Figure 1: Effect of the Federal Budget Deficit on Net National Savings

lower standard of living at a time when they will face the burden of

supporting an unprecedented number of retirees as the baby boom

generation reaches retirement.

Figure 1: Effect of the Federal Budget

Deficit on Net National Savings

11.0

Percent of Net National Product

(1960-1994)

10.0

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

1960-69

1970-79

1980-89

1990-94

Savings Absorbed by the Federal Deficit

Savings Available for New Capital Formation

The problem has been that the damage done by deficits is long-term,

gradual, and cumulative in nature and may not be as visible as the

short-term costs involved in reducing deficits. This has presented, and

continues to present, a difficult challenge for public leaders who must

mount a compelling case for deficit reduction--and for the steps required

to achieve it--that can capture public support. The updated simulations

we presented to you and Chairman Domenici last spring confirmed that

the nation's current fiscal policy path is unsustainable over the longer

term. Specifically, a fiscal policy of "no action" on the deficit through 2025

implies federal spending of nearly 44 percent of GDP, and as figure 2

shows, a deficit over 23 percent of GDP.

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GAO/T-AIMD-96-66