992. In your opinion, is the current Federal budget deficit a very 
serious problem for the country, a fairly serious problem, not a 
serious problem, or is this something you haven’t thought much about? 
CBS News/New York Times Poll. March 2004. How serious a problem do you 
think the budget deficit is for the country right now – very serious, 
somewhat serious, not too serious, or not at all serious? 

* The Budget and Economic Outlook: Fiscal Years 2005-2014. Released 
January 26, 2004. http://www.cbo.gov

Note: 2002 data for question “b” is estimated. 

[End of slide presentation]

[End of section]

Appendix VI: Rethinking Public Engagement and Countering Mistrust:

Presented by Daniel Yankelovich and Ruth Wooden to GAO Comptroller 
General Forum on the Long-Term Fiscal Challenge: 

December 2, 2004: 

© Viewpoint Learning: 
www.ViewpointLearning.com

Recent history: 

* Three major waves of mistrust in the past 70 years: 
» The Great Depression; 
» Mistrust in the 1970’s; 
» The current wave; 

A wide - and serious - disconnect between citizens and leaders: 

What citizens see: 

* “Black box” of budgeting and decision-making; 
* Powerful special interests and partisanship; 
* Little of value being done to address challenges; 
* Experts are running the show; 

What leaders see: 

* People “wanting it all” but unwilling to pay for it; 
* An uninformed public that has little of value to offer policy 
making; 
* Apathetic citizens who do not want to be engaged; 
* Activists hijack all attempts at public dialogue; 

Characteristics of a disengaged public: 

* Inattentive; 
* Little apparent common ground; 
* Dominated by wishful thinking; 
* Mistrustful and suspicious; 
* Focused more on self than community; 
* Haven’t done hard thinking; 
* Attitudes inconsistent and contradictory; 
* Media perpetuate the state of raw opinion; 

New engagement strategies: 

* Broaden existing model of public engagement and how to research it; 
* Counterbalance adversarial strategies with dialogue-based ones; 
* Build “stewardship bridge” to the public; 
* Develop a new kind of communication program; 

1. Broaden the model: 

The existing model of public engagement: 

[See PDF for image] –graphic text: 

Unorganized Public Opinion: 
* Inconsistent; 
* Unstable; 
* Consequences unclear. 

Plus: Information; 

Equals: Thoughtful Public Engagement. 

[End of figure]

A broader model of public engagement: 

[See PDF for image] –graphic text:

Unorganized Public Opinion: 
* Inconsistent; 
* Unstable; 
* Consequences unclear.

Plus: 
* Sense of inclusion; 
* Values-based choices; 
* Multiple framings; 
* Wishful thinking confronted; 
* Stages; 
* Information. 

Equals: Thoughtful Public Engagement. 

[End of figure] 

Dialogue-based research unearths public’s post-wishful thinking 
preferences: 

In contrast to polls and focus groups, new deeper-probing research 
methods help citizens: 

* Absorb pros and cons of choices; 
* Wrestle with painful tradeoffs; 
* Connect the dots; 
* Hear other points of view; 
* Clarify core values; 
* Overcome wishful thinking. 

2. Dialogue-based strategy: 

Dialogue is a surprisingly effective strategy for building engagement: 

Unlike adversarial strategies, dialogue can: 

* Create trust; 
* Discover common ground; 
* Generate ownership/identification; 
* Resolve framework conflicts; 
 
When to use dialogue: 

Use dialogue when simpler approaches don’t work, for example when: 

* Mistrust blocks agreement; 
* Differing frameworks lead to misunderstanding; 
* Isolation from other points of view can blind-side you; 
* Changes are needed in the climate of moral values; 
* Dealing with trends or changes outside the comfort zone. 

3. Stewardship bridge: 

Stewardship bridge:

Stewardship = moral obligation to leave things in better shape: 

* The special responsibility that goes with privilege, trust and high 
standing; 
* Seen most clearly when violated: 
» E.g. Red Cross; 
» E.g. Catholic Church; 
» E.g. Mutual funds/insurance; 
* Performance that meets or exceeds expectations; 

An example of the “stewardship gap:” 

[See PDF for image] –graphic text

A pipeline company (mid-1990s): 

A good steward would set up oil spill response mechanisms; 
Expectation: 71%; 
Performance: 15%; 
Gap: 56%. 

A good steward would make us less dependent on foreign oil; 
Expectation: 67%; 
Performance: 18%; 
Gap: 49%. 

A good steward would reduce threat to groundwater; 
Expectation: 61%; 
Performance: 10%; 
Gap: 51%. 

A good steward would reduce toxic emissions; 
Expectation: 61%; 
Performance: 14%; 
Gap: 47%. 

A good steward would inform public about plans to protect the 
environment; 
Expectation: 51%; 
Performance: 10%; 
Gap: 41%. 

[End of figure]

4. Communication program: 

Build on deeper-probing research: 

[See PDF for image] 

[End of figure]

Conclusion: 

To break through the crust of mistrust, leaders must rethink citizen 
engagement in far-reaching new ways. 

[End of slide presentation]

[End of section]

(450377):

FOOTNOTES

[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).

[3] 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 agreed-upon 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).

[4] 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. 

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

[6] 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).

[7] 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.

[8] Discretionary spending is spending that is controlled by Congress 
through the annual appropriations process.

[9] 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. 

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

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

[12] 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.

[13] 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. 

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

[15] 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.

[16] 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.

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

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

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

[20] 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.

[21] 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.

[22] 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.

[23] 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.

[24] 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.

[25] 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.

[26] 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.

[27] 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.

[28] Under the Social Security Trustees' 2004 intermediate estimates.

[29] 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.

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