The Other Red Peril Deficits, Debt and US Power. The Age of Deficits…
1 America’s National Debt. 2 Important Concepts What’s the difference between deficits and debt?...
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Transcript of 1 America’s National Debt. 2 Important Concepts What’s the difference between deficits and debt?...
2
Important Concepts
• What’s the difference between deficits and debt?
• Deficits: The annual imbalance between revenues and spending
• Debt: The accumulation of deficits over time• Public debt: Federal government securities held by
Americans and foreigners• Intragovernmental debt: Held by government trust funds
(e.g., Social Security) and other accounts
• What are “unfunded liabilities”?• Benefits (e.g., Social Security or Medicare) that have
been promised to be paid in the future, with no dedicated source of revenue to fund them
3
Projecting the Future?
• Projections of future deficits and debt are based on assumptions about the future
• Examples of assumptions that could affect projections
• Changes to current spending and tax policies• Population trends• Workforce participation rates
• Projections can be wrong—too low or too high:• Spending and tax policies may or may not change• Health care breakthroughs could change birth or death rates• Immigration policy changes could affect the age mix of the
population• People may decide to work longer and retire later
Current Policy Trends Lead to Large Sustained DeficitsFiscal Years 2009-2018
-$1,000
-$800
-$600
-$400
-$200
$0
$200
$400
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fiscal YearCBO March 2008 Baseline
The Concord Coalition Plausible Baseline assumes that discretionary spending grows at the rate of nominal GDP, that war costs slow gradually, and that all expiring tax provisions are extended with AMT relief.
Source: Congressional Budget Office, March 2008 and Concord Coalition analysis.
Bil
lion
s of
Dol
lars
$6.5 Trillion Deficit
$270 Billion Surplus
5
7
Unless Changes are Made, the National Debt Will Grow Even Faster
$0
$50
$100
$150
$200
$250
$300
$350
$400
Tri
llio
ns
of
Do
llars
1962 ‘72 ‘82 ‘92 2002 ‘12 ‘22 ‘32 ‘42 ‘50Source: Heritage Foundation; CBO data
9
Entitlement Spending is Consuming an Ever Larger Share of the Federal Budget
1966 1986 2006
Defense Social Security
Net interest
Medicare & Medicaid
All other spending
Sources: Office of Management and Budget and the Department of the Treasury.
Note: Numbers may not add to 100 percent due to rounding.
2007
Selected Federal Discretionary Spending(FY 2008 Projected)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$ B
illio
ns
Education Transpor-tation
IncomeSecurity
NaturalResources
& Env.
Veterans Foreign Aid HomelandSecurity
Science,Space, &
Technology
Source: Congressional Budget Office, January 2008*includes ground, air, and water
10
Composition of Actual FY 2007 Federal Government Revenues and Outlays (Deficit: $163 Billion)
581
561
309
549
493
238
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2,750
1163
870
370
13826
Interest
Domestic*
Social Security
Medicare & Medicaid
Other Entitlements
Defense
Estate & Gift Taxes
Other Taxes
Corporate Taxes
Social Insurance Taxes
Individual Income Taxes
Outlays: $2.73 trillion Revenue: $2.57 trillion*Includes all appropriated domestic spending such as education, transportation,
homeland security, housing assistance, and foreign aid. Source: CBO 2008.
Bil
lion
s of
Dol
lars
Current fiscal policy is on an unsustainable path
Social Security
MedicaidMedicare
All Other
Interest
Source: Government Accountability Office, March 2008
Average tax revenue
Social Security and Medicare Part A Cumulative Cash Surpluses and Deficits
In Constant 2008 Dollars—2008 through 2085
-$3,000
-$2,500
-$2,000
-$1,500
-$1,000
-$500
$0
$500
In B
illion
s o
f C
on
sta
nt
20
08
D
ollars
2008 2010 2020 2030 2040 2050 2060 2070 2080
Calendar Year
Source: Social Security Trustees’ Report—March 2008 (Intermediate Projections)
$496 Billion: Cumulative Social Security Cash Surplus
-$27 Trillion: Cumulative Social Security Cash Deficits
-$55 Trillion: Cumulative Medicare Part A Cash Deficits
-82.6 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits
13
Percent of Debt Held by the Public Owned by Foreigners
Source: United States Treasury Department
(1980-2007)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1987 1990 1993 1996 1999 2002 2005
Health-Care Costs Rise Faster than Economic Growth and are Key to Rising
Federal Spending and Debt
15
Per
cen
tage
of
GD
P
16
Medicare Obligations Will Explode as Health Care Costs Rise
0
5
10
15
2006 2010 2020 2030 2040 2050 2060 2070 2080
Calendar Year
As a
Perc
en
tag
e o
f G
DP
General Revenues required to fund the program
Income from dedicated taxes, premiums, and state transfers
Source: Medicare Trustees’ Report, 2007
17
-20
-15
-10
-5
0
5
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050Fiscal year
State and Local Government Deficits Add to Federal Fiscal Challenges
Federal Surplus/Deficit
Source: Historical data from National Income and Product Accounts, GAO Analysis.
Note: Historical data from 2000 – 2006, projections from 2007 – 2050; state and local balance measure is similar to the federal unified budget measure. Federal Simulation Assumptions: Discretionary spending grows with GDP after 2007. AMT exemption amount is retained at the 2006 level through 2017 and expiring tax provisions are extended. After 2017, revenue as a share of GDP returns to its historical level of 18.3 percent of GDP plus expected revenues from deferred taxes, i.e. taxes on withdrawals from retirement accounts. Medicare spending is based on the Trustees’ April 2007 projections adjusted for the Centers for Medicare and Medicaid Services’ alternative assumption that physician payments are not reduced as specified under current law.
Combined State, Local, and Federal
Surplus/Deficit
Percent of GDP
State Governments Face Growing Medicaid Costs, Squeezing Other Spending
18
Source: National Association of State Budget Officers, State Expenditure Report 2006
19
Current Fiscal Policy Is Unsustainable
• The “Status Quo” is Not an Option• We face large and growing structural deficits largely due to rising
health care costs and demographic trends• GAO simulations show that balancing the budget in 2040 could
require actions as large as • Cutting total federal spending by 60 percent; or• Raising federal taxes to double today's level
• Faster Economic Growth Can Help, but It Cannot Solve the Problem
• Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double digit range every year for the next 75 years
• During the 1990s, the economy grew at an average of only 3.2 percent per year
• Tough choices will be required
20
The Sooner We Get Started, the Better
• Compound interest is currently working against us
• Less change would be needed, and there would be more time to make adjustments
• Demographic changes will make reform even more difficult over time
21
Framing the Discussion
• Which Federal programs and policies should be changed and how?• Entitlement programs
• Other spending
• Tax policy
• How can budget processes and controls be reformed?
• What should be the roles of government, business and individuals in ensuring economic well-being in 21st-
century America?• Investing in the future (education, infrastructure, science,
environment, etc.)
• Providing Income Security and Good Living Standards
• Providing health care for all Americans