The Public Policy

It Will All Come to Tears

GAO tells it like it is.

By 10.21.09

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What has it come to when you start getting anxious over a new budget document released by a federal agency like the Government Accountability Office (GAO), which some readers, of a certain age, will remember as the former General Accounting Office? Maybe I have been living in Washington too long. The GAO just released its fall 2009 update on The Federal Government's Long-Term Fiscal Outlook.

Basically, "it's a tear-jerker for budget wonks," says Taxpayers for Common Sense. It is also a downer for taxpayers, their children and their grandchildren.

The weak economy and financial markets, "and the government's response to them," have resulted in "near-term increases in federal deficits," reaching record levels in 2009.

Unfortunately, the feds face even larger fiscal challenges "that will persist long after the return of fiscal stability and economic growth." The die, as it were, is cast.

GAO's simulations or models show "escalating levels of debt that illustrate that the long-term fiscal outlook remains unstable." In little over 10 years, debt held by the public as a percent of GDP is projected to exceed the historical high reached in the aftermath of World War II "and grow at a steady rate thereafter." Again, it will come as no surprise that this fiscal situation is driven by health care cost growth and demographic trends.

"Absent reform, Social Security, Medicare, and Medicaid will account for a growing share of the economy in coming years," says GAO. "The longer action to deal with the nation's long-term fiscal outlook is delayed, the larger the changes will need to be increasing the likelihood that they will be disruptive and destabilizing."

As the Irish like to say, it will all come to tears. But we do not have to wait long for that. Evidently, the cost and demographic trends, which we often assume are somewhere out there on the horizon, are already taking their toll. The oldest members of the baby-boom generation are now eligible for Social Security and will be getting Medicare benefits in less than two years. The Medicare Hospital Trust Fund began running out of cash in 2008, meaning expenses exceeded dedicated revenues. Social Security surpluses, which have been financing other government programs, are now projected to turn into cash deficits by 2016. Annual budget deficits are likely to increase continuously under GAO's two different sets of assumptions or simulation models that it uses for these forecasts, and "both simulations show that the federal government is on an unsustainable fiscal path." For any green eyeshade types who might be reading this, GAO makes it clear that the results of its various simulations "are not materially different." You can check out the document for the technical explanations.

Is anyone in Congress listening? And are we to believe that the Baucus health care plan is really a cost-saver over time? Adding new health care mandates on top of this mountain of debt is simply "the absolute height of fiscal irresponsibility" as my hero, Congressman Paul Ryan (R-WI) recently told Peggy Noonan.

Anyway, GAO soldiers on, noting that "the sense of urgency has increased" since it now sees "persistent annual budget deficits in excess of 7 percent of GDP -- levels not seen since the aftermath of World War II."

According to the GAO, "…absent changes in federal entitlement programs, spending on Social Security, Medicare, Medicaid, and interest on the federal debt will account for an ever-growing share of the economy." There will be little room for "all other spending," which basically is what we all think of as "government": defense, homeland security, highways, farm price supports and assistance to needy families. Under one simulation model, GAO claims that roughly 92 cents of every dollar of federal revenue will be spend on major entitlements and net interest costs by 2019 due to the increased federal debt.

"However, the longer action to deal with the nation's long-term fiscal outlook is delayed, the greater is the risk that eventual changes will be disruptive and destabilizing," says GAO. So "waiting even ten years would require a revenue increase of about 58 percent, a noninterest spending cut of about 39 percent, or some combination of the two." Pick your poison.

Of course, none of this is unexpected. This train wreck has been predicted for some time. What is amazing is the collective case of cognitive dissonance that has gripped Washington. Congress and the Administration have long forgotten the principle of "do no wrong." They are deep into making matters worse. The entire town seems immune to the exhortations of GAO and other urgent voices such as David Walker, the former Comptroller General of the United States.

It is as if the colonists, hearing the cries of Paul Revere, gave out a yawn, rolled over, and went back to sleep.

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About the Author

G. Tracy Mehan III served at the U.S. Environmental Protection Agency in the administrations of both Presidents Bush. He is a consultant in Arlington, Virginia, and an adjunct professor at George Mason University School of Law.