A Look at Our Future: When Baby Boomers Retire

This speech was given by the Comptroller General before the Frank M. Engle Lecture at The American College in Bryn Mawr, Pennsylvania, on September 28, 2005. Things may seem fine at the moment, but when we look into the future our fiscal outlook isn't pretty. We know that enormous challenges lie before us. With the retirement of the baby boomers and rising health care costs, we're facing a fiscal challenge unprecedented in American history. This challenge is compounded by current deficit spending and relatively low federal revenues as a share of the economy. Unfortunately, our public officials have done little to prepare us for this reality. Some policymakers are concerned, but so far there have been few calls for sacrifice or fundamental reform. Instead, the government's continuing lack of fiscal discipline in recent years has made our long-term situation much worse. And yet, our demographic tsunami is on the horizon. It threatens to swamp the ship of state if we fail to act. In addition, unlike most natural tsunamis, evacuation isn't an option with our demographic challenge. Tough choices will be required. The United States confronts three interrelated deficits. The first is the federal budget deficit, which in 2004 reached a record $412 billion on a unified basis. But the truth is that every dime of the Social Security and other trust fund surpluses went to government operating expenses, so the federal on-budget deficit for the year was actually closer to $567 billion, of which less than $100 billion related to Iraq, Afghanistan, and incremental homeland security costs. Even more troubling, the federal government's long-term liabilities and commitments rose by more than $13 trillion in fiscal year 2004 alone to over $43 trillion, largely because of the new Medicare prescription drug benefit. And these numbers don't even take into account the fiscal 2005 deficit or the future costs associated with Iraq and Hurricane Katrina. The second deficit is our savings deficit. Put quite simply, too many Americans - from individual consumers to elected officials - are spending today as if there's no tomorrow. At the same time, America has the lowest overall savings rate of any major industrialized nation. So who's been underwriting America's recent spending spree? The answer is foreign investors. That brings me to the third deficit--our overall balance-of-payments deficit. America is spending more than it's producing. In 2004, the U.S. trade deficit hit a record $618 billion, up $121 billion from the year before. From cars to clothing, America is the world's largest single market for foreign goods. Historically, Americans have shrugged off warnings about impending deficit and debt problems. Today, many people are in denial about the seriousness of our situation. After all, interest rates are low and inflation is modest. This false sense of security is reinforced by the government's financial statements and official budget projections, which fail to provide a full or fair view of our nation's current financial condition and long-term fiscal outlook. As the federal official who signs the audit report on the U.S. government's financial statement, I'm here to tell you that America's financial condition is worse than advertised.