May 25, 2017

A Timely Fiscal Warning

Lawmakers recently received a timely warning about the nation’s fiscal health from a particularly credible and persuasive source: Gene L. Dodaro, comptroller general of the United States and the head of the Government Accountability Office (GAO).

The warning came as administration officials continued to work on President Trump’s tardy proposed 2018 budget, and as lawmakers have been considering substantial tax cuts and fundamental changes in the health care system.  

Fortunately, Dodaro’s testimony before the House Budget Committee included not just an explanation of our fiscal difficulties but an array of recommendations that could help deal with them. Congress and the president would do well both to heed Dodaro’s warning and carefully consider his agency’s recommendations.

“The Congress and administration face serious economic, security and social challenges that will require difficult policy choices in the short term about the level of federal spending and investments as well as ways to obtain needed resources,” Dodaro said. “At the same time, the federal government is highly leveraged in debt by historical norms and on an unsustainable long-term fiscal path caused by a structural imbalance between revenue and spending absent a change in fiscal policy.”

He noted that at the end of Fiscal 2016 last fall, federal debt held by the public (investors) amounted to 77 percent of GDP, the highest it has been since 1950. That is up from 74 percent at the end of Fiscal 2015 and well above the 44 percent average since 1946.

In addition, the comptroller general pointed out that debt projections do not include certain fiscal risks that could affect the government in the future. For example, he said the Pension Benefit Guaranty Corporation’s financial future is “uncertain” because of long-term challenges related to its “governance and funding structure.”   

Dodaro wisely advised elected officials to keep the long term in mind even as they consider immediate policy issues.

“Decisions over the near term to enhance economic growth and address national policies need to be accompanied by a broader fiscal plan to put the government on a more sustainable long-term path,” he said. “This is essential to ensure that the United States remains in a strong economic position to meet its security and social needs as well as to reserve flexibility in addressing unforeseen events.”

The GAO is hardly the only government organization that sees Washington’s current fiscal path as unsustainable. The Congressional Budget Office and the 2016 Financial Report of the United States Government, put out by a branch of the Treasury Department, have given similar warnings. In addition, the Medicare and Social Security trustees report each year that those programs are not on sustainable paths.  

Much of the analysis that Dodaro presented to the House Budget Committee was based on a report that GAO released in January. In addition to his calls for better long-term fiscal planning, he reminded lawmakers that the GAO has suggested near-term steps that could help improve federal finances in a number of areas.

These areas include government payments, tax collection and other items on GAO’s “High Risk List,” and programs that the agency has found subject to fragmentation, overlap and duplication.  

For example, improper government payments in Fiscal 2016 were estimated at more than $144 billion, so improvements there “could yield significant savings,” GAO says. Reducing the gap between taxes owed and taxes paid could increase government revenue by billions of dollars a year.

The Concord Coalition and other “deficit hawks” have long argued that the nation’s fiscal challenges are so large that a comprehensive approach to reform is needed, one that considers all parts of the federal budget. They have also warned that procrastination will simply make the required changes more difficult and painful.

Dodaro voices similar sentiments: “The government must act soon to change the long-term fiscal path or risk significant disruption to individuals and the economy. Congress will need to discuss the entire range of federal activities and spending -- entitlement programs, other mandatory spending, discretionary spending and revenue.”