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Panel warns of looming financial crisis in U.S.

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The Government Accountability Office estimates the national debt could become 600 percent of the gross domestic product over the next 40 years. (File photo)
Federal budget experts speaking at a conference in Minneapolis offered a bleak forecast for the nation's fiscal health. The panel included representatives from both conservative and liberal organizations. Despite their political differences, they generally agreed the country faces a looming financial crisis, and elected officials aren't making the tough choices required to fix the problem. The panel spoke at the University of Minnesota's Humphrey Institute on Monday

Minneapolis, Minn. — U.S. Comptroller General David Walker doesn't mince words when talking about the nation's financial condition.

"We are on an imprudent and unsustainable path. Every day, it's getting worse," says Walker, who heads the Government Accountability Office, which audits the federal government.

Walker says most of the U.S. budget is on autopilot, consumed by the three massive entitlement programs of Social Security, Medicare and Medicaid. Walker says the budget deficit is down from last year's record high of $412 billion, but he warns the deficit could still balloon in the future, as 77 million baby boomers hit retirement age.

"We have not yet begun to face the demographic tidal wave -- the demographic tsunami, if you will -- associated with the retirement of my generation, the baby-boom generation," according to Walker.

Walker says rising health care costs threaten to bankrupt the country long-term. He's also concerned about the cost of the Medicare prescription drug benefit set to begin in January. Walker and other budget experts say the situation isn't hopeless if elected officials are willing to confront the problem. But the solutions aren't easy.

Isabel Sawhill, director of Economic Studies at the liberal Brookings Institution, says the nation can't simply rely on economic growth to generate enough taxes to solve the problem. She says there is some federal pork that can be cut, but simply trimming spending won't close the gap.

"Eventually taxes must be raised and spending cut. The sooner that's done, the less costly and painful it will be, and we need presidential leadership and bipartisan compromise to get all of that done," says Sawhill.

We have not yet begun to face the demographic tidal wave ... associated with the retirement of my generation -- the baby-boom generation.
- U.S. Comptroller General David Walker

Sawhill says both Republicans and Democrats will have to fix the problem together, to provide political cover for making the tough choices.

Brian Riedl, the lead budget analyst at the conservative Heritage Foundation, says there's not much appetite for that among lawmakers in Washington.

"There is not much courage out there," according to Riedl. "They will go whichever way the wind is blowing on a lot of these issues. And if they're not hearing it from the grassroots, and they're not hearing any pressure, they're going to focus on the political calendar, they're not going to focus on the long term."

Riedl and other budget experts say without public pressure, Congress and the president will delay the difficult decisions. The panel members said they want to see more public debate on the nation's fiscal woes. But Riedl acknowledges that won't make the medicine any easier to swallow.

"Like an alcoholic, the first thing you have to do it admit you have a problem ... The flip side of it is, Americans are vehemently opposed to every possible solution," he says.

Riedl's organization has critized the Bush administration for the growth in government spending. But Riedl gives President Bush credit for proposing Social Security reform, even though the plan went nowhere. Riedl says reforming the entitlement programs is critical. For example, he says the Medicare drug benefit should be limited to low-income seniors. But unless elected leaders reduce the nation's fiscal obligations, future generations will face the consequences of an ever-expanding federal debt.

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