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Presentation by the Honorable David M. Walker: 
Comptroller General of the United States: 

Fiscal Facts and Keeping America Great: 

The John Hazen White Lecture: 
Brown University: 
Providence, Rhode Island: 
March 15, 2007: 

United States Government Accountability Office: 

GAO-07-648CG: 

Thank you, Brett Clifton, for that kind introduction. 

I am honored to deliver this year's John Hazen White Lecture. As most 
of you know, Mr. White was a successful businessman with a keen 
interest in public affairs. By establishing this lecture in 1993, Mr. 
White sought to keep this campus and the broader community informed 
about the leading public policy issues of the day. I hope I live up to 
those expectations. 

Today, I'm going to talk about a number of emerging trends and 
challenges facing the United States. Many of these are complex issues 
that were unimaginable only a generation or two ago. I'm also going to 
talk about the difficult public policy choices that must be made to 
secure our nation's future and to keep America great. 

But first, let's acknowledge that we live in a great nation. Possibly 
the greatest in the history of mankind. And yes, we are currently the 
world's only superpower. Furthermore, many more people want to 
immigrate to the United States than leave it. At the same time, we face 
a series of fiscal, health care, Iraq, immigration, education, energy, 
Social Security, and other sustainability challenges that threaten our 
future. 

In many respects, the unusually prosperous and perhaps more predictable 
way of life that came after the Second World War has drawn to a close. 
I think it's useful to reflect on how much things have changed in 
recent decades and how much things continue to change. 

Most of the students here this afternoon probably have limited first- 
hand memory of the Cold War. Your knowledge of the Berlin Airlift, the 
Cuban Missile Crisis, and even the Vietnam War probably comes from your 
parents or the media. 

Your world has been defined by more recent developments, such as the 
invention of the microcomputer, the spread of the AIDS virus, and the 
discovery of the human genome. One of the challenges before us is to 
maintain a government that is effective and relevant to your generation 
and to future generations. 

I'm going to start with possibly the most profound trend facing 
America, and that's demographics. To put it simply: Our population is 
aging and living longer. Despite increased immigration, the U.S. 
workforce growth is expected to slow dramatically during the next 50 
years. Like most industrialized nations, the United States will have 
fewer full-time workers paying taxes and contributing to federal social 
insurance programs. At the same time, growing numbers of retirees will 
be claiming their Social Security, Medicare, and Medicaid benefits. 

Most of today's retirees will live far longer and spend more years in 
retirement than their parents and grandparents. In a nutshell, the 
retirement of the baby boomers, and I'm one of them, is going to put 
unprecedented demands on both our public and private pension and health 
care systems. 

The problem is that in the coming decades, there simply aren't going to 
be enough full-time workers to promote strong economic growth or to 
sustain existing entitlement programs. I should point out while Social 
Security has a problem, our Medicare and health care challenges are 
many times worse. 

At the same time, American companies are cutting back the retirement 
benefits they're offering to workers. To live well during our "golden 
years," all of us, even you, are going to have to plan better, save 
more, invest more wisely, and resist the temptation to spend those 
funds before we retire. 

Beyond demographics, the United States confronts a range of other 
challenges. Globalization is also a major issue. Markets, technologies, 
and businesses in various countries and in various parts of the world 
are increasingly linked, and communication across continents and oceans 
is now instantaneous. This new reality was made clear by the recent 
drop in the Chinese stock market, which had immediate ripple effects on 
financial markets from Tokyo to London to New York. 

Clearly, U.S. consumers have reaped many benefits from globalization. 
From clothing to computers, you and I can buy a range of foreign-made 
goods that are cheaper than ever. But there's a catch. In many cases, 
lower prices have been accompanied by a loss of U.S. manufacturing 
jobs. 

Globalization is also having an impact in areas like the environment 
and public health. The truth is that air and water pollution don't stop 
at the border. And with today's international air travel, infectious 
diseases can spread from one continent to another literally overnight. 

With the end of the Cold War, we face new security threats, including 
transnational terrorist networks and rogue nations armed with weapons 
of mass destruction. September 11 brought this reality home in a 
painful way. Stronger multinational partnerships will be essential to 
counter these diverse and diffuse threats. 

Other opportunities and challenges come from technology. In the past 
100 years, but especially the last 25 years, spectacular advances in 
technology have transformed everything from how we do business to how 
we communicate to how we treat and cure diseases. Our society has moved 
from the industrial age to the information age, where specialized 
knowledge and skills are the keys to success. Unfortunately, the United 
States--which gave the world Benjamin Franklin, Thomas Edison, and Bill 
Gates--now doesn't even rank in the top 20 developed nations on high 
school math and science test scores. 

In many respects, our quality of life has never been better. We're 
living longer, we're better educated, and we're more likely to own our 
own homes. But as many of you already know from your own families, we 
also face a range of quality-of-life concerns. These include poor 
public schools, gridlocked city streets, inadequate health care 
coverage, and the stresses of caring for aging parents and possibly our 
own children at the same time. 

Our very prosperity is also placing greater demands on our physical 
infrastructure. Billions of dollars will be needed to modernize 
everything from highways and airports to water and sewage systems. The 
demands for such new investment will increasingly compete with other 
national priorities. 

Our Worsening Finances: 

Perhaps the most urgent challenge is our nation's worsening financial 
condition and growing long-term fiscal imbalance. Largely due to the 
aging of the baby boomers and rising health care costs, America faces 
decades of red ink. The facts on this aren't in question. Given our 
worsening financial outlook, the government's recent spending sprees 
and deep tax cuts are nothing less than a body blow to overall fiscal 
responsibility. 

Despite what some say, deficits do matter--especially if they're large 
and structural in nature. As a CPA and the federal official who signs 
off on the audit of the government's consolidated financial statements, 
I'm here to tell you that our nation's financial condition is worse 
than advertised. 

The truth is our country faces not one but four interrelated deficits. 
Together, these deficits have serious implications for our future role 
in the world, our future standard of living, and even our future 
domestic tranquillity and national security. 

The first is the federal budget deficit. Thanks to a combination of out-
of-control federal spending and several major tax cuts, federal budget 
deficits have returned with a vengeance. Depending on which accounting 
method you use, the federal deficit last year ranged from $248 billion 
to $450 billion. 

While these annual deficit numbers get a lot of press coverage, it's 
the federal government's mounting liabilities and unfunded commitments 
that pose the real threats. I'm talking about things like unfunded 
Social Security and Medicare benefits. In the last six years, the 
estimated cost of these accumulating burdens has soared from about $20 
trillion to about $50 trillion. 

Let me put it this way: Our government has made a whole lot of promises 
that, in the long run, it can't possibly keep. And here's why. Fifty 
trillion dollars translates into an IOU of about $440,000 for every 
American household. Keep in mind that the median household income in 
this country is less than $50,000 a year. For the typical family, it's 
like having a mortgage that's 9 times their annual income. And that 
mortgage doesn't even come with a house! This burden is rapidly 
outpacing the net worth of most Americans and the growth rate of our 
economy. 

The second deficit is our savings deficit. The savings rate among U.S. 
consumers has been falling for some time. In 2005, for the first time 
since 1933, the annual personal savings rate in this country reached 
negative territory. The savings deficit was even greater in 2006. We've 
returned to savings levels not seen since the depths of the Great 
Depression. In fact, America has among the lowest overall savings rates 
of any major industrialized nation. 

Clearly, many Americans, like their federal government, are living 
beyond their means. This trend is particularly alarming in an aging 
society like ours. Obviously, those people who save more will live 
better in retirement. And given the problems plaguing our public and 
private retirement systems, personal investments will be even more 
critical to your retirement planning. 

So if we aren't saving here at home, who's been underwriting our recent 
national spending spree? The answer is foreign investors. And that 
brings me to America's third deficit: our balance-of-payments deficit. 
America is simply spending more than it's producing. In 2006, our trade 
deficit hit a record $763 billion. Not surprisingly, the value of the 
dollar has sunk. As some of you may have learned firsthand, overseas 
trips and some imports are getting pricy. 

While our own savings rates have plummeted, overseas savings rates have 
not. Overseas money has been pouring into the United States. Thanks to 
the high savings rates in China, Japan, Korea, OPEC nations, and 
elsewhere, it's been relatively cheap for Americans to borrow. But 
there's a catch, and it's a big one. Increasingly, we're mortgaging our 
future. Furthermore, some of our leading lenders may not share our long-
term national interests. Imagine what would happen to interest rates if 
some of these investors suddenly lost their appetite for U.S. Treasury 
notes. 

Finally, there's America's leadership deficit, which is probably the 
most serious and sobering of all. At both ends of Pennsylvania Avenue 
and on both sides of the political aisle, we need leaders who will face 
the facts, speak the truth, work together, and make tough choices. We 
also need leadership from our state capitols and city halls, from 
businesses, colleges and universities, charities, think tanks, the 
military, and the media. So far, there have been too few calls for 
fundamental change and shared sacrifice. 

Long-range simulations from my agency, the U.S. Government 
Accountability Office (GAO), are chilling. If we continue as we have, 
policymakers will eventually have to raise taxes or slash government 
services the American people depend on and take for granted. Just pick 
a program--student loans, the interstate highway system, national 
parks, federal law enforcement, and even our armed forces. What's also 
at stake is the future flexibility of our government to address new 
challenges. 

A Way Forward: 

By now, you're probably wondering how we can turn things around. By 
nature, I'm an optimist and a person of action. I don't believe in 
simply stating a problem. I also think it's important to state a 
possible way forward. 

In my view, the first order of business should be to state the facts 
and speak the truth to the American people. For starters, Washington 
needs to improve transparency in its financial reporting and budgeting 
practices. As the federal official who signs the audit report on the 
government's financial statements, I'm here to tell you our 
government's financial condition is worse than advertised. 

Current federal financial reporting and budgeting provides policymakers 
and the public with an incomplete and even a misleading picture. A lot 
of press coverage focuses on year-to-year deficit numbers. And as I 
mentioned earlier, no matter which number you pick, our current and 
projected deficit levels are both big and bad. 

But current 10-year budget projections fail to take into account the 
huge costs associated with the impending retirement of the baby 
boomers. Similarly, these projections ignore the huge revenue losses 
that will result if all recent tax cuts become permanent. And this is 
my key point: It's only when we take a long-term view that it becomes 
clear how serious a challenge we really face. 

We aren't going to close our fiscal gap through strong economic growth, 
massive spending cuts, or huge tax increases. The gap is simply too 
great, and the math doesn't work. 

We've all heard the rhetoric. We'll be just fine if we can just get rid 
of congressional earmarks, foreign aid, or NASA missions back to the 
moon and on to Mars. Similar arguments are being made for eliminating 
the 2001 and 2003 tax cuts. But candidly, these actions won't get the 
job done. In fact, even shutting down the entire Department of Defense 
wouldn't close our long-range fiscal gap. 

It's essential that we impose meaningful budget controls on both the 
tax and the spending sides of the ledger. These controls should apply 
to both discretionary and mandatory spending. Additional reforms are 
needed in connection with congressional earmarks, emergency 
appropriations, and supplemental spending. 

Members of Congress need more explicit information on the long-term 
costs of spending and tax bills--before they vote on them. The Medicare 
prescription drug benefit passed in 2003 is one of the most expensive 
government entitlement programs of all time. It's also a glaring 
example of what's wrong with the current legislative system. The 
Medicare prescription drug bill came with an $8 trillion price tag, but 
that fact wasn't disclosed until after the bill had been passed and 
signed into law. 

We also need to reconsider the current scope and structure of the 
federal government. Today, most federal spending and tax preferences 
are on autopilot and reflect conditions that existed before most of you 
were born. I'm talking about conditions dating back to when Harry 
Truman, Dwight Eisenhower, and John Kennedy were in the White House. 

American families regularly clean out their closets and attics. Surplus 
items are either sold at yard sales or given to charity. Unfortunately, 
when it comes to federal programs and policies, our government has 
never undertaken an equivalent spring cleaning. 

Once federal programs or agencies are created, the tendency is to fund 
them in perpetuity, regardless of changing needs and circumstances. 
This is what I mean when I say our government is on autopilot. 
Washington rarely seems to question the wisdom of its existing 
commitments. We simply add new programs and initiatives on top of the 
old ones. As President Ronald Reagan once quipped, a government program 
is "the nearest thing to eternal life we'll ever see on this earth." 
This is a key reason our government has grown so large and become so 
expensive. 

We need nothing less than a top-to-bottom review of federal programs, 
policies, and operations. Congress and the President need to decide 
which of these activities remain priorities, which should be 
overhauled, and which have simply outlived their usefulness. 

Entitlement reform is especially urgent. Unless we reform Social 
Security, Medicare, and Medicaid, these programs will eventually crowd 
out all other federal spending, including defense. Based on historical 
federal tax levels, by 2040 our government could be doing little more 
than sending out Social Security checks and paying interest on our 
massive national debt. 

GAO has been doing its best to bring attention to the problem. In 2005, 
we published an unprecedented report that asks more than 200 probing 
questions about mandatory and discretionary spending, federal 
regulations, tax policy, and agency operations. The report is called 
"21st Century Challenges: Reexamining the Base of the Federal 
Government," and I recommend it to everyone here today. The report is 
available free on GAO's Web site at www.gao.gov. 

Last November, GAO sent a letter to congressional leaders suggesting 36 
areas for closer oversight. And last month, we issued our summary 
report on key questions related to Iraq oversight. We also issued our 
new list of government areas at high risk of waste, fraud, abuse, and 
mismanagement. 

Fortunately, concern is growing. Members of Congress on both sides of 
the aisle have started asking some pointed questions about where we are 
and where we're headed. Even the Administration now acknowledges that 
deficits matter. In recent statements, the President has pledged not 
just to balance the budget but also to start tackling our large and 
growing entitlement promises. 

To get things moving, a capable and credible bipartisan commission 
could address Social Security, tax policy, health care, budget reforms, 
and other key areas. Such a commission would be well positioned to send 
the President and Congress a balanced package of reforms that could 
lead to legislation. I'm not talking about reinventing the wheel. 
Instead, the commission could draw on the work of earlier commissions, 
existing groups, and prominent individuals. At a minimum, the 
commission's efforts would spur more informed debate going into the 
2008 election cycle. 

The commission could be created statutorily. Last year, Senator George 
Voinovich and Congressman Frank Wolf introduced legislation. More 
recently, several members, including Senators Pete Dominici and Diane 
Feinstein and Senators Kent Conrad and Judd Gregg, have announced their 
own commission proposals. 

Alternatively, such a commission could be independent of the political 
process. It could be sponsored by leading foundations and composed of 
preeminent players whose recommendations couldn't be ignored. The 
recent efforts of Jim Baker and Lee Hamilton on the Iraq Study Group 
come to mind in this regard. 

Citizen education and public engagement are also essential. The 
American people need to become more informed and involved when it comes 
to the problems facing our country. They also need to become more vocal 
in demanding change. Younger Americans like you need to speak up 
because you and your children will ultimately pay the price and bear 
the burden if today's leaders fail to act. 

The good news is younger Americans turned out in large numbers for 
November's midterm election. From Iraq to immigration, from ethical 
lapses to fiscal irresponsibility, the public's dissatisfaction with 
the status quo was abundantly clear. But looking toward 2008, it's 
essential that the public and the press hold candidates accountable for 
their position on our large and growing fiscal challenge. 

This is why I've been speaking out publicly about our nation's 
worsening financial condition and long-term fiscal outlook. Beginning 
in the fall of 2005, I started going on the road with representatives 
of the Concord Coalition, the Brookings Institution, and the Heritage 
Foundation as part of a "Fiscal Wake-up Tour." So far, we've held town- 
hall meetings at colleges and universities and other public venues in 
19 cities. The Wake-up Tour has gotten a considerable amount of press 
coverage. Some of you may have seen the 60 Minutes piece that aired on 
March 4. 

At every stop, we've made it a point to lay out the facts in a 
professional, nonpartisan, and nonideological manner. We've also 
stressed the moral and ethical dimensions of the challenge, including 
the unfair intergenerational aspect of our current path. 

During the tour, I've found that the American people are hungry for two 
things: truth and leadership. The folks on Main Street are tired of 
spin. They just want some straight talk about what's going on. They 
also want public officials who will lead change and are willing to 
partner with others to solve problems. 

On this score, it doesn't matter whether you're a Democrat, a 
Republican, or an Independent. The problems I've been describing aren't 
partisan in nature, and the solutions won't be either. We need ideas 
and proposals that will appeal to the "sensible center" rather than the 
"ideological extremes" on the left and the right. 

In my view, successful leadership today requires several attributes, 
including courage, integrity, and creativity. We need leaders with the 
courage to speak the truth and do the right things, even if it isn't 
easy or popular. We need leaders who have the integrity to lead by 
example and practice what they preach. Leaders who do what's right 
rather than what's merely permissible under the law. We also need 
leaders who are creative people, individuals who can see new ways to 
solve old problems and who can help show others the way forward. 

Successful leaders also need to take a long-term view. We've had a 
tradition in this country of trying to leave things better off and 
better positioned for the future for those who will follow us. Earlier 
generations, like those who founded this university, understood it was 
important not just to live for the day but to lay the foundation for a 
better tomorrow. That's called stewardship. Unfortunately, the baby 
boomers are on track to become the first generation of Americans who 
leave things less well positioned for the future. 

A Call to Public Service: 

Transforming government isn't something that will happen overnight. 
Elected, appointed, and career officials will need to work together 
closely for a sustained period of time--perhaps a generation or longer. 
Public officials will need to reach across institutional lines and 
partner with other government agencies, businesses, professional 
organizations, and nonprofit groups. And politicians will need to focus 
more on what's right for our country rather than what's right for their 
party. It's going to take patience, persistence, perseverance, and even 
pain before we prevail in transforming government. But prevail we must. 

At the same time, government transformation isn't possible without a 
first-rate federal workforce. I realize a degree from Brown University 
counts for a lot, and most of you have many career options. But 
whatever job you choose, I hope at some point you will consider giving 
at least a couple of years of your life to public service. 

As someone who has divided his career between government and the 
private sector, I can tell you that my experience at federal agencies 
has been challenging, enlightening, and rewarding. Before coming to GAO 
in 1998, I was a senior executive in several private sector firms, 
including Price Waterhouse and Arthur Andersen. I also served as a 
trustee of Social Security and Medicare, as an Assistant Secretary of 
Labor, and as head of the Pension Benefit Guaranty Corporation. 

My public sector experience has given me a chance to help many people, 
some of whom I've gotten to know, others whom I'll never have a chance 
to meet. People like the students on this campus, retirees like your 
grandparents, and veterans who have fought for our country. 

Public service can take several forms: military or civilian government 
service, faith-based or other charitable organizations, or in community 
and other public interest groups. Lots of jobs in various sectors, from 
nursing to teaching to social work, also provide wonderful 
opportunities to serve others. 

One person clearly can make a difference in today's world. My favorite 
20th century president, Theodore Roosevelt, is proof of that. TR, as 
he's often called, was someone with character, conscience, and 
conviction. 

As our 26th and youngest president, he was an optimist who firmly 
believed in the potential of government to improve the life of every 
citizen. As a trustbuster, TR took on some of the nation's more 
powerful and ethically challenged corporate interests. And he won. As 
an environmentalist, TR left us with a legacy of great national parks 
like Yosemite. As an internationalist, he led peace talks to end the 
Russo-Japanese War. In fact, TR is the only American to have won both 
the Congressional Medal of Honor and the Nobel Peace Prize. 

TR firmly believed that it was every American's responsibility to be 
active in our civic life. Democracy is hard work but it's work worth 
doing. And that's really at the heart of my message tonight. How 
America looks in the future is largely up to us. It's you and our 
fellow citizens who are ultimately responsible for what does or does 
not happen in Washington. 

Please don't misunderstand my message this morning. Like most 
Americans, I'm an optimist by nature, and things are far from hopeless. 
Yes, it's going to take some tough choices on a range of important 
issues. But a few thoughtful reforms phased in over time can do a lot 
to put us on a prudent path. In my view, modest sacrifices today will 
almost certainly help to ensure a better tomorrow. 

The real difficulty is convincing elected officials and the public that 
the time to act is now. If we wait until a crisis hits, we'll have few 
options, and they'll be far harsher and more disruptive. 

Other countries with similar challenges have already acted. The two 
best examples are Australia and New Zealand. Like the United States, 
they have aging populations. Unlike the United States, these two 
countries have stepped up to the plate and dealt with some of their 
serious long-term challenges. Among other steps, they've reformed their 
overburdened public pension and health care systems. The efforts by 
policymakers in Australia and New Zealand show it's politically 
possible to make difficult decisions that require short-term pain in 
the interest of long-term gain. 

In the case of the United States, effective leadership--the kind that 
leads to meaningful and lasting change--has to be bipartisan and broad- 
based. Leadership can't just come from Capitol Hill or the White House. 
Leadership also needs to come from Main Street. 

It's time for the three most powerful words in our Constitution--"We 
the people"--to come alive. As I said earlier, the American people are 
going to have to become better informed and involved as we head toward 
the 2008 elections. And the next President, whoever he or she may be, 
and whichever party he or she represents, should be prepared to use the 
bully pulpit of the Oval Office to push needed reforms. If these things 
happen, we have a real chance to turn things around and better position 
ourselves for the future. 

My hope is when you leave here today, you'll spread the word among your 
friends and family about the challenges we face. By facing the facts 
and making sound policy choices, I'm confident we can fulfill our 
stewardship responsibilities to your generation and to future 
generation of Americans. 

As TR said, "fighting for the right (cause) is the noblest sport the 
world affords." I would encourage each of you to pick your cause, and 
do your best to make a real and lasting difference. 

I appreciate your attention this afternoon, and I'd be happy to take 
any questions you might have. 

On the Web: 

Web site: [Hyperlink, http://www.gao.gov/cghome.htm]: 

Contact: 

Paul Anderson, Managing Director, Public Affairs, AndersonP1@gao.gov, 
(202) 512-4800, U.S. Government Accountability Office, 441 G Street NW, 
Room 7149, Washington, D.C. 20548: 

Copyright: 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. The published product may be 
reproduced and distributed in its entirety without further permission 
from GAO. However, because this work may contain copyrighted images or 
other material, permission from the copyright holder may be necessary 
if you wish to reproduce this material separately