GAO Marshalls Its Data to Warn Leaders of Fiscal Crisis

Set apart with an atypically colorful cover designed around a compass, the first-ever annual report on fiscal health from the Government Accountability Office warns the incoming president and congressional leaders that federal finances remain on an “unsustainable long-term fiscal path.”

The 47-page compilation done in cooperation with the Congressional Budget Office combines the latest alarming macro-numbers with calls for action by Congress as well as specific remedies that can be undertaken by agency managers.

“Health care expenditures and net interest are now the main drivers of growing federal spending, and without policy changes, the debt-to-GDP ratio is projected to reach historic levels within 15-25 years,” wrote Comptroller General Gene Dodaro in his opening letter. “Decisions over the near term to enhance economic growth and address national policies need to be accompanied by a fiscal plan to put the national government on a more long-term sustainable path.”

Painting a grim big picture, GAO noted that the federal budget deficit, after six years of declining, in fiscal 2016 increased to $587 billion—up from $439 billion in 2015.

A key driver, health care spending, is rising faster than the rest of the economy, GAO said, citing Medicare, Medicaid, the Children’s Health Insurance Program and federal subsidies under the Affordable Care Act.

The Social Security Trust fund, stretched for the foreseeable future by the retirement of the baby-boom generation, will deplete the disability trust fund by 2023 “and then only be sufficient to pay 89 percent of scheduled benefits,” the report warned. The larger retirement trust fund “will deplete its assets by 2035 and only be sufficient to pay 77 percent of scheduled benefits.”

The Pension Benefit Guaranty Corporation’s net position is declining, GAO added.

One large-scale solution, said GAO, drawing on its past reports, would be for Congress to stop relying on the “after the fact” measure of the debt limit—which is regularly raised amidst lawmaker grumbling. Instead, it recommended that “decisions about providing Treasury the authority to borrow be made when decisions about spending and revenues are made,” the report said.

Agencies can help ease the fiscal crisis in four major ways, GAO said. They can reduce improper payments, address the persistent tax gap; continue to address duplication, overlap and fragmentation; and improve information on programs and fiscal operations.

Improper government payments made—to fraudsters submitting false bills to Medicare, for example--totaled $144 billion in fiscal 2016, GAO said, or $1.2 trillion since fiscal 2003.

If the Internal Revenue Service could improve enforcement and collect all taxes owed under current law, it could help reduce the annual budget deficit by $458 billion, an estimate updated only every few years, GAO said.

Efforts to curb program duplication and overlap by both Congress and the executive branch from fiscal 2010-2015 have generated $56 billion in financial benefits, with an additional $69 billion projected through 2025, GAO said.

Finally, agencies have shown progress in strengthening general internal controls over financial reporting, focusing more on the revenue impact of tax expenditures enacted by Congress as policies to help qualified beneficiaries as well as the movement to standardize and boost transparency of spending data under the 2014 Digital Accountability and Transparency Act.

“Absent policy changes,” GAO wrote, “the federal government’s fiscal path is unsustainable and … the debt-to-GDP ratio would surpass its historical high of 106 percent [just after World War II] within 15 to 25 years.”

Asked why the watchdog decided to establish the new annual report, Christopher Mihm, GAO’s managing director for strategic issues, told Government Executive, “We came to realize over the last many months that we’d been talking about debt in the long term and improper payments and [such], but we do this in disparate ways, in different formats and time frames.”

So the agency “saw value in stepping back and pulling this together to provide citizens, the Congress, the administration and the broader public an integrated perspective on the nation’s long-term fiscal health.” Moving briefly away from “individual reports on a routine basis,” Mihm said, might “better help decision makers.”