Fiscal rules. Many on this committee have suggested establishing longterm debt to gdp targets. Credible fiscal targets could guide fiscal Decision Making and improve the way Congress Budgets and spends. At our hearing last week, there was talk about a revenue estimating committee. We dont even address how much revenue were going to have to work with. Credible fiscal targets could guide fiscal Decision Making and improve the way Congress Budgets and spends. Most important, such targets could encourage congress to focus less on near term spending battles and more on longterm Fiscal Health of our country. Another area ive been concerned with is how we budget for disasters. I note that according to the witness testimony, since 2005, federal funding for Disaster Assistance has tototalled at let 450 billion. While we regularly appropriate funding for Femas Disaster Relief Fund as part of the annual appropriations process, according to the congressional are provided for supplemental appropriations on an ad hoc basis. Clearly we can do better. I look forward to hearing from the comptroller general how other countries have utilized fiscal rules to manage their debt and deficits, as well as other steps we can help secure our countrys fiscal future by doing. I hope well Pay Attention to the urgent message frorom the nonpartisan watchdog. Our current federal fiscal situation is unsustainable and we must act before its too late. I want to thank comptroller dodaro for being here. I look forward to your testimony. Senator kaine i think will be standing inor Ranking Member sanders. When he gets here if he has a statement to make, we will do that. But the main purpose of the hearing, of course, is to build a record of what we can do and how we can do it. And we can go ahead and get started on buildinghat record. There will be questions by any senators that come and then the right to ask questions o other than that. I apologize to comptroller general for the votes being scheduled. This committee doesnt have anything to do with that or we would have done it quite differently. We would have impinged on an different committee. There are committees meeting all day. In fact, we had a markup that both senator brown and i were with health, education, labor and pensions earlier today where we put out a Bipartisan Health care bill that could help to bring down costs. So with that, ill go ahead and introduce our witness. Our witness this morning is gene dodaro. Im pleased to have him back to this committee. Hes the eighth comptroller general of the United States. He was confirmed in december of 2010 after serving as acting comptroller general since march 2018. Mr. Dodaro has been with the gao for more than 40 years. He served for nine years as chief operating officer, the number two leadership position at the agenda scy. Comptroller general, please begin. Thank you very much, mr. Chairman. Its a pleasure to be here this afternoon. Senat im very pleased, mr. Chairman, that you asked me to appear at this hearing. I am very concerned about the fiscal future of our nation. The debt to the gdp ratio right now is the highest its been since world war ii. We are heavily leveraged in debt by historic norms. Currently the debt to gdp ratio is 78 , compared to 46 on average from 1946. And were heavily leveraged going into a period of time where we have to confront a number of major challenges, including the demographic challenges that you outlined earlier. Were on track to add approximately 10 trillion to an already existing 22 trillion debt over the next ten years. As a result, debt to gdp ratio will continue to escalate. And as you pointed out, both treasury department, cao and gao, all our projections show that well exceed the historic 106 of debt to gdp ratio within the next 1320 years. Even more worrisome is that it will continue to escalate beyond that to up to two to five times the amount of gdp if left unchecked during this period of time unless theres changes in fiscal policy. This is very concerning. Now, the main drivers of the debt are Health Care Costs and net interest. Health care costs are rising due to increased enrollment as our society ages and its not just the baby boomers. In the longterm, because of increased Life Expectancy and a low fertility rate, the percent of people in our country over 65 will be almost 22 . And it will cause the normal financing arrangements weve set for our retirement and Health Care Systems in a different perspective than it has been up to this point in time. Now, net interest is on track to be the largest single expenditure by the federal government. This is a situation that i think has dangerous consequences. Now, also during this period of time over the next ten years, many fiscal pressures are going to come to bear against this backdrop escalating debt. By 2025 the multiemployer pension plan is expected to be insolvent. Byby 2026, the medicare hospita trust fund will only have 91 cents to pay on the dollar. And in 2026, at that time medicare will hit 1 trillion a year in expenditures. The Social Security system will hit 1 trillion this year in 2019. Net interest on the debt is on track to hit 1 trillion a year by 2030. And then shortly after that by 2034, the Social Security system is projected for the old age and survivors pension to only have 77 cents on the dollar to make payments. Now, these are significant issues that will confront the congress. And those are known issues at this point. There are also a lot of unknown issues that could occur that arent budgeted for at all and congress would have more limited flexibility to deal with, including economic downturns, natural disasters and any major policy changes in the International Scene that would require additiona funding for National Defense as well. Now, i recognize that the congress and the administration need to make sure that theres sustained Economic Growth and that National Priorities are addressed in the shortterm. But this needs to be accompanied by a longterm plan. If left unchecked and right now there really are no checks and balances in our budgeting process that would prevent this from occurring. Debt to gdp ratio will continue in my opinion, spiral out of control, leaving congress and the country in a very difficult situation down the road unless its dealt with. Now, this fiscal plan, i believe, could include the fiscal rules and targets that you talked about, mr. Chairman. We are studying this issue right now at your request. And more than 70 countries around the world, according to an International Monetary fund, set rules and have more than one fiscal target, fiscal rules to help constrain Economic Growth in those areas. The other major element of the plan in my opinion is we need to change how we deal with the debt limit. Right now the current approach does nothing to control the debt. It raises interest costs if theres concerns about the limit being raised on time. And its distorted the secondary market in the treasuries area affecting liquidity. And i believe that weve come dangerously too close to not raising it on time and therefore could affect the full faith and credit of the federal government. I think this would have disastrous consequences and i urge the congress to consider the recommendations gao has made about options for how to deal with the debt limit so that decisions are made at the same time spending and appropriations decisions are made and revenue estimates are made at the same time to deal with the debt limit that way. Thats one option weve given. There are other options for dealing with it. But i think the current approach, were on a perilous path and im concerned about that very much. Again, i appreciate the opportunity to discuss these very important issues to our country. Ilee gaos support to helping the Congress Deal with these issues in the days and years ahead. So thank you very much, mr. Chairman. Ill be happy to answer any questions. Thank you. Ill be here for the whole hearing so ill go ahead and defer to senator brown to ask questions. Thank you, mr. Chairman. Ive been to several Budget Committee meetings so far. Youd think the things y just talked about would create alarm or get folks to at least get agitated about it. Ive been impressed by how unalarmed most people are here about what you just described. All the things weve looked at that should be done, that any business would do, i really dont see that happening beyond what were currently doing. Look at the attendance in what i think ought to be the most Important Committee in the senate. Yes, t there are some other this going on but this isnt too unusual for committees in general in this place. It gets kind of sad too. Thats what were here for. I want you to maybe go into some things that might describe what hahappens, because the other da we talked about will it be an Interest Rate and debt placement crisis first, will it take us to get to 2026 when were 91 cents on the dollar in the Medicare Trust fund. So id like to ask you two things. Since we do hardly anything here preemptively where you would in any other business, state government, whatever it would be, you take these signs and do something about it before you had the hard accountability that always occurs. Why dont you describe what would happen if we dont do anything. Because i think theres a good chance that come 2025 were still going to be talking about it. You mentioned full faith and credit of the government. How would that end up working if we just have to start c cutting programs . I think at some point thats a more likely cure to what ails us here than us fixing it before we get there. I think theres going to be plenty of time for another round of questions, so i want to talk about the income side of the ledger on a second round. Why dont you describe for us and the public how that would happen . Would it be that catastrophic in the sense if we we forced to because we couldt borrow the money to start making the decisions then that we should be making now . I think the longer you wait to make these decisions, the more draconian the changes will have to be made. Ll give you a couple examples that are right around the corner. The multiemployer portion of the pension benefit guarantee corporation, thats about funds going to be insolvent, which means if companies go bankrupt, the governmentou only be able to step in and give then an annual pension of about 2,000. Hardly adequate. Those people are at risk, high risk and the government would fail them. When the medicare situation hits in the Hospital Trust fund, that will have enormous repercussions. That fund was supposed to be on a selffunded basis over time. This is something thats been known. It will have consequences for people on medicare. Every day in this country on average 10,000 people turn 65. So every day more and more people are adding to the medicare thing. So i think it will affect millions of americans at that point in time. The Social Security area would be likike a 23 cut and many americans, particularly low income people, rely almost exclusively if not primarily on Social Security. That would be disastrous to them and to the economy. In terms of the full faith and credit, i think we, because were not managing our debt situation, get great credit by the bond agencies in the International Market area because we have a Strong Economy and that we are able to honor have never defaulted on a debt payment of any significance. So this is very important. Were worlds reserve currency, we have the deepest and most liquid treasury markets in the world that helps in world finances. I think the consequences of this, by the way, will not be just limited to the United States. I think it will have global consequences if we ever defaulted on the debt paymenent just the same as when we didnt deal with the fanny and fannie and freddie mac. Interest rates, if they spike in this area, it could p precipita a crisis in confidence in the governments ability to manage its affairs. And i think could lead to a fiscal crisis at that point. I think cbo has alluded to this and others as well. I think once things happen there, theyll happen fast. Because our debt base that were borrowing against is so huge and we have to refinance every year, its not just new debt that would be affected. Its old debt that we have to refinance. A lot of its shortterm debt. At anyone point in time of the year we not only have to come up with a trillion dollars for new debt, we have to refinance anywhere from 7 to 8 additional trillion dollars. Our exposure is enormous and this could precipitate a crisis. The bond rating agencies are keeping an eye on this. Standard and poors already lopered the federal governments bond rating to aa from aa. Fitch and moodys have not done that yet but theyve signalled theyre paying attention to this, that if that happens that will require investors to then want more interest on the cost and that could precipitate these events that you talk about. Were out of time here. For my benefit and other members of the committee, i got the feeling you might be able to put together a chronoly and what these events might be that you mentioned once we did get to the point where weve did not increase the debt limimit or whe these automatic cuts would kick in. Is thaomething your office could kind of put together to the ability theyve got to do it . Sure. In fact, weve got a little bit of that in ourd testimony. We could add additional you would have to make assumptions. Make assumptions. Id like a topten l list of wh would go. How we sell this to other members of the bodody and the public in interest. I dont think people understand the significance of the gap that we have right now. If you wanted to just stay at the 78 of gross domestic debt to gdp ratio, youd have to cut expenditures by 25 now and keep that over the next 75year period or conversely, if you just dealt witith it through revenues, you have to raise revenues 36 over that period of time. Now, those things are not palatable right now. But the extent t to which the dt to gdp ratio grows, thats the magnitude of the changes that were dealing with and that doesnt even consider natural disasters, economic downturns, et cetera, et cetera. Other policy issues that could come up. So this is a very significant situation that i believe requires Congress Attention now. Thank you. Senator van hollen . Thank you, mr. Chairman, and thank you, comptroller general, forr your work and ill just pik up where you left off. Talking about the debt to gdp ratios. Because when were looking at the exposure weve got as a country to rising debt, you would agree that thats the best more than, right, looking at the debto gdp ratio rather than looking at the nom mall numbina. Thats a much better gauge, is it not . Yes. Thats used as a countrys ability to repay its debt. When youre looking at macro trends over time, it also makes sense, does it not, to look at expenditures, federal expenditures as a percentage of gdp and federal revenues as a percent of gdp . Thats correct. As you said, the eations on deficits and debt, of course, on the one side you got expendit e expenditures and the other side you have revenues, correct . So i just want to go over a couple sort of facts here, if you look back, you know, not long ago in the scheme of things, we had a series of tax cut cuts. We had tax cuts under george w. Bush. We, of course, had the 2017 Trump Administration tax cuts. We had the great we had the we had the iraq war. We had the great recession. And do you know if you go back to look at the last time we actually had a balanced budget, that was in the year 2000. Right. Do you know what our revenues as a percent of gdp were, roughly . I think it was about 18 . I think my figures, id like you to confirm. Yeah, just we were closer to 20 . Okay. Okay . And the reason i mention that is that today, i believe there are around 16. 5 of gdp. Does that sound right to you . Yes. So wh looking at the outlays of gdp as we said earlier, outlays and revenues as a percent, it really does make sense to look at those percentages over time. And i just think its important for the committee to note, this is the Budget Committee, that weve dropped significantly in terms of revenues as a share of gdp and you would agree thats a better way to measure it than nominal revenvenurevenue, tax d . Yes. Because we often hear from our colleagues that, you know, we have nominal revenues coming in at alltime eye, but isnt it kind of obvious that as the economy grows over time, even at a given tax rate, youre going to get more dollars in absolute terms . Yeah. Yes. I hope, mr. Chairman, for the same reason i agree with you, we should look at our debt as a percentage of gdp, that the committee needs to measure both expenditures and revenues as a percent of gdp if were going to have a logical conversation because the fact we happen to have more absolute dollars in revenues is simply a function of the fact that the economy grows over over time. Yeah. I think, senator van hollen, this problem is so big, you expenditures, alone, or revenues, alone. Both have to be put on the table. And you have to deal with entitlements as well as discretionary spending. I think everything needs to be considered in the proper proportion. Look, i belief yve you have look at both parts of the equation, too. When it comes to health care, Prescription Drug costs are through the roof and many of us have talked about ways we can reduce, you know, the medicare component of Prescription Drug costs, whether its medicare or medicaid. So