GAO: Fiscal policy is unsustainable

The federal government is heading toward fiscal insolvency because of huge long-term obligations and growing structural problems in the federal budget, Government Accountability Office Comptroller General David Walker said.

Walker criticized budget and spending policy during a conference Nov. 8 at the Defense Acquisition University.

“The federal government is on a burning platform and the status quo way of doing business is unacceptable,” Walker said in his presentation.

The government is burdened by outdated organizational structures, policies and procedures. In addition, it operates in a constrained resource environment with many high-risk challenges, and rising public expectations for results and responsiveness, Walker said.

For example, spending on Medicare, Medicaid and Social Security has risen from 15 percent of federal expenditures in 1965 to 40 percent in 2005, according to the Office of Management and Budget. Meanwhile, discretionary spending has fallen from 66 percent to 39 percent of the budget during the same period.

Fiscal exposure rose to $46.5 trillion in 2005, more than double the $20.4 trillion of obligations the government had in 2000, according to the U.S. government’s consolidated financial statements. This would put a fiscal burden of $411,000 on each U.S. household.

If left on its current path, in 2040, the budget would have to be balanced by cutting total federal spending by 60 percent or doubling the federal tax rate, according to GAO simulations.

“We face large and growing structural deficits largely due to new demographic trends and rising health care costs,” Walker said in his presentation. “We cannot simply grow our way out of the problem.”

Walker recommended a three-pronged approach: strengthening budget processes and controls; improving financial reporting and performance metrics; and fundamentally re-examining entitlement, spending and tax policy for the 21st century.

“The status quo is not an option,” Walker said.