This is the accessible text file for CG Presentation number GAO-07-1189CG entitled 'U.S. Financial Condition and Fiscal Future Briefing' which was released on August 10, 2007. United States Government Accountability Office: GAO: U.S. Financial Condition and Fiscal Future Briefing The Honorable David M. Walker: Comptroller General of the United States: American Accounting Association: Chicago, IL: August 7, 2007 The Case for Change: The federal government is on a “burning platform,” and the status quo way of doing business is unacceptable for a variety of reasons, including: * Past fiscal trends and significant long-range challenges; * Selected trends and challenges having no boundaries; * Additional resource demands due to Iraq, Afghanistan, incremental homeland security needs, and past natural disasters in the United States; * Numerous government performance/accountability and high risk challenges; * Outdated federal organizational structures, policies, and practices; * Rising public expectations for demonstrable results and enhanced responsiveness. Composition of Federal Spending: [See PDF for image] - graphic text: There are three pie charts, containing the following compositions of spending by category: Year: 1966; Defense: 43%; Social Security: 15%; Medicare and Medicaid: 1%; Net Interest: 7%; All Other: 34%. Year: 1986; Defense: 28%; Social Security: 20%; Medicare and Medicaid: 10%; Net Interest: 14%; All Other: 29%. Year: 2006; Defense: 20%; Social Security: 21%; Medicare and Medicaid: 19%; Net Interest: 9%; All Other: 32%. Source: Office of Management and Budget and the Department of the Treasury. Note: Numbers may not add to 100 percent due to rounding. [End of figure] Federal Spending for Mandatory and Discretionary Programs: [See PDF for image] - graphic text: There are three pie charts, containing the following compositions of spending by category: Year: 1966; Discretionary: 67%; Mandatory: 26%; Net Interest: 7%. Year: 1986; Discretionary: 44%; Mandatory: 42%; Net Interest: 14%. Year: 2006; Discretionary: 38%; Mandatory: 53%; Net Interest: 9%. Source: Office of Management and Budget. [End of figure] Surplus or Deficit as a Share of GDP Fiscal Years 1962-2006: [See PDF for image] - graphic text: This is a bar graph depicting on-budget, off-budget, and unified surplus or deficit spending as a share of GDP. The vertical axis depicts percent of GDP from -7 to +3. The horizontal axis depicts fiscal years 1962 through 2006. Source:Office of Management and Budget, Department of the Treasury and the Congressional Budget Office. [End of figure] Table: Fiscal Year 2005 and 2006 Deficits and Net Operating Costs: On-Budget Deficit, Fiscal Year 2005 ($ Billion): (494); On-Budget Deficit, Fiscal Year 2006 ($ Billion): (434); Unified Deficit[a], Fiscal Year 2005 ($ Billion): (318); Unified Deficit[a], Fiscal Year 2006 ($ Billion): (248); Net Operating Cost[b], Fiscal Year 2005 ($ Billion): (760); Net Operating Cost[b], Fiscal Year 2006 ($ Billion): (450); Sources: Office of Management and Budget and Department of the Treasury. [a] Includes $173 billion in Social Security surpluses for fiscal year 2005 and $185 billion for fiscal year 2006; $2 billion in Postal Service surpluses for fiscal year 2005 and $1 billion for fiscal year 2006. [b] Fiscal year 2005 and 2006 net operating cost figures reflect significant but opposite changes in certain actuarial costs. For example, changes in interest rates and other assumptions used to estimate future veterans’ compensation benefits increased net operating cost by $228 billion in 2005 and reduced net operating cost by $167 billion in 2006. Therefore, the net operating costs for fiscal years 2005 and 2006, exclusive of the effect of these actuarial cost fluctuations, were ($532) billion and ($617) billion, respectively. [End of table] Table: Major Reported Long-Term Fiscal Exposures ($ trillions): Explicit liabilities (Publicly held debt, Military & civilian pensions & retiree health, Other): 2000: $6.9; 2006: $10.4; Percent increase: 52. Commitments & contingencies (e.g., PBGC, undelivered orders): 2000: 0.5; 2006: 1.3 Percent increase: 140. Implicit exposures: 2000: 13.0; (Future Social Security benefits: 3.8; Future Medicare Part A benefits: 2.7; Future Medicare Part B benefits: 6.5; Future Medicare Part D benefits: 0). 2006: 38.8; (Future Social Security benefits: 6.4; Future Medicare Part A benefits: 11.3; Future Medicare Part B benefits: 13.1; Future Medicare Part D benefits: 7.9). Percent increase: 197. Total, 2000: $20.4; Total, 2006: $50.5; Percent increase: 147. Source: 2000 and 2006 Financial Report of the United States Government. Note: Totals and percent increases may not add due to rounding.Estimates for Social Security and Medicare are at present value as of January 1 of each year and all other data are as of September 30. [End of table] Table: Understanding the Size of Major Reported Fiscal Exposures: Our fiscal burden can be translated and compared as follows: Year: 2006; Major fiscal exposures: $50.5 trillion; Total household net worth: $53.3 trillion; Burden/Net worth ratio: 95 percent. Year: 2006; Burden: Per person: $170,000; Per full-time worker: $400,000; Per household: $440,000. Year: 2006; Income: Median household income: $46,326; Disposable personal income per capita: $31,519. Year: 2006; Ratio of household burden to median income: 9.5. Sources: GAO analysis of data from the Department of the Treasury, Federal Reserve Board, U.S. Census Bureau and Bureau of Economic Analysis. [End of table] Potential Fiscal Outcomes Under Baseline Extended (January 2001); Revenues and Composition of Spending as a Share of GDP. [See PDF for image] - graphic text. This is a line/stacked bar graph with one line (revenue) and four stacked bars containing four spending items (Net interest, Social Security, Medicare and Medicaid, and All other spending). The vertical axis represents Percent of GDP and the horizontal axis represents fiscal years 2005, 2015[a], 2030[a], and 2040[a]. Source: GAO’s January 2001 analysis. [a] All other spending is net of offsetting interest receipts. [End of graph] Potential Fiscal Outcomes Under Alternative Simulation; Revenues and Composition of Spending as a Share of GDP. [See PDF for image] - graphic text. This is a line/stacked bar graph with one line (revenue) and four stacked bars containing four spending items (Net interest, Social Security, Medicare and Medicaid, and All other spending). The vertical axis represents Percent of GDP and the horizontal axis represents fiscal years 2006, 2015, 2030, and 2040. Source: GAO’s August 2007 analysis. Assumptions: Discretionary spending grows with GDP after 2007. AMT exemption amount is retained at the 2006 level through 2017 and expiring tax provisions are extended. After 2017, revenue as a share of GDP returns to its historical level of 18.3 percent of GDP plus expected revenues from deferred taxes, i.e. taxes on withdrawals from retirement accounts. Medicare spending is based on the Trustees April 2007 projections adjusted for the Centers for Medicare and Medicaid Services alternative assumption that physician payments are not reduced as specified under current law. [End of graph] State and Local Governments Face Increasing Fiscal Challenges: [See PDF for image] - graphic text. This is a line graph with two lines (Operating Surplus/Deficit Measure and Net-lending/Net-borrowing). The vertical axis represents Percent of GDP from -6 to +2 and the horizontal axis represents fiscal years 1980 through 2050. Sources: Historical data from National Income and Product Accounts. Historical data from 1980–2006, GAO projections from 2007–2050 using many CBO projections and assumptions, particularly for next 10 years. [End of graph] State and Local Fiscal Challenges Add to the Federal Government’s Fiscal Challenge: [See PDF for image] - graphic text. This is a line graph with two lines (Federal Surplus/Deficit and Combined Surplus/Deficit). The vertical axis represents Percent of GDP from -20 to +5 and the horizontal axis represents fiscal years 2000 through 2050. Source: Historical data from National Income and Product Accounts, GAO Analysis. Note: Historical data from 2000–2006, projections from 2007–2050; state and local balance measure is similar to the federal unified budget measure. Federal Simulation Assumptions: Discretionary spending grows with GDP after 2007. AMT exemption amount is retained at the 2006 level through 2017 and expiring tax provisions are extended. After 2017, revenue as a share of GDP returns to its historical level of 18.3 percent of GDP plus expected revenues from deferred taxes, i.e. taxes on withdrawals from retirement accounts. Medicare spending is based on the Trustees’ April 2007 projections adjusted for the Centers for Medicare and Medicaid Services’ alternative assumption that physician payments are not reduced as specified under current law. [End of graph] Social Security, Medicare, and Medicaid Spending as a Percent of GDP: [See PDF for image] - graphic text. This is a line graph with three stacked lines (Social Security, Medicaid, and Medicare). The vertical axis represents Percent of GDP and the horizontal axis represents fiscal years 2000 through 2080. Source: GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration, Office of the Actuary, Centers for Medicare and Medicaid Services, and the Congressional Budget Office. Notes: Social Security and Medicare projections based on the intermediate assumptions of the 2006 Trustees’ Reports. Medicaid projections based on CBO’s August 2006 short-term Medicaid estimates and CBO’s December 2005 long-term Medicaid projections under mid-range assumptions. [End of graph] Federal Tax Expenditures Exceeded Discretionary Spending for Half of the Last Decade: [See PDF for image] - graphic text. This is a line graph with three lines (mandatory spending, sum of tax expenditure revenue loss estimates, and discretionary spending). The vertical axis represents dollars in billions (in real 2005 dollars) and the horizontal axis represents fiscal years 1982 through 2005. Source: GAO analysis of OMB budget reports on tax expenditures, fiscal years 1976-2007. Note: Summing tax expenditure estimates does not take into account interactions between individual provisions. Outlays associated with refundable tax credits are included in mandatory spending. [End of graph] Current Fiscal Policy Is Unsustainable: * The “Status Quo”is Not an Option: - We face large and growing structural deficits largely due to known demographic trends and rising health care costs. - GAO’s simulations show that balancing the budget in 2040 could require actions as large as: * Cutting total federal spending by 60 percent or; * Raising federal taxes to 2 times today's level. * Faster Economic Growth Can Help, but It Cannot Solve the Problem: - Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double digit range every year for the next 75 years. - During the 1990s, the economy grew at an average 3.2 percent per year. - As a result, we cannot simply grow our way out of this problem. Tough choices will be required. The Way Forward: A Three-Pronged Approach: 1. Improve Financial Reporting, Public Education, and Performance Metrics. 2. Strengthen Budget and Legislative Processes and Controls. 3. Fundamentally Reexamine & Transform for the 21st Century (i.e., entitlement programs, other spending, and tax policy). Solutions Require Active Involvement from both the Executive and Legislative Branches. The Way Forward: Improve Financial Reporting, Public Education,and Performance Metrics: * Improve transparency & completeness of President’s budget proposal: - Return to 10-year estimates in budget both for current policies and programs and for policy proposals; - Include in the budget estimates of long-term cost of policy proposals & impact on total fiscal exposures; - Improve transparency of tax expenditures. * Consider requiring President’s budget to specify & explain a fiscal goal and a path to that goal within 10-year window—or justify an alternative deadline. * Require annual OMB report on existing fiscal exposures [liabilities, obligations, explicit & implied commitments]. * Require enhanced financial statement presentation and preparation of summary annual report that is both useful and used. * Increase information on long-range fiscal sustainability issues in Congressional Budget Resolution & Budget Process. * Develop key national (outcome-based) indicators (e.g. economic, security, social, environmental) to chart the nation’s posture, progress, and position relative to the other major industrial countries. The Way Forward: Strengthen Budget and Legislative Processes and Controls: * Restore discretionary spending caps & PAYGO rules on both spending and tax sides of the ledger. * Develop mandatory spending triggers [with specific defaults], and other action-forcing provisions (e.g., sunsets) for both direct spending programs and tax preferences. * Develop, impose & enforce modified rules for selected items (e.g., earmarks, emergency designations, and use of supplementals). * Require long-term cost estimates (e.g. present value) for any legislative debate on all major tax and spending bills, including entitlement programs. Cost estimates should usually assume no sunset. * Extend accrual budgeting to insurance & federal employee pensions; develop techniques for extending to retiree health & environmental liabilities. * Consider biennial budgeting. * Consider expedited line item rescissions from the President that would only require a majority vote to override the proposed rescission(s). The Way Forward: Fundamentally Reexamine & Transform: * Restructure existing entitlement programs. * Reexamine and restructure the base of all other spending. * Review & revise existing tax policy, including tax preferences and enforcement programs. * Expand scrutiny of all proposed new programs, policies, or activities. * Reengineer internal agency structures and processes, including more emphasis on long-term planning, integrating federal activities, and partnering with others both domestically and internationally. * Strengthen and systematize Congressional oversight processes. * Increase transparency associated with government contracts and other selected items. * Consider a capable, credible, bi-partisan budget, entitlement, and tax reform commission. Key National Indicators: * What: A portfolio of economic, social, and environmental outcome-based measures that could be used to help assess the nation’s and other governmental jurisdictions’ position and progress; * Who: Many countries and several states, regions, and localities have already undertaken related initiatives (e.g., Australia, New Zealand, Canada, United Kingdom, Oregon, Silicon Valley (California) and Boston); * Why: Development of such a portfolio of indicators could have a number of possible benefits, including; - Serving as a framework for related strategic planning efforts; - Enhancing performance and accountability reporting; - Informing public policy decisions, including much needed baseline reviews of existing government policies, programs, functions, and activities; - Facilitating public education and debate as well as an informed electorate; * Way Forward: Consortium of key players housed by the National Academies domestically and related efforts by the OECD and others internationally. Key National Indicators: Where the United States Ranks: The United States may be the only superpower, but compared to most other OECD countries on selected key economic, social, and environmental indicators, on average, the U.S. ranks 16 out of 28. OECD Categories for Key Indicators (2006 OECD Factbook): * Population/Migration; * Energy; * Environment; * Labor Market; * Education; * Public Finance; * Science & Tech.; * Quality of Life; * Macroeconomic Trends; * Economic Globalization * Prices. Source: 2006 OECD Factbook. 21st Century Challenges Report: Reexamining the Base of the Federal Government: * Provides background, framework, and questions to assist in reexamining the base; * Covers entitlements and other mandatory spending, discretionary spending, and tax policies and programs; * Based on GAO’s work for the Congress. Source: GAO. Twelve Reexamination Areas: Mission Areas: *Defense; * Education & Employment: * Financial Regulation & Housing; * Health Care; * Homeland Security; * International Affairs; * Natural Resources, Energy & Environment; * Retirement & Disability; * Science & Technology; * Transportation. Crosscutting Areas: * Improving Governance; * Reexamining the Tax System. Generic Reexamination Criteria and Sample Questions: * Relevance of purpose and the federal role: - Why did the federal government initiate this program and what was the government trying to accomplish? - Have there been significant changes in the country or the world that relate to the reason for initiating it? * Measuring success: - Are there outcome-based measures? If not, why? - If there are outcome-based measures, how successful is it based on these measures? * Targeting benefits: - Is it well targeted to those with the greatest needs and the least capacity to meet those needs? * Affordability and cost effectiveness: - Is it using the most cost-effective or net beneficial approaches when compared to other tools and program designs? * Best practices: - Is the responsible entity employing prevailing best practices to discharge its responsibilities and achieve its mission? Social Security and Medicare’s Hospital Insurance Trust Funds Face Cash Deficits: [See PDF for image] - graphic text. This is a bar graph with vertical bars representing the Medicare HI Cash Flow and Social Security Cash Flow for each fiscal year. The bars indicate a Medicare HI cash deficit beginning in 2007 and a Social Security cash deficit in 2017. The vertical axis of the graph depicts billions of 2007 dollars from -900 to +200. The horizontal axis depicts fiscal years from 2005 through 2040. Source: GAO analysis of data from the Office of the Chief Actuary, Social Security Administration and Office of the Actuary, Centers for Medicare and Medicaid Services. Note: Projections based on the intermediate assumptions of the 2007 Trustees’ Reports. The CPI is used to adjust from current to constant dollars. [End of graph] Key Dates Highlight Long Term Challenges of the Social Security System: OASI: Date: 2009; Event: Cash surplus begins to decline; Date: 2018; Event: Annual benefit costs exceed cash revenue from taxes; Date: 2028; Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits; Date: 2042; Event: Trust fund exhausted. DI: Date: 2005; Event: Annual benefit costs exceed cash revenue from taxes; Date: 2013; Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits; Date: 2026; Event: Trust fund exhausted. OASDI: Date: 2009; Event: Cash surplus begins to decline; Date: 2017; Event: Annual benefit costs exceed cash revenue from taxes; Date: 2027; Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits; Date: 2041; Event: Trust fund exhausted. Source: Social Security Administration, The 2007 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds(Washington, DC: April 2007). GAO Criteria for Evaluating Social Security Reform Proposals: Reform proposals should be evaluated as packages that strike a balance among individual reform elements and important interactive effects. Comprehensive proposals can be evaluated against three basic criteria: * Financing sustainable solvency; * Balancing adequacy and equity in the benefits structure; * Implementing and administering reforms. Possible Way Forward on Social Security Reform: Make little or no changes to those who are near retirement or already retired and make a number of adjustments that would affect younger workers: * Phase-in an increase in the normal retirement age and index it to life expectancy; * Consider phasing-in an increase in the early retirement age and index it to life expectancy with a modified disability access provision; * Modify income replacement and/or indexing formulas for middle and upper income earners; * Strengthen the minimum benefit; * Consider a modest adjustment to the COLA formula; * Increase the taxable wage base, if necessary; * Consider supplemental individual accounts and mandatory individual savings on a payroll deduction basis (e.g., a minimum 2 percent payroll contribution and a program designed much like the Federal Thrift Savings Plan with a real trust fund and real investments). Growth in Health Care Spending: Health Care Spending as a Percentage of GDP: [See PDF for image] - graphic text. This is a bar graph of the percent of health care spending as a percentage of GDP with the vertical axis representing percent from 0 to 25 and the horizontal axis representing years 1975, 1985, 1995, 2005, and 2015. Year: 1975; Health care spending: 8.1. Year: 1985; Health care spending: 10.4. Year: 1995; Health care spending: 13.7. Year: 2005; Health care spending: 16.0. Year: 2015; Health care spending: 19.2. Source: The Centers for Medicare & Medicaid Services, Office of the Actuary. Note: The figure for 2015 is projected. [End of graph] Growth in Health Care Spending: Health Care Spending as a Percentage of GDP: Cumulative Growth in Real Health Care Spending Per Capita and Real GDP Per Capita, 1960-2005: [See PDF for image] - graphic text. This is a line graph with two lines (Real health care spending per capita and Real GDP per capita) with the vertical axis representing percentage from 0 to 800 and the horizontal axis representing years 1960 through 2005. The Real health care spending per capita line indicates an average annual growth rate of 4.9%, and the Real GDP per capita line indicates an annual growth rate of 2.3%. Source: GAO analysis of data from the Centers for Medicare & Medicaid Services, Office of the Actuary, and the Bureau of Economic Analysis. Note: The most current data available on health care spending per capita are for 2005. [End of graph] Key Dates Highlight Long Term Challenges of the Medicare Program: Date: 2007; Event: Medicare Part A outlays exceed cash income. Date: 2007; Event: Estimated trigger date for “Medicare funding warning.” Date: 2013; Event: Projected date that annual “general revenue funding” for Part B will exceed 45 percent of total Medicare outlays. Date: 2019; Part A trust fund exhausted, annual income sufficient to pay about 80% of promised Part A benefits. Source: 2007 Annual Report of The Boards of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds(Washington, DC, April 2007). [End of table] Issues to Consider in Examining Our Health Care System: * The public needs to be educated about the differences between wants, needs, affordability, and sustainability at both the individual and aggregate level. * Ideally, health care reform proposals will: - Align Incentives for providers and consumers to make prudent decisions about the use of medical services; - Foster Transparency with respect to the value and costs of care, and; - Ensure Accountability from insurers and providers to meet standards for appropriate use and quality; * Ultimately, we need to address four key dimensions: access, cost, quality,and personal responsibility. Selected Potential Health Care Reform Approaches: Reform Approach: Revise the government’s payment systems and leverage its purchasing authority to foster value-based purchasing for health care products and services; Short-term action: [check]; Long-term action: Reform Approach: Consider additional flexibility for states to serve as models for possible health care reforms; Short-term action: [check]; Long-term action: Reform Approach: Consider limiting direct advertising and allowing limited importation of prescription drugs; Short-term action: [check]; Long-term action: Reform Approach: Foster more transparency in connection with health care costs and outcomes; Short-term action: [check]; Long-term action: Reform Approach: Create incentives that encourage physicians to utilize prescription drugs and other health care products and services economically and efficiently. Short-term action: [check]; Long-term action: Reform Approach: Foster the use of information technology to increase consistency, transparency, and accountability in health care; Short-term action: [check]; Long-term action: Reform Approach: Encourage case management approaches for people with chronic and expensive conditions to improve the quality and efficiency of care delivered and avoid inappropriate care. Short-term action: [check]; Long-term action: Reform Approach: Reexamine the design and operational structure of the nation’s health care entitlement programs—Medicare and Medicaid, including exploring more income-related approaches; Short-term action: [check]; Long-term action: [check]. Reform Approach: Revise certain federal tax preferences for health care to encourage more efficient use of health care products and services; Short-term action: [check]; Long-term action: [check]. Reform Approach: Foster more preventative care and wellness services and capabilities, including fighting obesity and encouraging better nutrition; Short-term action: [check]; Long-term action: [check]. Reform Approach: Promote more personal responsibility in connection with health care; Short-term action: [check]; Long-term action: [check]. Reform Approach: Limit spending growth for government-sponsored health care programs (e.g., percentage of the budget and/or economy); Short-term action: Long-term action: [check]. Reform Approach: Develop a core set of basic and essential services. Create insurance pools for alternative levels of coverage, as necessary; Short-term action: Long-term action: [check]. Reform Approach: Develop a set of evidence-based national practice standards to help avoid unnecessary care, improve outcomes, and reduce litigation; Short-term action: Long-term action: [check]. Reform Approach: Pursue multinational approaches to investing in health care R&D; Short-term action: Long-term action: [check]. [End of table] Financial Reporting: Improving Transparency of Long-term Costs Before Decisions Are Made: * Require supplemental reporting in the President’s annual budget submission (e.g., require the President to annually present a Fiscal Exposures Statement covering at least 40 years); * Require additional executive branch reports(e.g., require the annual publication of key financial and performance information and a periodic report on long-range fiscal sustainability); * Require CBO and JCT to provide additional cost information on major spending and tax proposals before adoption; * Require GAO to publish an annual report that would include, among things: comments on whether the President and CBO/JCT met the new reporting requirements specified above; * Consider changing the budget treatment in certain areas(e.g., expanding use of accrual budgeting); * Consider creating budget concepts and reform commission to address issues such as PAYGO, budget caps and triggers, the use of supplementals, and other matters (e.g., earmarks). Social Insurance Reporting: Social Insurance programs include: * Social Security; * Medicare; * Railroad Retirement; * Black Lung; * Unemployment Insurance. Proposed Changes in Social Insurance Reporting: * FASAB recently issued a preliminary views (PV) document requesting public comment on proposals to change social insurance reporting; * The PV contains two views for improving social insurance reporting: - Primary View; - Alternative View; * Two years away from a resolution; * This is a very important matter. Objectives of Social Insurance Reporting: All current FASAB members agree that: * It is important to provide useful financial information about the sustainability of social insurance programs; * Social insurance program information should be audited and transparent; * The Consolidated Financial Report of the United States Government should present this information and highlight any long-range fiscal imbalances anticipated in these programs. Both Views Share Certain Features: * Recognize a liability for social insurance benefits (but the two views differ significantly on how it should be calculated); * Present three key pieces of information: - A statement of social insurance (SOSI) showing the present values of projected future program revenues and scheduled benefits (SOSI is currently required); - Changes in the present values during the reporting period, and; - Other sustainability disclosures (currently required). Table: Guiding Principles in Selecting a Proposal: Guiding Principle: Recognize the difference between exchange and non-exchange transactions; Alternative View: Yes; Primary View: No. Guiding Principle: Avoid recognizing a liability for scheduled benefits that are uncertain, unsustainable, and not legally binding; Alternative View: Yes; Primary View: No. Guiding Principle: Recognize only costs for services provided in the current year. Future program costs (e.g., social insurance, defense) are not recognized; Alternative View: Yes; Primary View: No. Guiding Principle: Recognize a liability for earmarked revenue (payroll taxes) not yet used to pay benefits; Alternative View: Yes; Primary View: No. Guiding Principle: Report on affordability of social insurance and other federal programs and annual changes therein (match long-term costs and revenues); Alternative View: Yes; Primary View: No. Guiding Principle: Present information on intergenerational equity for social insurance and other federal programs; Alternative View: Yes; Primary View: No. What Needs To Happen? * The public needs to be informed about the fiscal imbalance faced by our federal government; - Improved financial reporting; - Summary annual report; - Discussion forums; - Improved financial literacy; * What you can do: - Get informed and involved; - Communicate with key opinion leaders and your elected officials; - Comment on your preferred accounting and reporting option to FASAB; - Revisit your personal financial planning; * We’re already ahead on social insurance accountability reporting–and we want to stay there –but how we go about this matters. Illustrative Examples of GAO’s Work to Modernize the Accountability Profession: * Leading strategic planning and coordination efforts with major accountability organizations around the world (e.g., INTOSAI, GWG) and domestically (e.g., NIAF and DWG) that include oversight, insight, and foresight dimensions; * Enhancing federal financial reporting (e.g., social insurance, restricted revenues, fiscal sustainability, generational equity, and performance) and pursuing publication of a summary annual report; * Promoting the modernization of the accounting/reporting models (e.g., IFAC, FASB, GASB, FASAB) and other assurance models (e.g., IAASB). Illustrative Examples of GAO’s Work to Modernize the Accountability Profession: * Creating the U.S Auditing Standards Coordinating Forum (i.e., GAO, PCAOB, ASB), which among other efforts, develops strategies for overcoming challenges and barriers to modernizing the auditing profession in the U.S.; * Monitoring implementation of the Sarbanes-Oxley Act and considering whether reform elements similar to those in Sarbanes-Oxley make sense for the federal government; * Modernizing Generally Accepted Government Auditing Standards (Yellow Book); * Pursuing the design and adoption of key national indicators. The Future Accounting/Reporting and Audit Reporting Model: We need to review and revise the existing accounting/reporting model to reflect several dimensions: * Generic provisions; * Industry information; * Entity-specific information (i.e., value and risk). We need to recognize the difference between certain types of financial and other information: * Historical cost; * Readily marketable assets; * Non-readily marketable assets; * Projection information; * Performance information. The Future Accounting/Reporting and Audit Reporting Model: We need to review and revise the existing audit reporting model to accomplish at least four objectives: * Recognize that the opinion should address whether the financial statements are fairly presented in all material respects and prepared in accordance with authoritative accounting principles (e.g., promulgated by FASB, GASB, FASAB, IFAC); * Expand the auditor’s report to include key value and risk-based performance and projection information over time and as appropriate; * Update the audit reporting model to link it with the new financial reporting model, and provide appropriate degrees of assurance for each type of information to improve value and reduce risk; * We need to move beyond “going concern opinions” to provide more timely and meaningful information to the users of financial statements in appropriate circumstances (e.g. US government). We need to ultimately go global in connection with all major accounting and audit matters. We need to coordinate domestic efforts in the interim (e.g., U.S. Auditing Standards Coordinating forum). Moving the Debate Forward: * The Sooner We Get Started, the Better; - The miracle of compounding is currently working against us; - Less change would be needed, and there would be more time to make adjustments; * Our demographic changes will serve to make reform more difficult over time; * Need Public Education, Discussion, and Debate; - The role of government in the 21st Century; - Which programs and policies should be changed and how; - How government should be financed. Four National Deficits: * Budget; * Balance of Payments; * Savings; * Leadership. Key Leadership Attributes Needed for These Challenging and Changing Times: * Courage; * Integrity; * Creativity; * Partnership; * Stewardship. 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