Summary: Combating terrorism and ensuring homeland security have created urgent claims on the nation's attention and on the federal budget. Although an economic recovery seems to be underway, the recession that began last spring has had real consequences for the budget. At the same time, the fiscal pressures created by the retirement of the baby boomers and rising health care costs continue unchanged. However, the surpluses also put the nation in a stronger position to respond to the events of September 11 and to the economic slowdown. The nation's commitment to surpluses will be tested. A return to surplus will require sustained discipline and difficult choices. Because the longer-term outlook is driven in large part by known demographic trends, the outlook 20 years from now is surer than the forecast for the next few years. The message of GAO's updated simulations remains the same as last year: absent structural changes in entitlement programs for the elderly, persistent deficits and escalating debt will overwhelm the budget in the long term. Both longer-term and new commitments undertaken after September 11 sharpen the need for competing claims and new priorities. A fundamental review of existing programs and activities is necessary both to increase fiscal flexibility and to make government fit the modern world. Stated differently, there is a need to consider the proper role of the federal government in the 21st century and how government should do business. The fiscal benchmarks and rules that moved the country from deficit to surplus expire this fiscal year. Any successor system should include a debate about reprioritization today and a better understanding of the long-term implications of different policy choices. Many things that the nation may be able to afford today may not be sustainable in the future.
