tv Tonight From Washington CSPAN November 23, 2010 8:00pm-11:00pm EST
in 1983 president ronald reagan signed a law to reform social security. based on recommendations of the so-called greenspan commission. next, a forum on the effect of the 1983 law and ways to improve social security. the nonpartisan national academy of social insurance hosts this hour-long discussion. >> ha hi, good afternoon, everyone. welcome. you're here for the national academy of social the entrances panel on strengthening social security for the long run with insights from 1983.
i'd like to welcome you. i am lisa mensah, the executive director of the initiative on financial security at the aspen institute, and also served as the chair of the board of the national academy of social insurance. so welcome. we are thrilled to have you here on the day before our big national holiday, before almost every believes for the holiday, to really talk about one of the things that we are truly grateful for, our social security system. and today we have an exciting panel and a very interesting exercise which is to look back a bit in history to get my job is to introduce our panel, and to also tell you why we conceived of this event the baby did, and then to get out of the way to let the other panel start and then to come back when it's time for your questions and answers. let me tell you a little bit about my panelists.
you are really treated today. while 1983i was busy typing my senior thesis on an ibm selectric typewriter, which none of you know what it is any more, all of this team was involved with the social security greenspan commission. so you have a real said it experienced people. to my left is janice gregory, the president of the national academy of social the insurance, the founding member of the academy. and in 2006 she retired as the senior vice president of the erisa industry committee. uzi we haven't really let her retired at anything. we keep her very busy. and relevant for today's event, in 1979 to 1983 she was coordinating the activities of the subcommittee on social security in the house for the honorable j.j. pickle of texas. cs instrumental in the work of the ways and means committee
when the landmark social security legislation of 1983 was enacted. janice, welcome. next to her is virginia erisa, the vice president for income security. she directs the work on retirement income on workers' compensation, disability insurance and related programs and if you don't know it, va is truly our capitals treasurer on all things about these programs. she's worked for four major commissions on social security including the 1983 greenspan commission and has published research on social security private pensions retirement policies and opinion on social security. our discussion today is wendell primus. wendell is the senior policy advisor on budget and health issues to speaker nancy pelosi. and he, too, was instrumental in 1983, serving on the staff on the house ways and means committee, and so six years as
the committee's chief economist. wendell, we are thankful to have you here with us today and to give some other perspectives on the paper we are doing. you should have received when he walked in a peter that's just been issued, and a brief called strengthening social security for the long run. that is very much. and if you didn't get it is available on the web site. also, today we are -- this is the monthly release an important book by robert bald edited by tom bethel called what really happened the story of the greenspan commission. so that's available, and tom, i've been to war in the audience, our editor today. so thank you, tom. we have an exciting panel and a great material. i want to say a few words about why we are here and looking back in this year in 2010. in part we are here because this
is a story that's not being talked about a lot. today's headlines or all about the potential cuts we could make in our public budget. but the story of 1983 is a story about cuts that were made at that time to social security programs and are still being phased in. it's not well understood, and we want to put the record straight about the kind of balance that was achieved in 1983. in fact, much heavier on the cuts that are still being phased in and give you a picture of what a different approach strengthening social security for the long run would be. so that is the task today and i want to welcome not janice. thank you. >> good afternoon. thank you for being here. as lisa said, we hope to give you some new thoughts to chew on
as you head off to the great meal, although i don't expect you to think about this while you are in joining thanksgiving dinner. but we do want to -- our job at the academy is too broad in people's viewpoints and to talk about things that aren't being talked about so that as policy makers and as legislators and those of you who must help legislators, and you come at each problem these problems with the broadest possible groundwork and information. so, what we want to talk about is today and compared it to 1983. in 1983 it's important to remember we had to act immediately in order to continue to pay benefits on time. it was as though today we are really 2037 instead of 2010 a
quarter of a century earlier. in 1982 and 1983 we were cashing in the trust fund left and right and they were expected to run out in mid year 1983 leaving only new and deficient revenue to pay on ongoing benefits. i think it's helpful to back up before we get into the greenspan commission solution. in 1972, we indexed social security benefits. before that, the rates and benefits have been reset from time to time but only on an ad hoc basis. but there was a fall in the 72 index mechanism that caused benefits to increase faster than revenue, so in 1977 we to go back and we corrected the flaw.
under the correction, initial benefit levels increased and as wages go up in the economy and after benefits or started the increase by inflation and that's the basic set up that we have today. the problem was that after 77 we walked into a period of low wage increases and high inflation which meant revenues based on wages slowdown while benefits depended on the cpi sped up. in fact from 79 to 82 prices increase faster than wages at that time and unheard of an economic event and that set the stage for things you heard labels like stagflation and when combined with high unemployment we have this thing called the misery index. just not only was it a bad time, the demand that revenues were not keeping up with the benefits
meanwhile our subcommittee on the house ways and means committee was watching. we already were holding hearings and we were looking worried as early as 1979, and when i say we've, i mean a bipartisan effort. it was a somewhat different time than we face today. people still have strong views on each side stayed in the room and we talked to each other nonstop, which i think is important to keep in mind. our game plan as a subcommittee both sides was to act in early 1981 so we would have new things in place and plenty of time. but surprise, to the 1990 election, ronald reagan is elected president of the united states in the senate flips to republican control.
the reagan administration view when they came in is they would enact very large tax cuts and everything including social security was going to be just fine. so the democratic leadership, we are sitting over there on the subcommittee holding our hearings and worrying about our members, but they wouldn't let us introduce the bill because the would put a stop in front of the president. but instead we published something called a draft kennedy print and it looked like this. it was essentially a bill in narrative form printed on something we had back then. was a narrative form of what we would have done if we had introduced a bill. we told subcommittee meetings, we took votes, and as each topic came up, the subcommittee chair, my boss, jake pickle, would ask
the administration person sitting in the front row with their position was on what the topic we were discussing and of course we didn't have a position soon after why all this began to look strange. in april of 1981, jake pickle introduced the bill based on the subcommittee discussions and introduced it all by himself, no co-sponsors called and in made a public to social security proposal. the proposals without exaggeration from comments from any side of the aisle a disaster. among other things it could early retirement benefits about 25% following year and a decimated the disability program. the newly republican senate voted 96 through cofids you go to reject the proposal. speaker o'neill seized the moment as this was the first
junk in the reagan armor and the politics were off and running. so that is the climate in which in the fall of 81 ronald reagan appointed a commission headed by alan greenspan to come up with a solution. the commission's deadline was after the to the elections. remember 83 is the deadline. the commission after the election did agree they needed about $185 billion to get social security safely through the 1980's, which was the focus of their work, and it's important to understand the focus on the 1980's and 1990's there was a tax increase already scheduled to and 1990 the baby boomers would be at the peak of their earning power, so the thinking was if we can just get to 1990, than other things will happen and it will be good. faugh while the agreed on the
size of the problem they couldn't agree how to solve it. the commission didn't come together. ronald reagan extended the deadline a few weeks and in secret meetings were held between representatives of speaker kneal and president reagan, and the two titans who were out blasting each other in the public day-by-day, they work together behind-the-scenes and came up with an agreement to get the program through the 80's, and that was endorsed by most of the commission members and was sent to congress in january, 1983. now, it's important. again, in your brief you have a detailed outline what was in the short term on page three but also noticed that was fairly balanced. it had about 16% in terms of
getting this through the 80's it had about 15% from the new coverage, it had about 39% from reductions that affected beneficiaries and about 44% from increases from contributors. so congress adopted the short term plan. we just ran with it because we have only weeks to spare. but the commission short-term proposals also sold about two-thirds of the long-term problems facing the program at that time. but they didn't address the gap. on the commission was of the democrats favor a tax increase most of the republicans favored increasing the age for full benefits. in congress you had a slightly different mix. some believe we should address the long-term leader. jake pickle and dan wanted to
close the long-term debt and they went the route of raising the age. they brought along with them a number but not most. they brought on most of the committee democrats but not most of the democrats on the floor. and they won. congress enacted the increase in age and added that to the greenspan package. now there's two things to know this year. one is a simple factual matter. it is important to understand that any time you increase the full benefit age it lowers the benefit at any age but to collect them so if you wait until 672 secure benefit, your benefit at 67 is lower than it would have been without the change so it affects people up and down the line.
the second thing is to notice what this does to the so-called balance of the 83 amendment. of the long-term savings, and again there is a chart in the brief i think it's on page five the details but you wind up with that 70% was from the reductions of beneficiaries, 10% was from those who contribute to the program and 20% is coverage extensions. so the balance shifts dramatically to a long-term reduction in benefits and the cuts for beneficiaries are still being phased in. it's probably useful to also remember a couple of things. one, the package worked. i remember i wouldn't let my boss claim any more than 30 years that we had done something. indeed it is lasting well over
50. the second thing is to remember that in 1983, erisa, the pension law we, was less than 10-years-old. we thought pensions were going to blossom in the future, housing was on the upswing, interest rates provided a good returns to savers and health care was really cheap. that's mind-boggling, but it was. so there was a lot of reasons back then to think that individuals would have many resources other than social security. now we know that today the first four quintiles of beneficiaries are heavily dependent on social security, and we need to look to the future affordability. so we are going to take a look at that. here's a chart showing the cost of social security as a percentage of gdp. it goes from about 5% today up
to about 6% as the baby boomers retire but then it levels off. this is not a major primary source of our deficit and mandatory spending problems. it just isn't. really flat line. the next chart shows that the number of folks receiving benefits is going up considerably more than the increase that you saw in the prior page. total beneficiaries are going up from 17 to 25% over 65 retirees from 15 to 22% of the population. so when he put these together, it means that benefits for person already are going down in the future. and i'm going to skip one chart and come to this one. here's what it looks like.
today in average earner gets at age 65 after they pay their medicare premiums degette about a 39% replacement of their lifetime average earnings. by 23, that's already going to go down to about 82%. this doesn't count taxing social security benefits would really understands the problem because more and more benefits are going to be taxed going forward. so it's important to think about as we go forward the benefits are modest. there's about $14,000 but they are the main source of income for most beneficiaries, replacement rates are declining in the future and all those other things that we were counting on, cheap health care pensions, holmdel use, even jobs, are much less secure than they were in 1983.
so, what we want to do is now will get some policy options that you might not otherwise see so you have them in your bag as you continue to work on this issue with us and the rest of the country and for that i'm going to turn over to virginia. >> a >> thank you, janice, and all of you for being here. we are delighted you are able to be here when turkey dinners are calling all across the country. i'm delighted to tell you about our particular policy options that we talked about in our brief. we have to modest options for
improving the adequacy of benefits. one affects families, the other effects elders and we have a three part financing plan that is illustrative of how we get paid for social security without a great deal of pain and reducing benefits. first on the option to improve security for families -- by the way all of these options have precedent in history. they are things that have been fought in the past and are well fought through. between 1965 and 1981, social security pays benefits for children of retired disabled and deceased workers until those children completed college or reached age 22. this turned out to have been a great boon for those young adults but in 1981, the benefits were eliminated of concern for not being able to afford social security. what we have found in research
since those benefits for ended is that they really did make an important and positive difference to the chances of young adults to attend college, particularly for children of blue-collar workers, for low-income families and minority young adults. it's also than to reinstate those benefits targeting children of disabled and the deceased workers as a very modest cost it would be .07% of taxable payroll which is the way we think about how a financing for social security. translating that into dollars i think it's about $35 a year or 70 cents a week for a worker making $50,000 a year. not a huge amount of money. that is the cost assuming no increase in the educational attainment of young adults, but clearly more young people to go
to college they will earn more and that could help finance a stronger social security system in the future. the second improvement is for the honorable elders to simply list the floor of benefits for those that have long careers of low pay. such a benefit was enacted in 1972, but because the entry level of the benefits didn't keep up with wage growth it gradually became less and less effective and lifting of the benefits of the long service low-paid workers. so to update the benet and ensure a worker retiring at 62 could retired and have a benefit above the poverty level would cost about .13% of payroll again a fairly modest cost. in the report we discussed a number of other riss to improve adequacy but these are the two we are talking about in the brief pitch in terms of financing plans, it has two parts that would broaden the way
to the base on which social security taxes are levied. its 6.2% of workers and employees pay to pay for social security benefits. the first part with a list the cap on wages to cover 90% as aggregate wages in covered employment. the last time congress thought about with this cat should be was in 197076 a goal of 90% and to gradually adjusted to get to 90% by 1981. and then they provided should be adjusted every year by the change in average wages with the idea it would cover about 90% of wages and 06% of workers earn more, 94% rm less. the 6% that earned more had much bigger wage growth than everyone else so it now no longer covers 90% it only covers about 83% of
the wages. so to phase in the cap to get back to covering 90% of wages would eliminate about 39% of the long-term shortfall in the social security system. a second change would treat all celery reduction plans like the 401k. in 1983 the greenspan commission thought about how we should treat the 401k contribution for social security purposes. the 401k's for brand new and the contributions were definitely exempt from income tax but they also have the question should they be exempt from social security and medicare taxes. the greenspan commission said no the should be covered. the wages should be part of what social security replaces and workers and employers should pay taxes on the contributions. so the greenspan commission recommended that congress adopted and that is now lobby today. with this proposal would do is apply the same concept to
similar kind of so-called salary reduction plans that have grown more common since the 401k were adopted and subject those to treat those like the 401k would eliminate another 15% of the long-term shortfall in social security. so these two things together broadening the base would eliminate about half of the long-term shortfall. the third piece of the financing plan is also based on history in and that is to schedule in the future small increases in the rate of 6.2%. throughout most of the history of the social security program there have been rate increases scheduled of in the future and certainly when we and is the large beneficiary population that would seem to make eminent sense to plan revenues to match that need.
to do this, policy makers have options about how to schedule it certainly you wouldn't have it go into effect now social security doesn't need the money now and our economy doesn't need a tax increase on the worker's right now but if the policy makers acted now and schedule to say 15 years out into the future we could avoid drawing of the reserves in the social circuit the trust fund, keep the reserves up that would also allow interest income on the reserves to be a continuing source of income for the social security system. right now interest is about 15% of the income to the social security system so that would be to maintain that instead of just depleting the trust funds would seem like a good policy since. now there are concerns that the social security tax falls heavily on low-paid workers, but we do have the earned income tax credits the was first designed
back in the mid-1970s to offset the cost of social security and medicare fuel for low-paid workers so that could be adjusted to offset the impact of the law increase. you may wonder why are we talking about tax increases when no one else is? part of the reason is we are talking about it because no one else is but another reason we are talking about it is because when the american people are asked, they say they don't mind paying social security taxes because they see its value. in the survey we did with the rockefeller foundation about a year ago, we asked whether people agree or disagree with the statement i don't mind paying social security taxes because, and then kind of still in the blank. most people agree part of the reason is they expect to get
something from the program. even a larger number said they agree because were it not for the benefits they would end up having to support or help support their own aging families. and finally the largest groups every 87% said they don't mind paying for the benefits because it provides security and stability to millions of retired americans, the disabled and children and widowed spouses of deceased workers. what is striking about this high level of agreement they are willing to pay is it cuts across party lines as well as the whole population. 87% of all americans, 93% of democrats, 85% of independents, 81% of republicans. in a similar question we asked whether in the time of economic turmoil should we be eating about shrinking government commitment including social
security should we be investing more in strengthening the programs. and again, an overwhelming majority said it's more important than ever to strengthen social security to make sure that the viet ivies, the disabled and families can count on secure benefits for generations to come. again, overwhelming majorities among the the total group, among democrats, independent, among republicans it was more or less even define it -- slash of raleigh strong global support. finally, when asked is it important to preserve social security even if we have to pay more, and again, 70% said yes we are willing to pay more if all workers have to do that. and similar proportions agree when the question focused only on the upper income americans.
other organizations have also had similar results including america us speak which held town hall meetings around the country this summer, and in the final analysis their focus was on the deficit over all but they did have the session on social security. but no benefit cut provision had a supportive majority of participants. 50% did support raising the social security tax rate, and 60% did support lifting the cap on earnings. aarp also has done surveys recently and found that most adults under 50 the majority would rather pay more today to preserve future benefits than to pay the same amount today but get less in the future. so to recap, social security is affordable, and as the 1983 cuts
phase-in, inadequate benefits become a growing problem. so targeting improvements in a 75 year revenue plan seems to reflect what americans say they want. i will turn it back to lisa. >> we are going to bring wendell up to give the action to the statements that were made. >> good afternoon. i also glad to be here and comment on this paper. the paper comes in a point in time when we just had a two deficit commissions issue a report about how social security's solvency could be restored primarily on the benefit side. it is peter takes a different tack and medical students of social security ought to read it because it contains very important insight.
i'd like to make four important points. the first is the insight from this paper, and one gets memory distorted by history or whenever you think of the 1983 social security amendment being a balance, which it was in the short run. but in the long run it really was primarily on the benefit site, and the amendments that congress did with the greenspan commission was all on the debt side. that is the important insight. one can make as these two dishes commission reports have suggested the case for raising the retirement age or reducing benefits somewhat as longevity increases the benefits become more generous because people are living longer. but i think this chart, more than any other really defeats that argument. and from 39 to 35 what does this
chart show? it shows that between 2005 for someone retiring at age 65, after medicare part b premiums are taking an account, social security replaces 39% of those wages. 25 years later the same benefit only replaces 32% of an average worker wages so that is an 18% decline it goes from 39 to 35 because we raise the normal retirement age from 65 to 67. we go from 35 to 32 because medicare premiums are growing a lot faster than inflation. and i would quibble with this chart and that is also as a part of the 1983 amendment, more and more of the social security benefits taxed.
25,042,000, 25,000 for single, 32,000 for a couple, were not indexed for inflation. they were held constant and nominal dollars over time social security benefits are being taxed and if he took into account and one could quibble about the assumptions, that would take a 32% down to 29%. as we've gone from the replacement for an average worker of 49% and when you take into account the 83 amendments to 29% over that period of 26% decline, and as janice showed, that is the reason social security benefits as a percent of gdp are flat is that 26% of benefit and declined that is offsetting almost completely the fact that there are more elderly than this country and the baby boom generation is about to
retire. i wish they had taken one step further and look to the interaction between medicare and social security a bit more. as probably most of the elderly know they haven't gotten a social security benefit increase for two years. in january of 2012, the economists tell us we probably are going to get about a 1% increase given the current inflation trends. that means for someone with a thousand dollar benefit, the benefits don't increase by $10 a month. however, because also medicare part b premiums haven't gone up any time there is a frozen cola we are probably going to see at least a 20-dollar increase pard d premiums come january 2012, there for for a typical elderly
person, their cola is going to go up and it's going to completely be taken away by the other hand of government by medicare part d increases. and this is a problem which could go on for a couple of years that depends upon inflation. democrats a couple of years ago introduced a bill that tackles this problem, and basically what has guaranteed to the elderly at least 75 or 80%, so again, taking that same person who gets a 1% increase you would protect least $7.50 or $8 of that increase to take care of inflation in food, energy, rent and the like, and i think that is an important phenomena that the two deficit commissions, the obama administration have to think about as we enter this period hopefully during the
relevant inflation, the interaction between social security and medicare. my second point is there was an important context and virginia he alluded to it, but the point i want to stress is it social security was a solvent for 80 years before we had the great recession, now it is 54 years. ross and tickle basically used a short-term crisis to make the program solvent in the long run. it's the opposite problem we have today. we have no short run social security's solvency problem that we could use our deficit problems to make social security better but they ought to be done on social security terms not on budgetary terms. and i think it was the right decision and that time, one, because it has stood the test of time, and just prior to the 83 amendment there had been quite a
few minutes of increases in fact there was the 20% increase in 1972 there had been a lot of short-term increases in the payroll tax, and there was no eitc in the tax code to offset the payroll tax increase and we are in a different world today. we haven't had any tax increases. there has been a 6.2% dedicated to social security for the last 30 or 40 years and it's not going to go up. we now have the eitc at least protecting the workers with children. so i think -- there is one other thing i want to illustrate the going back to this. one thing the e3 amendment did is we basically gave a choice to all workers a fair choice of when to retire, to retire at age
62 or 70. obviously retire at 62 and you have eight more years of benefit than someone who retires at age 70. but it's a truly fair, so in essence if you just look the e3 amendment this chart is making a different point which is the correct point that increasing the age lovers the benefits tall levels but if you just look at the 83 amendments individuals that more of the retired 69 were retired at age 70 than they did under the prior law so the 83 amendments really made it possible for the american worker to choose at any point in that age span 62 to age 70 when they want to retire, and was essentially an act really fair decision, and i would -- i think the thing to really stress is that the two political leaders
of the time, reagan and o'neill were able to reach an agreement, and that unlike most conservatives in this town that deprive the conservatives trust fund notion it really is a conservative. forced the 77 amendments and the 83 amendment, and every american that studies this issue knows how solvent social security is because of the concept of the trust funds. my third point, and another important sense having said the social security amendments work, it didn't work because what the politicians were doing and the rest of the budget when president bush took office in january of 2000, cbo said there was a $5.6 trillion surplus. he didn't use the surplus to make social security more
solvent more on national debt lower interest payments so that this country would be in better place and bitter fiscal shape for the baby boom generation which we've known for 65 years, and we didn't use the decade just before the baby boom generation retired to get ready for the retirement of the baby boom generation. that is really one of the greatest failures of the bush and administration and has gotten little attention in the press. and if you follow the money the biggest problem we had in 1970, in 2000 was the rich were paying too much money, too much taxes because that's where we spent the money.
my fourth point, i think the paper could have looked at some other things. i mean, they saw the complete social security's solvency on the tax side, unlike the other commissions, and i applaud them for putting the paper out there for the very purpose. but i do think there are some other place is one could look at non-disabled child benefits. i do not quite understand why male or female is more likely to be a male just because if you have children late in life you get a higher retirement benefit and i don't quite understand why we had that if motion. i go one could make the case lowering the dimond disabled dependent spouse benefit. another place beside the to benefits that they do increase which i again applaud them i think they make a lot of sense
raising the benefits for an 85-year-old adding that in college benefits for disabled beneficiaries and for children of parents who have died. the survivor benefit. there is a jury little survivor protection if you take a male and female with identical earnings one of them vice first then the benefits of the family are cut in half. expenses for the family just because one person died are not cut in half and i think the survivor benefit particularly for a couple with identical earnings were nearly identical earnings could be improved. and i think there's also a case to be made to moving for more universal coverage. so those are my basic points if you remember nothing else of this comment that we have
already had a 26% decline in benefits. we need to take into account the interaction between social security and medicare, and i think the politicians need to to the lesson from the 1983 amendments and really work together to solve our problems today. >> thank you very much. it's tough to put out a paper and then ask what qualifies for a professor in this town to give some feedback and you have done that and is very nicely. your messages will heard. we would be staring at this chart. i like you did the calculation and gave the 26% decline of replacement just on what has already been scheduled and if it has given us our work for the future to talk about this
interaction of medicare and social security. that is a point well taken and it's nice to hear things work in this town once in awhile for all of you who come to work every day and staffers here and try to move that. i think the breeding is to take us back to the question of revenue and benefits adequacy. there is so much talk about the cuts that we try to give you a picture today of the revenue side and try to dispel the notion that we have had this balanced package and 83. in fact, the facts are it wasn't that a balanced on the long haul, it was predominantly cut, and those cuts are still being phased in, and it's not -- the long time in fact to ask about adequacy and certainly when we ask the american people about adequacy they are quite interested in paying more for adequate benefits.
i think that is a different story. we wanted to leave some time for questions today. we've got some great minds. so i will now open the floor, and my job is going to be to try to repeat the questions since we are being taped today, so i will try to be a good listener. if you have any questions. >> go ahead, yes. >> [inaudible] what to support the idea of amending the better cpia [inaudible] even though they are an intentional part of the cost of living of the elderly. >> [inaudible] about the interaction of medicare and social security
would you advise recalculating the way the costs of living adjustments are calculated, in particular to take into account the cost of medicare part d. >> i think we should take into account the cost of part b and the guarantee the elderly receive a police part of the premium which if we have 1% inflation for the next several years part b and part d premiums are going to eat up almost all of that, for a typical elderly person, and i don't think that is what we intended or that's what congress intended in 1972 when we installed the inflation index. i think they're ought to be serious considerations to other forms of doing the cola. i think they get to kaput technical they argue it is
better and all of them could stand to use this concept of a cola protection against the part b and part d right now has no harm in it whatsoever so little to be seriously considered. >> any other reactions on the panel? other questions? >> yes? >> why are we so unbalanced? why are we all on the revenue side when so many people are asking for cuts? reactions, janice? >> am i on? now live on. yes, i think one of the things we are trying to look at is over the long term where is it we
want to wind up and how are we going to get there, and when you look what is happening with benefit inadequacy over the long term that doesn't speak well for more reductions in benefits. looking at what we actually did in the past we were cutting benefits in 1983 in the long term, and we knew it. we were not hiding it. to go back and do it again i think on the assumption we are coming from a balanced package would be a mistake. if people decide they want to cut them again we certainly can do that but we shouldn't come from the mistaken assumption that we are starting from a balanced place, we are not. >> you have anything to add to that? >> yes, i would add to that i think we are talking about something that is more balanced
than other proposals for further benefit cuts because we have already had a major benefit cuts and they are not even fully phased in yet, so we are seeing the benefits shrink. it the same time the 1983 change asked nothing more in the way of cuts from contributors, from employees and employers beyond 1990. the tax rate we now have was scheduled in 1977 to take effect in 1990, and under the current law it is going to be that in 25 unless policymakers intervened and schedule revenues that more closely match the remaining obligations of the program. finally, people say they are willing to pay for it. so let's allow them to do. >> let me just emphasize, i think lost in the shuffle is the fact the in the past we have had revenue increases in the long term future the 72 amendments
had a revenue increase that went in in 2010 or 2011, somewhere around there, which would have -- was time to come when the baby boom retired because the demographers had figured out that this was going to happen, that the baby boom would put a tax increase in. as we ran into trouble in the 70's and 80's, those out here increases were pulled off and in essence the tax rate we have today, 6.2% was set in 1977 and hasn't gone up, it's not like people have been hit over the head with a tax increase every year in the social security program. i think that gets lost in a lot of the discussions. fallujah >> let me add one other thing and that is they were looking at the social security program in this paper, the other side of the coin of the part b premium
increases lot is that medicare costs have gone up a lot over time and one could try to reduce the increases that we see in the medicare program. now the affordable care act which just got enacted did reduce the growth rate in medicare by about 1.3 percentage points per beneficiary per year, and while medicare benefits were improved, the expenditure levels in the medicare were actually reduced, and i think a lot of the elderly still do not understand the rhetoric that was in the campaign trail about cutting medicare, but it does point that perhaps social security ought to be strengthened and at the same time we work to reduce medicare expenditures while increasing the quality of benefits that the elderly receive from the medicare program. >> yes?
>> the president talked about increasing the retirement age even further which you pointed out is [inaudible] the committee looked at the share of the population speak to [inaudible] can you talk a little bit about what the other program is and what happens if they are not able to work longer. >> this is the question -- i'm going to repeat it and then i would love it if from the senate aging committee the question was about disability benefits. and many in the context of increasing the retirement age has talked about adding more people to the disability program, getting people more through the system. what is the reaction to that to talk about what really happens?
>> well, certainly the disability program is there to provide benefits to people who are not able to work if they have a condition that is expected to last a year and precludes them from working but it is the most difficult part of the social security program to administer the with the backlog is, i don't have the latest data with the backlogs are huge. you might know better than mauney. so to politely say that well, just let the disability program take care of those people or find a way to do that through a disability assessment, the disability assessments are hard to do. i've studied the program in the past. the academy study the program in the past. there is no magic bullet to make that program easier to read minister. and from the beneficiary perspective, they often get denied once come get denied twice, finally get approved on
appeal. it's a very difficult and arduous process with long waiting times. so that does not sound like a solution to making a high year retirement age more appealing. at least i haven't seen an answer that foley deals with that. there might be one of their but i haven't seen it. >> it's also important to remember the disability -- the definition of disability under social security, it's not like an occupational disability, it's not like a short term. it's a very -- it is a very strict definition of disability. so we also have to take that into account. also, the longevity increases are not uniform. higher-income people are living longer. the lower income people have not enjoyed the same increase in their longevity. their longevity has gone up not even enough to cover the two years that the retirement age already is coming up.
the various reports that are out there now do have these increases starting way out in the out years, but personally i have a concern that we really don't know what we did get in '83, the full impact. we know what we did what we don't know is the full impact of it. will people really wait a whole year? will they wait a full two years? how many, how many are going to be just living on of less? and the simpson commission also, if i have a correct, increases the age of early retirement, so the ability to retire at age 62 would simply go away. there is argument about that because the age 60 to benefit would be so small you may not want people taking it, but it
doesn't solve the problem of a nurse who's lifting a lot of heavy weights every day or a janitor or somebody else who has a very hard job and who probably isn't getting the feith longevity boost. so it is a difficult issue and i think we have a lot to look at before we jump down that road. >> virginia community to add more. i'm going to come back to you as well because he made some points on this chart about increasing age. >> yeah, i think -- and this might be what wendell was alluding to but when janice says what we did in 1983, one of the things they did is increased every word for the delayed retirement. it used to be you'd get a 3% per year increment for reading beyond the full benefit age. congress gradually raised that to now it is now 8% per year. that is a hefty increase, and i think people don't really
>> at any age, they claim benefits, it's going to be roughly 12-14% less than it otherwise would have been without this change in the law. >> okay. we have time for any questions? anymore? all right. we have achieved something rare in washington, a perfect one hour briefing, so i want my job is to thank the panelists. thank you very much and to you as well. thank you so much.
>> while the controller of the white house financial management office unsteps the federal government is taking. this is hosted by an organization of budget officers. this is a little more than an hour. [inaudible conversations] [inaudible conversations] >> good morning. [inaudible conversations] excellent, thank you. we're going to go ahead and get
started. i'm jon stehle, and i have the privilege of serving as aabpa president this year. welcome, everyone. from the fall symposium, to the recovery act, a balancing act. today we conclude a celebration of 35 years of service with aabpa. this spring, we are fortunate to gather in this ballroom with some founding members, one of them who was able to join us that day was audrey dysland, treasury of the board. over her 54 year federal career and even afterwards, audrey was an advocate for this profession. pictured here in the center seated with others who help found this organization and current board members, audrey celebrated with us the legacy of the efforts begun in the 1970s. audrey passed away this
september, and we remember her here today. it was a pleasure to meet her and discuss all those involved in the founding of aabpa. it is our turn to be stewards of this vision. as we look forward to the day' events, it's important to look back on how this organization has been an agent of change. in the 1970s, members of the budget office conference, saw the need to elevate the profession and provide opportunities of training for career professionals, and posed creational organization and merged with the american association for program analysis to meet those needs. in 1975 the american association for program analysis was launched. as aabpa grew up in the control agent, one of its earlier
accomplishments was to partner abfm to publish the journal "public budgeting and finance" that appeared in the spring of 1981. public budgeting and finance is a journal for public finance, a publication for practitioners interested in ideas, and for scholars in interested in pact. in the 1990s, aabpa focused on training and an executive branch procedure to implement the 1974 act. aapba took the lead in training and public budgeting and the heightened emphasis on performance management. aabpa members have been prominent in designing and implementing budget performance systems across the federal government. most recently, aabpa strengthened its ties to academics and students, the budget policy and academics of the future.
this has significanted from public service and to academic positions, the creation of a research competition and a summer internship program that provides context and support for students' transition into public service. today's conversations on the current economic outlook resulting in significant challenges it poses at the federal, state, and local level requires a thoughtful balance in interest and needs. many of us have been involved in stimulus programs, the restructuring of health insurance mechanisms, and the ongoing debate on how to regulate the financial institutions. information technology is transformed the way we do day-to-day work and also expand the analytical roles, an exception of budget professorials. today you get the exposure and insights you need to succeed quickly in this changing
environment. i urge you to take advantage of the networking breaks today from offices across the federal government also changing with the times. we are front in center in a formulation and delivery of government services and continuing education is the key to staying ahead. to give you a brief outline of today, our first speaker, danny werfel is giving us a perspective on trends at omb and a panel of four experts, bob bob and marvin phaup sharing the good, the bad, and ugly of budgeting. capping off the day is a institution on how our work is used in the writing of cnn with cnn writer, jeanne sahadi. don't forget, ice cream with all the toppings you can handle after lunch. after that it's career development, the state and local perspective on the criement, changed management, and
developing ties between financial management and budget formulation and execution. i'm very pleased today to talk about some of the people helping us out. they include our sponsors, our memberrership desk, and those students volunteering for us today. i'm particularly grateful to the students as reporters. you will see them in the panel sessions taking notes and can look forward to summaries in our upcoming news letter and some taking pictures throughout the day. stop by and see our sponsors. you are probably familiar with their names, but not the extent of services they can provide you. they are sharing their expertise on panels today. the corporate sponsors are altam, decatron, management
concepts, cgi federal, and pricewaterhousecoopers thank you for sponsoring our breakfast this many morning and grant thornton has sponsored our water bottles. if you have not picked yours up, please do so. welcome to the reporters. we are glad you think budget and the economy is as exciting. as a reminder, sessions are on the record, but panel sessions are background information only. i request that you silence your cell phones, and i'll introduce our head table. beside me is melissa merrill and joe call. i would like to ask joe to come up and introduce our morning speaker. >> good morning. i am with pricewaterhousecoopers
now known as pwc just to set the record straight, and it's my pleasure to introduce danny werfel. he was confirmed as the controller of the office of federal financial management at omb on october 13, 2009. as the controller, he's responsible for coordinating omb's efforts to initiate government wide improvements in all areas of financial mountain including financial reporting, improper payments, and real property management. in addition, he's responsible for coordinating government wide policy on financial accounting standards and financial systems. prior to his current position, he served in multiple capacities within omb including deputy controller, and the budget examiner in the education branch and served as a policy analyst in the office of information in
>> that's the second time that's happened to me where i show up and found out we were going to be broadcast. the first time that happened, an interesting thing happened. someone in the audience asked an unusual question. it was someone i knew, and they asked me to go over the statistics for my son's little league season so far which i happily did, but later that night when we were watching because c-span reshows, we're sitting with my wife and my daughter and my son, and the question comes up, and i proudly recite my son's baseball statistics was fine except my daughter was very upset because that he isn't get any mention at all. nobody asked a question, so i'd like to mention --
[laughter] my daughter, molly. you would not believe her report card. [laughter] i almost put it on a power point slide and was going to show it. [laughter] but i think the privacy act prevents me from doing that, so i will not, but, anyway, i'm really glad to be here: one other important note about watching yourself speak, and in is where i need your help. every once in awhile, the camera pans on you, and it was disappointing how many people were sleeping -- [laughter] during my remarks so i'm going to try my performance measure here is to cut that down, so hopefully you'll be smiling and laughing throughout. what i wanted to do today is give you some perspective on where we are and what i consider to be a very important world of
financial management and the role of the chief financial officer in government today. in particular, this is a timely topic. on friday of last week, we celebrated the 20 year anniversary of the chief financial officers act. this act enacted in november of 1990 not only created the division for which i work in in my position of controller. it also required for the first time a cfo to be placed in every major federal agency, and started the requirement for audited financial statements to be produced each year. prior to that, the requirement did not exist in federal agencies. what we did last week was look back at the journey that we've taken over the last 20 years,
and looked at some of the challenges we still have today and where we need to go forward, and i think that some of the themes that emerge from a look at the journey of the chief financial officer in the federal government have broader applicability for government more generally, and i think some of the thoughts that i'll sthair -- share with you will resinate with your work on financial issues and more broadly when you're working on budget and program. the first reflection, and there was kind of a -- timing was interesting. last week was when the audited financial statements for all the federal agencies were due on monday, and that just so happened to be the same day, november 15, that the cfo act anniversary falls on, and so it was a good opportunity for everyone to have crossed the finish line of producing their financial statements, and then
coming and celebrating not just that, but the past 20 years. one of the first reflections that i have, and i'm sure this will resinate, is that it's hard work. we work really hard in financial management to do this activity. this past audit season with the audit season really starts basically in april, it's a really long process, but in particular, it really ramps up at the end of the fiscal year on september 30th and november 14th we have 45 days to produce them. this audit season in particular, i've never experienced the amount of stress and workload that i saw hit the federal agencies. a lot of late night, a lot of weekend work, you know, the e-mails at 2 or 3 in the morning, stories of agency finance shops, working 16-17 hour days to try to get the work done, and all across government
we successfully reported, so these -- when you hear something like this, it draws two reflections for you. first of all, we need to get to a place where the work that we're doing to produce these financial statements is more routine, that's it's not this here rowic -- heroic effort. that's something we've been striving for for a long time, but even after 20 years, we still see the heroic efforts. the other thing that i think is promising is that the audit still drives the type of accountability that will have federal agency and federal employees working through weekends, working into the late night to make sure that they cross the finish line on time, and for that, i think i'm encouraged by that, and i think
it's an opportunity. in particular, imagine harn easing -- harnessing that energy and the fact we have the federal work force singly purposed for an octoberive for months, weeks, days, and than hours for that deadline, and if we can harness that and apply that type of energy and cbilityd -- accountability on things that have the largest return of investment for the taxpayer in terms of cost and eliminating waste and improving government performance, if we could make sure that the environment that we work in is having it so that the agencies are listing and pushing and driving in those most critical areas. well, then, i think, government performance in the landscape can change and transform over time, and so from a financial
management and cfo perspective, we need to think about the question of whether our activities today, what omb requires the agencies to do and what congress requires the agencies to do, and all these various things that are causing the 2 a.m. e-mails and the weekend work. are they maximizing the impact of government on behalf of the citizenry? that is a question that we were retrospecktive and introspective on in hitting the 20 year anniversary. probably not to your surprise, we found out in talking about it and studying it, that in many cases we are not hitting that exact sweet spot of where we think we're getting the maximum return on investment, and so our challenge is to make sure that we are reharnessing that same energy level towards a set of priorities and activities that have that more positive return
on investment and higher impact. let me give you a flavor of what that could look like and what that means and what we've learned. if you go back to 1990 when the cfo act was passed, you can basically summarize the objective of the act in three basic ways. the first objective was to make sure we we making the government's finances and agency's finances transparent to the public. that was the notion of the creating a cfo and having financial information flow out to the public in the form of balance sheets and financial statements, similar to what shareholders could see for corporations, so public transparency was the first objective. the second was internal controls in agencies or improve the internal controls there to
mitigate risks such as fraud and error and waste. the notion is and continues to be that millions and sometimes billions of dollars are flowing in and out of your agencies on a daily basis and the question is what environment are they flowing in and out of your agencies? are they flowing in and out of your agencies in an environment where we accurately track those dollars in a way where we mitigate funds where funds are misspent? that's the type of internal control environment that the cfo act envisioned, and the third is decision support. some historians of the cfo act say this was the most important, and that is making sure that leaders, whether they be government leaders or policymakers, have the information that they need timely to manage both the short term and long term objectives of
federal agencies and the federal government. getting that information in place to make informed decisions. transparency, internal controls, decision support. those were the three basic objectives of the cfo act, and you can go through each of those today and do a gap analysis basically and say how are we doing? how are we doing in terms of making that information transparent to the public? how are we doing in terms of focusing our efforts on internal controls to mitigate risk and error, and our agency leaders today getting information they need to drive results? from our stand point in the financial management community, we think we have a lot of work to do on all fronts, but i think there are important trends that have developed and in particular recently that not only help close that gap, i think, you know, we were going along for
about 16 or 17 years at a pretty stable gap, and then over the last two or three, that gap closed in major ways along these three areas, and what i want to do is talk to you today about what those areas are, and how we start to build and reenforce them going forward. let's start with transparency. how many of you recently reviewed the balance sheet of your federal organization that you work for? a show of 0 -- o, know, there's three or four people. that's better than i usually get. one of the lessons learned that we produce financial statements, corporate style financial statements that have numerous benefits in terms of the disciplines that go into producing them, but we get very, very small foot traffic on those financial statements on our
websites. actually, the fact that financial statements are now posted on the web, and they were not at the beginning because the worldwide web didn't exist now, but the fact they are now posted on the web is very helpful because we can track how many hits these financial statements are getting, and one agency who i won't name, told me recently that they had less -- they had about 300 or so hits or 400 hits on their financial statements on their web page. they were able to track that. that's about the same number or less of the people in the cfo shop for that organization which is interesting. just to give you a sense to take that number, 400 hits in a year, the website, recovery.gov got
400 million hits in the first months it was up and running. what do we learn from that? the balance sheet just to pick one of the balance statements tracks what we owe and what we own as a federal government. that's the rallying principle around financial statements of both corporations and federal governments produce. is the balance sheet, and it answers that fundamental question, what we owe and what we own. own being assets -- owned being assets and owing being liabilities. what recovery.gov does answers a different questions, not what we owe or what we own, but where is our money going? that's a very different question with very different data requiring a very different set of disciplines to report and track, and this is something that is extremely valuable this
400 versus this 400 million statistic because for years under the cfo act, and i worked in this community since 2003, we have lemented the fact that people are not reading our financial statements. i think, joe, you actually wrote a report called that these are the reports we love to hate, and one of your hate to love, and one of the conclusions is that people are not reading them, and so we spent a lot of time in the cfo community trying to figure out what is that touch point between the public and financial information because they are not reading the assets and liabilities information in a way that's like the way we're producing the information. along came the recovery act and the transparency act that requires federal agency -- this happened in 2006 is when
the transparency act came into light, requires federal agencies to report on a website, usaspending.gov, all payments they make greater than $25,000 whether it be a grant, contract, or loan and for both sites, the user has the ability to go in and run searches. they can type in harvard university and figure out exactly how many awards and for what purpose and from which agency harvard university has received payments. that search function gets a lot of foot traffic. the reality is that the public is extremely interested in where federal dollars are going and for what purpose. if you were to go on recovery.gov today, and i encourage you all to do so because from the time the website was launched until
today, it's dramatically different. it has significantly more functionality and significantly more graphics and different types of interesting tools that can be used. you will -- i think you will be amazed in the ways in which you can search the data, and in particular some of the mapping functions where you get so many different presentations of the maps of the united states, and you can drill down to your location and figure out exactly who in your neighborhood is receiving federal money under the recovery act and for what purpose. it's really changing the way the public interacts with federal financial information, and it's extremely useful to the cfo community to see this growing demand because it lets us know where we need to focus on one of our fundamental responsibilities and that the liability of the information being reported because that same agency who had
400 hits on their financial statements invests a tremendous amount of time and energy and blood, suite, and tears to make sure that the information on those financial statements is reliable. they invest in systems, people, and training, and then they have an independent auditor come in as required by the cfo act, and scrub these numbers, and they scrub them hard. they scrub them hard not to the first decimal point, but to the fifth or sixth decimal point to make sure that information is reliable, and that information is going to a public sphere with limited readership from the public, and yet that same agency is producing information for spend usaspending.gov or recovery.gov. we don't have years of investment of system and
personnel and skills and training to validate the reliability of that information that's going on into the public's sphere. from the cfo perspective, we have to reconcile this discrepancy and we shape to make sure oh investments -- our investments are aligned that scrutinizes the information moving into the public sphere and relied on to where our money is going and how we're being held accountable for that money. that's transparency. what i tried to do is give you that gap analysis of what the act's intention was and where we are today, and i think it's a very positive development because five or six years ago if i was standing up here and someone asked me the question, where do you think the touch point is between the public and financial information of the
federal government, i would have not known. i would have said we are still searching for the answer to that question, and now we know so much more than we did. we know how important it is to the public that they understand not on the where federal taxpayer dollars are going, where they are ending up, what they're being used for, and a real challenging question that we have on the hoer horizon, what we're getting for the money because in particular with the recovery act, what was so incredible and enlightening about the recovery act is it not only asked us to track where the money was going down to the recipient and subrecipient ect. and to the vender, but it also asked how many jobs are being created with this money, and so we had not just the layer of where the money is going, we had this critical performance measure associated with the recovery act. is it creating jobs? and so now you have a really
multidimensional full view of taxpayer dollars and what's happening. it's the fullest view we've ever had, and the results are people are paying attention, congress, ceo, federal agencies, the public. everyone is much more informed and important debates are occurring on the recovery act that would not have been able to occur if not for this effort, so it's really a great example of the cfo act as it was originally intended in action. i think this was what was envisioned in terms of having that information to spur public debate and to allow the public to at least have the knowledge and the trust that they can see where their taxpayer dollars are going and how they're being put to work and raise concerns or celebrate or however they want
to react to where the dollars are going, but the knowledge is there, and i think that's what was intended by the cfo act. let's move down to internal controls which was the next item that i mentioned. transparency of the nation's finances was the first, and as i mentioned, i think we have a good sense of where to take the community going forward, and internal controls is the other area. i think when we're fully functioning and at our highest level, we're investing in the internal controls that reflect the highest risks that we face in the federal government in protecting taxpayer dollars effectively, and for that we have to figure out what the government's bottom line is and how we can protect that bottom line and make sure the internal controls are in place to reenforce that bottom line. now, one the things that
sometimes happens with a financial audit is an agency can lose its clean opinion or get a material weakness or a red flag is raised around a whole host of different areas within the accounting world that one could argue are not exactly aligned to the bottom line in protecting taxpayer resources. examples of that really are, if an agency, for example, gets an audit issue because they haven't valued a set of assets correctly, we're not accurately reporting the value of a particular set of assets or inventory, and that's an important question. it's important to know the value of the assets that we're maintaining as a federal government, but underlying that are other critically important questions as well, so let's say, let's say that the issue is a fleet of aircraft that the agency owns and the auditor is
saying this fleet of aircraft are not valued correctly. the internal controls for the agency has not enabled an accurate value or methodology. okay. they get a red flag on their audit. whether they lose the audit or get a material weakness, things start happening and agencies invest resources and spend taxpayer's dollars to fix this problem. my question and the question we need to raise is are there other elements about the way we hold these assets that are more critical that need to be examined more thoroughly. for example, do we need to own these aircrafts to begin with? are we fully utilizing them? when we purchase these aircraft, did we purchase them fairly? did we get the right price for these aircrafts? what cost is it costing the taxpayer to maintain the aircraft effectively, and is that cost appropriately benchmarked against other
agencies and against the private sector who also maintain aircraft? these are the questions that one could argue are equally, if not more important, than the value of those aircraft and how we carry it on the balance sheet. the question is are we investing in the internal controls? do we have a robust set of controls to make sure we know exactly when our inventory is surplus? do we understand the cost and drive and hold facility managers accountable for driving the costs of the aircraft down? i think in our environment today, we are not where we need to be in terms of making sure that the internal controls that we're being held most accountable for have that closer nexus to the bottom line of being an effective stuart of taxpayer dollars which i think
means controls costs and making sure we're e eliminating waste eninefficiency. that's a question that we need to be asking ourselves, and i think the federal agencies across the board need to be asking themselves. when you look at yourself as an agency and try to find out where your processes and disciplines and rigors are all in place, are they in place and are you holding your people accountable to answer the right questions about the way that your operating your -- you're operating your agency? that's something all agencies should continually ask themselves. we're asking ourselves in the financial management community, and weapon think we -- and we think we need to potential look at modifications in the way we track our finances and audit ourselves to be driving to the exact right question. the last area is decision support, and this is a challenging one. this is one where you have so
much difference among federal agencies in terms of the type of financial information that would be most relevant to drive decision making. if you were sitting down with the deputy secretary, secretary of hud, and then turning to talk to the secretary of labor, they would likely have very different needs in terms of information to make sure that they are managing their agencies effectively. one of the benefits of my position is that i worked very closely with all the c -- cfos. they often turn over because it's a political position. when the obama administration came on, we had a whole new group of cfo's recently confirmed by the senate and joined our cfo counsel, and so i can talk to them and get their early reflections on what --
a lot come from state government or from the private sector, and talk to them and get their reflections about what they see and these very complex, enormous agencies that they are now the cfo for, and one of the constant themes that i've heard from the cfo's is that they are struck by how much data there is within their organizations, enormous, enormous quantitities of data, but how difficult it is to pull from that data in a strategic and in a seamless way to get relevant information to help them inform on a day-to-day and long term decisions that they need to make, and so we have this new challenge of trying to figure out how do we call data differently? how do we pull data from various data bases in a way that helps us answer some of the key
questions? again, and i think the recovery act has been an informative situation for us to learn from. let me give you an example. the recovery board which is made up of prokely a does -- approximately a dozen generals and it was to be the watchdog, it was a special inspector general type arrangement, and the recovery board was established. earl devaney was made the chairman, a very wise choice because earl is excellent at what he does, and that's been an effective watchdog and holding people accountable. the board was given tools and resources to go ahead and do its job. one of the things that they did which has been extremely eye opening is they deployed a
forensic data mining tool, and what this tool does is it takes enormous quantities of information from both public and government data bases and it runs algorithms or questions or queries of earl and they meet their business need or objective which is to find fraud and error, and what i've learned in watching this process unfold is that it's really important for us as a federal government to do a couple of critical things to make sure that we are managing information better than we have in the past. the first is to make sure that we are keeping up with technology and with best practices from the corporate environment, and we know exactly
what technology can do because it is quite remarkable how some of the data mining and forensic tools that are out there, what they can do today in terms of drawing enormous quantities of information into different business intelligence, formats, and allows us to identify trends or spot problems in ways that is ever-evolving, and if you have settled in to a way of looking at data and analyzing data that kind of came about two or three years ago or even 18 months ago, and you're not paying attention to some of the advances that are going on in private industry, then you are already behind the curve, and we have to be dedicated to being on top of how the technology changes and how we look at and utilize data. that's lesson number one.
lesson number two is we have to know what we're asking. we have to understand what the key questions are that we want to focus in on. i use the word algorithm or query. it's so critically important to know what to ask the data, and a coal lair to this is it's important to bring a diverse expertise to the table because if you are trying to identify fraudulent patterns in an agency program, and you just have the program experts in the room, that's helpful because a program expert is going to know where some of the potential weaknesses in the program are and where some of the risks are and might have a historical perspective on where fraud or error occurred in the past to drive and ask the data, but you need other expertise as well. you need more general expertise,
people who have an understanding of how fraud or schemers operate, things you may not have thought of, trends in different sectors of criminal behavior that you might not be privy to, but someone who's more with a criminal enforcement background and keeps up on these things might be able to help you with because what the recovery board tool studies and we realize is it's the sippettization of the expertise of law enforcement and different areas that really help to figure out and pull out of the data where the problems are. it's got to be multidimensional, and so this is another lessons learned for me in the area of decision support. what's out there in terms of technology that can help us take this enormous amount of data and
move it into usable chunks and frames? are we asking the right questions of the data? because spending time on what to ask the data is really a critically important part of your job in terms of better managing data, and do you have the right expertise in the room? if you have a sense that everyone around the table has the same background and instead of interests and stake holders, then you might not have the right group in the room, so it's one of these things just like the other areas with transparency and internal controls, it's a mixture of the sense that we're not where we need to be, but recent advancing or recent developments or understandings are helping us figure out where we need to go and we can build on those successes going forward. i want to spend a little bit of time talking about one area, kind of do a deep dive on one
area in particular because i've been talking about fraud and error. i want to talk about improper payments a little bit, and then i'll turn it over to questions from the audience. improper payments is, i think, an interesting case study in everything that i've been talking about so far. it has a little bit of everything. what is an improper payment? it's a payment that goes to the wrong person in the wrong amount at the wrong time, you know, someone should have been -- a classic example i often use is that a medicare reimbursement that reimbursed an mri, but really was only a chest x-ray that occurred. we reimbursed $4,000 for a $1,000 procedure. that's an example of an improper payment, and last year we made
$125 billion of improper payments across government. that is an enormous number and is a reflection of an area that needs to have tremendous focus and attention going forward. one of the interesting things about improper payments going back to my questions about are we focusing on the right place is this question of, you know, payments. we -- on the one hand, we need to have a foundation to understand all the payments that we've made, record them correctly, understand the audit trail associated with them, but if we don't layer that performance element on top, if it's just being audited and tested that we made 100 payments in the month of april in this amount, yep, i reconciled it, validated it, i'm done. thank you, i can now go home. if that's the end of the
discussion, then we've missed a really critical important question of was the payment correct? that's what i mean when i talk about evolving into areas of performance and focus and bottom line impact. you can't ignore that fan cation. we have to -- foundation. we have to make sure absolutely the amount of payments we made can be reconciled and we know exactly how much got paid out. our work it not done. there's a performance element associated with those payments, and we have to attack that performance element because at the end of the day, the risk to the taxpayer is greater if we fail on that performance than if we fail on any other payment of the life cycle, so more needs to be done in my opinion, more auditing, scrutiny, more review,
harnessing the energy of those cfo's working through the night to produce their audits financial statements, harnessing them around the improper payments question and challenge is something that i'm interested in working with the entire government in particular cfo and program communities around. now, the improper payments issue is something that i've been working on for a long time, and i'm proud to say that it is now as prom inapt as any -- prominent as in issue we've worked on. the law was passed in 2002, the first time ever congress required federal agencies to track and report on improper payments, and we've spent about eight years trying to do more and more measurements and figuring out how to measure these programs for error. that was often a -- that's often a real challenge if you have to pull the data and
extrapolate and work with state governments and states administer programs differently because a lot of these programs with large errors are state administered beneficial programs whether they are food stamps or snap or medicaid or programs like that. it's a lot of work and partnership that goes into just the first question of measuring what your ere error is. when the president took office in 2009 and we first presented, i had the first opportunity to present to the administration, the new leadership, the improper payment results for 2009. they're reaction was -- their reaction was both inspiring and humbling at the same time. it was an unacceptable amount, and it needed quick and effective and comprehensive action, and so the president almost immediately signed an
executive order which we tried to take all of our years of working on this issue and try to put in again, what are the things with the most positive return on investment if we drive that, and that executive order required us to do a number of things. agencies now have senior accountable officials for improper payments at every agency. we now have a public dash board, paymentaccuracy.gov and each targets how we're doing and accountability through transparency. the executive order has us doing things and the executive order predated the forensic tool and required that very type of forensic analysis, and it required us to kind of push keeper into the questions of where are our errors occurring, and how are we using data to pull out that error and see it and analyze it in new and
different ways? the executive order required us to look at contractors and to do a better job to help government manage the error that's existing today, so the executive order is exciting. just a few months later, the president issued another directive this time on payment recapture, and the focus here was are we getting the improper payments back? are we recovering? the executive order was focused on prevention. the next presidential directive which occurred in march of 2010 was about recapture and set a goal to make sure recapturing improper payments from contractor and venders. what we were able to demonstrate in looking at best practices is that when you hire an auditor, a specialized auditor, and pay
them on the amount of recoveries they get on the con stin jen sigh basis then the right incentives are in place because they get paid based on what they find. we discovered in government this works pretty effectively, and so this march directive required federal agencies to make sure that they were leveraging this very important tool and enhancing it and so we set a target to essentially double our recoveries by 2012, double the pace of our recoveries on improper payments, and so that was in march, and then what occurred in june was yet another pcial directive -- presidential directive and in three and eight months to give you an idea how important this issue is, this directive required the federal government to create a global do not pay list. what is that? that is the recognition that there are various data bases out
there that can let you know whether an individual is eligible or not, things like the excluded party list, has the entity been sus spended -- suspended or debarred? things like the prisons and are these individuals incarcerated and therefore not eligible for their benefit? the death files, is this individual deceased and not eligible? we continue to make payments to the deceased, to the incarcerated, and to the suspended and debarred. there's other data bases that are irrelevant like those who are de-- deling went. all these exist in different spheres and different agencies had mixed results in terms of
their ability to interface with the data bases. it required us to bring these various data bases together in one platform and figure out a way to enable federal agencies to more seam leslie tap into that -- seamlessly tap into that data bases and the dead, the incarcerated, the suspended, preventing payments in those cases, and so that occurred in june. last week -- i missed one thing. in july, the president signed new legislation. the improper payments elimination and recovery act. this was -- it was not a quiet signing. it was a signing done in the eastroom of the white house in a packed room with bipartisan senators and congress people there. improper payments has arrived
apparently, and that's again both humiliating and energizing all at the same time because we need to do something about this number and now we have the highest level of engagement and attention. this bill drives more accountability, strives for more scrutiny at lower thresholds to make sure we pull out errors, strengthening audits, and it also expands this authority for federal agencies to hire auditors on a con tin contingency basis to get recoveries, and now about all agencies have the authority to do that. we have to ramp up those activities. just last week with the financial reports coming in, we had the opportunity to report the first year results of fiscal year 2010. all this energy generated with improper payments started as a result of the 2009 results which were trouble ling as i
mentioned. .. if we did not achieve that reproduction. the president set a goal to reduce or avoid $50 billion in improper payments by 2012. so we are 4 billion ended two years to try to make up the next 46 billion. i've got to tell you, i'm confident we're going to do it. because i think things are
coming together. it's taking a little bit of time to solve its authorities and mounted these accountability mechanisms that we launched in 09. they started to bear fruit in 2010 i think in 11 and 12 were really going to start to see the affect of the duties that were taking. more dramatic if their recoveries. we set a goal to double or recoveries. in 2010 we tripled the amount of recoveries made from two dozen nine until 2010. $687 million were recovered in improper payments since 20 tons and that represents a 300% increase from where we were. so why did i want to drill down on improper payments? first of all, i think it's important to recognize that this is probably the most critical metric we have in good financial management. you know, we can get clean audit opinion that every agencies and have very pliable balance
sheets. but if we continue to have an improper payment problems and challenge, then that's going to overload the public's trust in government and continue to do so. so it is something that resonates outside the beltway. it's something that's easily expandable. it's something people experience to know about any fundamental. it's fundamental to our work. and so, it innings to continue to be a priority. it also fixes the overall theme that i've been sharing with you today. it's about what information is relevant to the public. it's about are we scrutinizing the right set of activities? are we driving behaviors and wait that's going to maximize the return on investment of both protecting taxpayer dollars from waste and earning public's trust and it's about getting information because the only way
to tackle the improper payments challenge is to understand the problem better than we've ever understood it before. we need to enable ourselves to see the trends, understand the weak spots, understand the root causes. i have witnessed to the recovery act -- the one thing i didn't mention if i had initially those amount of fraud and error associated with it. dramatically lower than what we see with other government programs. this is something that's not just me saying it. i testified before the senate and he talked about how low the fraud and error rate is in the recovery act. and we're trying to look at why that is. and understanding to make sure they were understanding the lessons across time. and i'll close with the thoughts on why that is. in particular, i was glad to see the recovery act as one of the themes of your event today. a couple of things they think,
first of all mention their fraud protection tool, which is impressive and powerful. it really does change the way we look at data. it allows us to see connections. an example would be we found entities that were suspended and devoured that reincorporated under a new name and underwrote practices we would not have caught that connection. but this told that the recovery for testified goes deeper than just the companies name. it goes into worse for that company and what other company affiliations as they have in the past. and then you can build these networks of connections that the individuals working for these companies to seek have any of them been involved in fraud in any other situation by pulling information from public source databases and other databases. and there you go. you start to figure out where the error is occurring before you even need to make the payment.
the other points in addition to the tools and staying up on technology is the focus in the accountability. and there was a recognition early on in the recovery act that there were risks associated with spending out a significant amount of money in a shorter period of time because there's always a tension, particularly with the recovery act. want to get the money up quickly in the state and local economies to start creating jobs, to start rebuilding infrastructure. we don't want bureaucracies to hold that money back when it could be doing effective work for the citizenry. so want to get that money out the door. but we want to do it wisely. in some cases the money was going on at greater rates, programs might've seen a 50% 100% or 3% increase based on the recovery act. we fill up our money go into that same channel in the same administrative approach. and what does that do with all of those urgencies created what i call a healthy stretch on the prepayment environment for
federal agencies. more people started looking. more people started scrutinizing. more deputy secretaries and secretaries started sending the message down that we're not going to tolerate error. were not going to tolerate mistakes being made. we have to get this right. there are increased risks associated here and we need to raise our game and get this right. and lots would have been. and i saw too many federal agencies and their senior leadership about this and they really we thought how they did their payments, how they made their words, how they check the money in ways that have not been done before. so major, major lessons learned here, something we can certainly carry across government. so i think i'll sum it up by saying that over year -- over the years, we've had an ongoing debate in the cfo community. what is the role of the cfo? a common question has been, is
the cfo stuck in the back room when they should be in the boardroom? and we challenge ourselves in the community to figure out how to move the cfo from the backroom to the boardroom and establish their rule and their prominence within the community. and i came to the conclusion that we don't need to do that anymore, that that job is done. and i don't know if we made it happen or circumstances made it happen, but two things in particular are realities that we face that are going to keep the cfo in the boardroom for the foreseeable future. one, is the public's demand for financial information is at an all-time high and i don't see it ever going back to a low of a new standard to the type of information we have to produce on federal activities in the cfo has to champion out with agencies and be successful. and i can't come away to figure out how to do more with less.
when budgeted environments today, where cost cutting is going to be a primary theme and activity of every federal agency for the foreseeable future. and if the cfo is not in the room, that's a major problem because the cfo has to be leading the government and the agency suffers to drive costs down, to measure the cost, evaluate them, use data effectively to understand what the best impact of new activities will take place to drive those costs down. that's the challenge for the federal cfo in the years to come and i'm looking forward to working with them on it. so at that come i'll close my remarks. i don't know if i have time for questions, but thank you are a match time. [applause] thank you. i do have time for questions. >> the mic is in the center of the room.
>> when the draft commission chairman's draft commission on the data came out, i immediately went on google was able to find out the inventor and two seconds and look at the powerpoint narrative. and going through the, you know, the various proposals on there. my question relates to two of your main points. transparency and giving the public tools and ultimately decision-making. would it be feasible for some government via the executive branch probably to create a website where you could model those proposals? because when i looked at them, there was reduced to proper payments, reduce defense spending, freeze federal salaries for three years, eliminate 250,000 civilian contractor jobs. well what about freeze federal salaries for two years and eliminate 300,000 -- you know, that type with our sponsors
here. what do you think something of that nature would be feasible? i imagine you'd get a lot of hits on that. what is your idea for a comment on that kind of tool? >> well, it's a very interesting question. it reminds me of something that i've learned in terms of government transparency. and there's two ways to do federal transparency i think. and this is -- i've got to give credit to my colleague david combat boot -- decide to vivek kundra he says you can either do the restaurant approach for your comment and have to choose from a set at meals and so you choose from a set of reports that the government can't do. or there is a supermarket approach, where yuko went and you build a meal you want to find the gradients and that is having the raw data available for both. i answer to you as i think it needs to be a mixture.
we need to be able to do transparency efforts at data.gov to make all that information available, allow the public think tanks, educational institutions to do the type of modeling that you describe to inform the policy debate on whether a freeze for three years versus five years is going to have this impact on the deficit versus cutting defense spending for doing something else would have this impact on the deficit. i don't know -- i think it's going to take some time if the federal government is going to sponsor those types. and going back to my analogy and the menu in this report a master for come is going to take a lot of time for us to sort out how to fairly present that information, how to do it in a way that the public can rely on it and there might be questions of whether that's been
politically influenced. and there's a lot of nuances and challenges to it. so i would start from the perspective of the raw data they are, to enable a policy debate to occur and people to model that information. that's where you think we need to focus. next question. >> i want to ask about one aspect of the cfo act that she didn't touchier talk. and that is the very establishment of the cfo council. and with the cfo council, there's been a number of other councils established in government. so i want to get your sense of how you see those councils and of themselves functioning and operating and coordinating among each other. because the proliferation of councils is in itself an issue for agencies. >> it's a very good question and i will certainly emphasize the important role that the council place. and i appreciate the question because i should have mentioned it in my remarks.
if we attack these issues, agency by agency, and not bring together the combined knowledge and expertise and shared his, then we're really missing a huge opportunity. precious within the cfo environment. one of my jobs is to control and make sure we have a robust cfo council agenda item bringing people together around common challenges and creating networks amongst cfos and deputies and that we are taking our agency has often put in our government whiteheads on as needed to tackle problems more globally. but the question that he raises a good one, which is we have to take more of a multidimensional approach across councils and across government. if we try to attack things only with our audit in our finance tool bag, we are going to miss -- we're going to swing and miss if we don't have i.t. and
procurement and program are working together. and one of the things i'll mention is that one of the major elements of this administration's management agenda, which is called the accountable government initiative, one of the major elements is try to focus on the sensitization and really the high-priority goals for the federal agencies, which is a huge part of this initiative, i think helped strike that. because i think it all flows down from there. each federal agency onto the accountable government initiative was asked to develop a series of high-priority goals, a limited number of things are going to focus on going forward. and it doesn't have -- and these things to achieve them, whether it is reducing the homelessness rate at hud needs to be attacked with multiple tools. it's got to be a combined effort. and so, i think you start fostering better integration
amongst the councils and amongst the areas by setting the right goals and what we're going to be held accountable for. i think those high-priority goals by focusing in on the bottom line and program improvement allows things to come into place rather than say my high-priority goal is to make sure that this particular activity runs more efficiently, so i'm going to bring in just the cfo. it's got to be the cfo, the procurement executive, i.t., the program people all need to figure out how to make that program work more effectively and efficiently. and so, you think it really starts with the goal. >> this'll be your last question. >> i'm jason jefferson and i work in government. l.a. da did he mention about the auditors have been on the contingency basis. but i just know for my own experience and my own governments, we have a global approach because the contractor comes in and take the easiest cases, the ones i might've actually been recovering on our
own. so how do you deal with the fact that making sure those auditors that you hire are really adding to your value instead of soaking up easy cases, giving aid and not really adding much? >> that's a great question. it has to do with the fact that nothing is easy. and you have to be strategic. and you have to be business oriented. if you just say, okay, here is this framework. i'm going to hire another during the contingency basis. they're going to go out to get their recovery; autopilot and you just hope that a thick incentive structure and framework is going to work in and of itself, then you are likely to not be hitting the sweet spot in terms of your return on investment in your efficiency. you need, i think, to be successful, to understand your payment lifecycle, where is that i can deploy these auditors more effectively. i'm not going to deploy them in
a spare because that's either low risk or we can and do on our own. i'm going to deployed the elements of the scope of the contract in this particular part of my payment lifecycle. i'm going to set up my incentive structure in this particular way to make sure the relationship -- and it's a symbiotic relationship, as most affect you. so it becomes, going back to my earlier issue of the future you have the right expertise in the room, that you are thinking about things multidimensionala, as you have your ceo or your business, to make sure that you're staying ahead of the curve in terms of managing her contract, managing your activities. it's one of those things. it's not easy. it has to be done very deliberately and very smartly for going to be successful. so with that, the last question -- i just want to say looked around during my entire remarks, i didn't see one closed eye in the room. so thank thank you very much for staying awake and i appreciate your time. thank you.
[applause] >> more now on history and future of the federal budget process and possible remedies for the deficit. this is an hour. >> my name is john staley and at the pleasure be the president of the american association for budget and program analysis. welcome to our fall symposium for the budget act recovery act, a balancing act. i'd like to introduce the others at the head table here with me today. i have mehran randall who is our vice president for monthly program, melissa merrill was lester's president and add her gum, was a previous aabpa serving tonight and for the symposium. our panel today is entitled, "looking back to move forward." less formally, the good, the bad and the ugly of budgeting, what works well, not so well and what we can do to improve it.
to tackle this topic and many others, were extremely fortunate to have for budget experts with us today. robert sunshine current deputy director of the congressional budget office, barry andersen, former head of the budgeting and program expenditures division and the organization for economic development, not private consultants, transfixed with the pew charitable trust and sue irvine, director for federal issues that the u.s. government accountability address. we'll have plenty of time for questions and answers shortly. i encourage you to think about them utilize a maximum of the floor. right now that you start the session with a less formal title, the good the bad and ugly of budgeting and turn it over to marvin. marvin. >> thank you. [applause] i think milton friedman was once introduced similarly and he said he's the kind of person -- he's
the kind of person who gets applause before he speaks and silence afterwards. [laughter] but in fact, just to say a word or so about this panel, one of the big issues and organizing a panel like this is to decide the order in which people speak. and when we arrived here today, it was unclear on what kind of reason could one apply to the difficult task of figuring out which order we would speak and. when it was all settled, pretty much settled when jonathan said well, we are going to use dna werfel's performance measure, which is this panel will succeed at its end, at least half the audience is still awake. whereupon, my good friend, barry andersen seeded here, said in that case, let's have marvin go first. because of bigotry that, success is assured.
[laughter] >> actually marvin wasn't here when we picked the order. >> not true, not true. actually, i like the other -- i like a formal title for this panel better, "looking back to move forward." because i actually had some trouble with trying to apply a good, bad and ugly classification to the federal budget process. for a couple of reasons. four of the reasons i'm not sure about the hierarchy. i mean, is it true as the order seems to imply that ugly is worse than bad? i mean, because there are many parts of the budget process that i would say are so ugly that they have to be rated pg for higher, but they're not necessarily bad. some of them are fat dave. and so for me, i'm not sure i can make that hierarchy -- the classification day. i'm sure others on this panel will do a better job.
there's a second reason i think we probably agree on more than the way that good, bad and ugly fits. and that's the question of how you actually judge a budget process, how to determine whether it's a good one or bad one. i think the answer is you have to judge it as a whole rather than by the individual parts. it seems to me many budget processes are better than the sum of their parts. and the criterion i think for judging those results is, does a budget process and a budget itself succeed as forming an effect is financial plan? more specifically, does it accomplish the two key object is of budgeting, whether were talking about family or government. i think the first of those subject areas is to smooth consumption over some planning
horizon. now to avoid sounding too much like an economist i would like to restate that and say what we really mean by that smoothing consumption is can the household -- can the government plan its finances in such a way that consumption can actually be smoother than income, so that when disaster strikes, when they were comes along, when a recession occurs or when the breadwinner is lose their job, or when the price of owner-occupied mortgage falls, can we -- can we get through that. without the deprivation and sharp reduction in living standards that a better financial plan would've succeeded? does it provide consumption and financial stability? >> i think the second objective of budgeting is not so much over time, but for every point in time. and that is, does the budget process results in good choices?
do we choose those things that we really want to have, that are most effective or a guessing danny's terminology, are the best investments for many? do we get the best bang for the buck? now, i think experience suggest that you get budget processes that are more or less likely to be successful by those two criteria if they have three elements. the first one is, and i think this is absolutely the core, is there have to be limits or constraints on the resources that are to be used during the period. and i think those limits have to be acknowledged up front rather than the end. it is not budgeting to take a sequence of actions to spend money, whether it's a household for a national government. and then at the end, when the
process is finished, add the methods they will that's our limit. because all those things on which we are confronted with, that we may want to spend money for a come if they are all good things. there has to be constrained or limited budget process for it to succeed. second thing he needs and maybe this is so obvious that one shouldn't say it, but i'm a great fan of the obvious and that is that there needs to be an empowered and rational, motivated decision-maker. resource decisions don't just happen. they have to be made by someone. and they have to be made by someone who has the information or least as much information as anyone else in the group has about the choices that we're going to make. and the third thing that i think kids need, as they need comprehensive and timely recognition of the cost of every action. make a decision to do this, not
to do that. and you want to recognize that that point in time all the costs of that decision when you undertake it. i think the panel will agree, although i'm happy to be shown wrong, that recent experience suggests that there are two periods within all of our memories -- at least the members of this panel's memory, in which the budget process of the federal government works better and went to work not so good. i think the 1990s, under the budget enforcement act, were generally agreed to be. and much the budget process performs better, at least in terms of providing financial stability. maybe the choices that people make -- that we made about particular budget items weren't the greatest. maybe they didn't meet danny's requirements for best band, best value for the buck. but there was at least the fiscal stability. i think the way the bea has
played out during the period of the 2000 is a less effective -- show signs of the last effect a budget process than during the 90s. i think the bea and the 1990s had two of the essential elements that were missing and the 2000. one was there wasn't an effective constraint provided by the discretionary caps and by pedro. and second, backed by the political commitment of the president and the leadership of the congress, the budget committees were ineffective, empowered, informed committee, capable of making decisions that reflected a broad agenda. in the 1990s, i'm not sure that any of the three elements had been present. there's been little evidence there was a limit that was the set before decision-making for that anyway and was capable and
prepared to make those decisions. this has been the era of the deeming resolution, meaning that we simply demonize the resolution being adopted. moreover, when you talk to members of congress who refuse to adopt a budget, you end up with explanations like, why in two or the high cost of passing a budget resolution when it has almost no effect on subsequent fiscal decisions? i think limits are missing in the empower decision-maker were missing. i think also in both periods, we were missing this upfront measure of costs in many cases. but in two out of three is not bad for government work. thank you. [applause] >> thank you. first of all, let me say how
glad i had to be here. i'm sure you people remember "seinfeld." one of those episodes, kramer had the thing i'm doing a coffee table book on coffee tables. a great thing that i thought of in the past eight years as i traveled around the world because i thought i would do a coffee table book of the buildings house in the bureau of the budget or the budget bureau. and i went all around the world talking to people. but by the way, i really have done -- not the book, but if you want to look at the most interesting building anywhere i've ever seen, it's in berlin. because the budget office in berlin is in the old wafted building that survived the war and it's right next to the berlin wall. and they were sitting in their lunch room overlooking the berlin wall the remaining remnants of the berlin wall. but my purpose in raising this was a joke about the buildings, but rather to talk about people. the last eight years as i've been traveling around the world into buildings and talking to
people, it makes me so happy to be back here. i would do this, not trained to be an ugly american and, at. instead, i would just listen to what they have to say. and it is amazing how much review export to overseas, how they really listened to process things and adopt them. sometimes they're not always good. sometimes they misuse them. but it was never a problem for me to chat to groups like this because they knew you could understand what i was saying, where most of the time overseas i had to explain some of the ideas. so i am very happy to be here today and see this group. with that, let me start off with something that i really think that to be set up front and that is something i think you've heard many, many times before and that is the process is not the problem. the problem is the problem. and even though this is a process group and were talking about it, i think we need to
talk about the problem a little bit and tie it to the process issues. we have just had a variety of different policy proposals put forth by some commissions and groups in different people. and taken the view of the good, the bad, the ugly, but to talk about some of those. first of all, the good. i experience with commissions was not good in the past. i wasn't pleased about when i heard that the president's budget for 2011 and really didn't budget at all for the out year, just present the numbers there. didn't have any idea what to do, instead it into commission. i was thinking back on all the commissions i was familiar with what the possible exception of the budgeting commission, which actually think they do some good. i couldn't remember another positive commission that i could recall. that said, the ball defense and commission, the work they've done so far been the chairman's
release, i am incredibly impressed by. they have done such a good job, even so far. why do i say that? will first of all, they ignored the phony assignment that they were given. now it's the budget and a primary balance by 2015. look at the cbo baseline. the cbo baseline accomplishes that without doing it in. yes, you have to let laws expire that are currently in place and are due to expire. but give it a political process were facing out, that may well have been in the next month or two. what kind of target is it where it's in the baseline, you don't have to do anything for you. let alone before you know about primary deficits, not a concept that is used for coming here and the u.s., but is used variably with the imf for third world countries. that is for countries that can't quite actually get their act
together. you say well, why don't why don't you guys just try to balance the primary deficits first of all and then do something real after that. that wasn't exactly an ambitious target to give to the commission. but what did poulsen simpson do? they ignored it. they did what they should do. they did look at the larger issues, particularly the level of government issues. what level of government do we want in this country? and i don't mean today. i don't mean next year. i don't mean the year after that. the long-term issues that we are facing, mostly because of demographic -- because the social security and tax expenditures, those long-term issues you must resolve the level of government question before you can address it. i am variant oozed that the bulls defense and chairman's plan did exactly that. a book that the long-term. they looked at also tax expenditures, something i've
been talking about overseas quite a bit, next productive and from the u.s. senate won't necessarily say it's one of the better ones. they let that solvency of the social security system. and that's exactly what they should be doing, looking at the solvency and take a long-term let. i also think we went domenici to be very good job. you'll note that i'm sane praise about this, not because i went with the specific proposals. there are pluses and minuses to log on. it's rather the idea of looking at the long-term, addressing the level of government, ignoring some of the gimmicks and things that could've been done in taking a broader view. thank goodness. in fact, i'm so positive on both simpson, that i would suggest to you that a week from now, when they finally to take a vote, if the vote on the chairman's mark is 16 to two against, i will still be very good at the commission. i think they've done what
should've been done. i don't know what will come out. but even if everybody else votes against him even if the paintings nothing, i think you'll still be good. well that's the good. let's talk a bit about the bad. let me take representative sharkansky's proposal. it did not address the size of government at all. it did not address the long-term. it only attempted to look at this phony goal of balancing the budget in 2015, which can be done again without any policy proposals. there are policy proposals in it. i'm not taken a position on them. the tax increases or the spending cuts, what few there are, good for her. but it is not a serious other. also, if you look behind some of the things they've had in their printing costs and vehicle budgets, i don't think are really going to address the trillions of dollars in difficulties we are facing.
so i'm very critical of it. i would call it the bad because it really doesn't address the long-term and doesn't address the size of government issues. all right, that's bad. now what about ugly? of course those in this room, when talking about budgeting and talking about ugly, we can't get by our former vice president. deficits don't matter. i can't, even i spent a good portion of the last, five, six years, overseas, that resonated say and do the suits don't remember campy definite. to get more immediate than some of the ugly. in response to the balsams and proposals, we have the speaker of the house, ms. pelosi, saying simply unacceptable. okay fine. but where's your plan? to say something is unacceptable
and not come up with another planned, i would suggest is ugly. you had richard trumbo of the labor, saying that the bulls defense and plan basically says dropdead. well, we've all heard that language used in budgeting before. and if he doesn't like it, fine. where is his plan? what kind of spending does he want for the future? booking of revenues? we had grover norquist coming out saying own up. this is a lousy plan because it violates the no new tax pledge. another thing i absolutely love about about about and since then if they both fall into the trap of what do we do about the tax cuts? that isn't the issue? particularly if not the issue in the near term -- and in the long-term. the issue in the long-term is what can we do to change this hideous tax code that we have to make it better in terms of
raising the revenues we need for the size of government inefficient and promoting economic growth. and they both -- they both tackle that. i admire them both for doing that. mr. norquist only says that violate the tax pledge. this is what i would call it ugly. amongst these people are going to come out with an alternative themselves that addresses these positions, then taking these soundbite potshots at this, i don't think is good. so, if you don't want to cut taxes or if you don't want to increase taxes to pay for the level of government that we have now, fine, show me where you're going to cut spending. if you don't want to cut spending, then let's be upfront about how much of a tax increase it's going to take. and if you don't want to do anything, then i'm afraid that is what i would call something that belongs in the ugly category. thank you.
[applause] >> i'm delighted to be here. the last time i was here several years ago, the organization was nice enough to present me with an award for work i done at the congressional budget office joined budget estimates on the same day he presented berkey penner with an award for a paper he wrote that analyzed and was very critical of cbo's budget estimate. last night so i wasn't quite sure to take that, but i'm glad to be here today. first of all, in terms of the good, i think some historical events useful in the sense that we've actually come a long way, i think, in the last few decades. there was that working in the budget area when the budget act was initially put in place in
1974. but we've got mechanisms that are much more effect if now than we had in the decades -- several decades ago. we now have a system for looking at the budget overall rather than just one piece at a time. before 1974, committees did their thing. congress passed bills. somebody at a depth the end of the year whatever turned out to be, that was hopeless. now at least we have a system of an overall budget, sometimes and a mechanism for budget committees for pulling things together. so we now at least have a forum and a mechanism for looking at the budget as a whole. we have the congressional budget office, which provides independent cost estimates to the congress. and it doesn't have to depend on the executive branch and whatever biases there might be an estimates that it provides. and cbo is a place, i've been
there forever 33 years and i think we all ought to be proud of the things that it has done and the ability given the converse to function independently of the executive branch. we have a framework now for looking more than one year at a time. we have a budget baseline. we have budget resolution that go out over a period of a number of years. we didn't have that in the 1970s. and we have frameworks like pay-as-you-go that's in place now, that was not in place for a few years. and mechanisms that we've tried, like discretionary caps and pedro, that have worked at least at various times. so we faced some significant challenges, but we as a nation have put in place some mechanism and some procedures in some institutions that better equipped us to deal with them and we had before. on the other hand, i think we
don't have in place effective mechanisms for addressing the problems that loom 20, 30, 40 years from now. and we're already on the path towards -- ending, the problem is our day started, but there's nothing in the budget process. there's no structure, there's no mechanism. there are no agreed-upon tools for dealing with really long-term budget issues. in terms of what i think we need, the first thing i think we need to be effective in addressing our problems is a broad recognition of the problem, both in the congress and the public. and an acceptance of the fact that we are on a path that's really not acceptable over the long-term. secondly, i think we need some kind of agreed-upon targets and metrics for deciding what's a good path -- what is a good path to be on.
some people talk about let's set up a target of some percentage of debt and we need to agree on some metric that we think is inappropriate measure to use for the long-term fiscal sustainability. and we need to be, the public, congress need to grant them target. what is the right target? what is in a reasonable benchmark for us to account a shame? nominee to make some decisions. that one of the fundamental decisions of how big do we want our government to be? we are used to come over the past 30, 40 years, we've paid about 18% of gdp in taxes and other forms of revenues. we are on a path to spend maybe 25% of gdp by 2020. so do we want to -- so if we won a government there were only
willing to pay 18% of gdp for, that we've got to trim our spending by maybe a third. on the other hand, if we want to have -- if we want to have a government that's 24% or 25% of gdp, we have to increase our taxes by maybe a third. so we as a society have to make a decision to what type, what size government, what kind of services and benefits one of government to provide. and we have to bring to create a match of how much were prepared to pay and how much better received than the government. right now there's a mismatch. we're accustomed to and expect to receive much more from a government that were custom to and wish you pay to the government to provide those goods and services. and we as a society are going to have to make that judgment. we want a government that's 18 or 19% of gdp or government that's 23% or 25%? and that's the key decision i think in terms of once we decide
on a target in terms of the overall budget matcher, then we have to decide, what kind of garbage we want? and that's a big decision because it's in fact were going to match the government to the amount of revenues that we take you now or would take an undercurrent policies, that's a dramatic change in the nature of the government. on the other hand, if we want to match the tax system to the amount of the obligations and services and benefits the government is providing, that's a dramatic increase in taxes. and somewhere -- and obviously there's plenty of space in between to work out some kind of match. but that's going to be a real challenge for us as a society. and ultimately, i think the political system will only be able to do that effectively if the public is prepared to support it. and that the public is going to
say okay, i'm willing to accept -- willing to pay more taxes are willing to accept less in benefits and to some broad consensus to do that, then whatever mechanisms get put in place can work. but if the public doesn't do that, if the public says -- wants his cake -- wants to have its cake and made it to, then it's going to be very hard for the political system to enforce whatever mechanisms were put in place. and so the need for some national consensus on addressing the long-term problem i think is critical. we need a system that puts in place some kinds of mechanisms to meet them target. it has to be flexible to be able to respond to emergencies, economic disruption, wars, but not too flexible so that it can't be misused or taken advantage of to avoid the constraints. we have to control health care
costs and the other major entitlements. but cbo's most recent baseline estimates, social security, medicare, medicaid and other health programs came to 9.7% of gdp in 2012, growing to 11.5% of gdp in 2020. that's a 1.8% gdp increase. in today's dollars, that would be about $250 billion, just to keep doing what we're doing. and we have to figure out ways to constrain those programs or, less were willing to pay a lot more in taxes than we are paying now. and again, that's an important decision we have to make. and finally, as i mentioned before, i think well concerned about not just five or 10 years that were all used to thinking about budgeting, but what happens in 20 years in 30 years
in 40 years? what kind of matcher should be used to measure the sustainability or viability of the government and what kind of mechanism can we put in place so that congressional committees can actually have some kind of incentive to address problems and get credit in some kind of scorekeeping mechanism for addressing a problem that's going to occur 20, 30 or 40 years from now? [applause] >> well, it's always hard to be the last person to say something everything is inside, but something not everyone aside. first, at gao, as some of you know and tom mccabe has certainly picked up, we have for him the first long-term simulation in 1892, sorted before it went at it, took
voucher was comptroller at the time thought we needed to highlight this long-term was already been in some stress. unfortunate, it fair to measure my effectiveness by whether those reports created action, i might not be doing so well. and we of course would agree strongly in the need for education in the public. in fact, we would do the simulations we do as motivational since they go out far enough to include areas where it can't happen. but herb stein is often quoted for his famous statement that things that are sustainable tend to stop. but after brother reischauer pointed out, it matters how they saw. the soviet union was unsustainable, but were sort of lucky if petered out rather than the left. we have been very lucky and able to have a fiscal policy because for the strongest, most secure political economy in the world. and you can see that what
treasury is going for today. and every time someone makes a speech talking about how i don't know how people move their money to the euro zone as barry notes there is no euro bond market. so no matter by irish bonds or greek funds. last night where i think the public has now come to agree there's a problem -- i think they label it incorrectly. the problem is that we have to oppose that. now, that is the result of all these other actions. and when you do focus groups and surveys in all of this, which many of my colleagues do, what people think is that foreign aid makes up about 15% of the budget. and so, you know, we can get rid of fraud, waste and abuse. and sometimes i worry -- [laughter] sometimes i worry that overlap and duplication has become some, you know, the silver bullet. i'd like to sandbag -- that
said, and so i absolutely agree. i like to stand up and let that process a little bit differently. first is if anybody asks me what the greatest contribution of the 1974 act was, i would agree with rob, which is about the creation of cbo. it was the ability of congress to get independent estimates and get them on their time horizon. if you had to escalon be if they did like your proposal, and it's amazing how overworked they were. and some of you may or may not know that there was some disagreement or disconnect between the house and senate views of cbo at the time the house image was sort of a manhole cover. you draft a bill and, it's crunch in any good numbers. the incentive is a place that would be broader. and there was sort of an impasse over who would be the direct to her and into the end when brock adams became chairman, he sort
of turned to his staff and a nasty over what? and the story is that they flipped a coin and he became director. if any of you are more interested in that story, happy to talk to you later. but in terms of other good developments that have to do with what i think of as facilitating choices and understanding of comparisons, i would put credit reform on that list. now mind you, it's hard not to list credit reform is likely in the sense that it's messy. the quality of the estimates range from really good effort to rotten. but compared to an era where we treated direct loans as grants and loan guarantees as free, in which case i used to do spoof memos on creating a balanced budget amendment. the first thing we told everybody to do is create although programs to guarantees. if you notice most balanced budget amendments measure only one year at a time.
i'm a little concerned however that our discussion today is focused on the idea of a process aimed at a particular goal, a particular policy goals. the first thing for people to ask about budget process is very looking for a process that is general and will survive different times, i understand and follow, but the design goal. or you process it overlaps with enforcement for a goal you have selected in advance of designing the process? so for instance, i do not think i would agree with of the process should be sure that you move towards the process is structured, be sure you move towards sustainability. it should however highlight was real, that is where you're going, so you can discuss what you want to head off that cliff. and i think the other thing you touch your process on its does it highlight the important choices, that is, if you think
of the range of decisions, members of congress and the president have to make in this debate, you're not possibly going to re-examine everything. i mean, an equivalent of zero-based budging falls on its face gesture of overwork. but does it serve the choices you think are important? how much are we spending on investment versus consumption? what is the distributional burden? i mean, whatever you think. we at gao and the past have suggested you should be able to have good estimates that possible for the near-term and the medium-term and then you should have order of magnitude and direction for the long-term. i'll go back to that again. but i pretend a third-year estimate is anywhere near as accurate as a tenure. some programs it's easier to run plausible on long-term messages. does it allow you to compare like things on my pc is? and that is sort of what i mean about the credit reform change.
does it in fact disclose what you are putting the federal government on the hook for? this is why people like me and bury in his omb days and cbo tend to be pretty rigid about upfront funding versus incremental funding. i know it's a great benefit to agencies to pretend to lease a building for only two years at a time, even if you're planning to be there by 20, but it's more expensive for the federal government. it is -- similarly, if you want to think of some of the supposedly uses for things that are only used by the federal government, we're going to pay another company to bar the money, we borrow more cheaply than another country. so used to say to people, you have a couple of choices. you can raise taxes or cut spending and pay for it now. you can add it to the credit card and have your children pay for it later, or you can pay someone else to borrow money and have her children pay a bigger bill later.
so i don't think i would judge a process by whether they agreed with the decisions. each one of us confronted with the federal budget outlook now code, although would not be easy, maker of decisions about what this government we want and how we'd like to pay for it. but the challenge is to have a discussion like that. in africa don't we don't believe very much in the actor model of political discourse. and i don't mean by that what english language has come to think of is irrational. i mean i think it's too hard. rational actors surveilled the choices anyway that means and ways. some of us are saying this now. i think it matters which things you service, which things you pay attention to. one of the things i think it's probably both bad and ugly the past and marvin refer to is the unwillingness to use the budget resolution is a framework and
then stick to it in enforcing and enact the even one third of the budget surrenders under the appropriations. i think the reason there's no budget resolution as people know they can't enact an appropriations bill. it becomes a symbol appeared with expanding to be only acts. but if you add up all the thing that support, it doesn't. that's because the american people don't know what the composition of the budget. i think there are places where we can make improvements. we at gao have suggested you move it into something closer to a coral, something you might call the missing premiums. babbled her to member remember when the pension benefit appropriation was a profit center in the federal budget because we scored the increasing premiums on a cash flow basis. cash in -- i believe one year it was used to offset a trade agreement, which raises another problem because it lost money in five years, but not over 10. i think you want full funding
for things like military housing, corps of engineers dan. you really don't want to build a third of the dam. you want to avoid either real or magic -- imaginary class. some expirations -- if our history is that we don't like spending expirations, you don't want to score it using there's an expiration you don't believe will be allowed to take effect. on the other hand, we have to find ways to let things fade out. finally i think we can learn a lot of things from the successes and failures that margaret has pointed out. one of the big questions from the eea is the enforcement was targeted to the action. gramm-rudman went across the board, so if you're the one to me that complied with the feeling you got hit twice. da was the committee that didn't get hit. it succeeded as far as its reach and pedro, that is the constraint growth, but it did not deal with the base.
finally, i think of that to say it's important to remember that everyone wants a small government until they told. [laughter] if you read the surveys in louisiana, most of them want a very small government. but i seriously doubt that they meant or not, no support when katrina hit. we live in this country in the midst of the self-made man in the west, but the federal government built their power, built their roads, all of our road and we set aside land for the land grant colleges that educated a lot from the west. i don't think today is the same thing, but i think although we have to get to the decision about what this government you want and what you're paying for a more diverse have to rethink start with, this is what the government you're getting now is. this is how much are paying for. and go back to then barry's point which is if you don't want to pay any more in taxes, then these are the kinds of things you have to cut