8/7/2019 Saving For Our Future Requires Tough Choices Today (David M. Walker)
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The Hon. David M. WalkerComptroller Generalof the United States
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20%
9%
14%
30%27%
7% 15%
35% 43%
7%
32%
19%
21%
20%
Composition of Federal Spending
1965 1985 2005
Defense Social Security
Net interest
Medicare & Medicaid
All other spending
Source: Office of Management and Budget.
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Federal Spending for Mandatory andDiscretionary Programs
Net Interest Discretionary Mandatory
Source: Office of Management and Budget.
2005
7%
39%54%
1985
14%
44%
42%
1965
27%
66%
7%
Net in terest D iscretio n ary M an d ato ry
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Surplus or Deficit as a Share of GDPFiscal Years 1962-2005
-7
-6
-5
-4
-3
-2
-10
1
2
3
1962 1965 1970 1975 1980 1985 1990 1995 2000 2005Fiscal Years
O n -b u d g e t O ff-b u d g e t Un ifie d
Source: Office of Management and Budget
Percent of GDP
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Fiscal Year 2004 and 2005Deficits and Net Operating Costs
Fiscal Year2 4 Fiscal Year2 5
($ Billion)
On-Budget Deficit (568) (4 4)
Off-Budget Surplus* 55 175
Unified Deficit (413
) (3
18)
Net Operating Cost (616) (76 )
*Includes $151 billion in fiscal year2
4 and $173 billion in fiscal year2
5 in Social Security surpluses and $4 billion in fiscal year2
4and $2 billion in fiscal year2
5 in Postal Service surpluses.
Sources: The Office of Management and Budget and the Department of the Treasury.
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Estimated Fiscal Exposures($ trillions)
2 2 5
Explicit liabilities $6.9 $9.9
Publicly held debt Military & civilian pensions & retiree health
Other Commitments & contingencies .5 0.9
E.g., PBGC, undelivered orders
Implicit exposures 13.0 35.6
Future Social Security benefits 3.8 5.7
Future Medicare Part A benefits 2.7 8.8
Future Medicare Part B benefits 6.5 12.4
Future Medicare Part D benefits -- 8.7
Total $20.4 $46.4
Source: U.S. governments consolidated financial statements (CFS).
Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year as reported in the CFS andall other data are as of September30.
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How Big is OurGrowing Fiscal Burden?
2000 2005
Total Fiscal Exposures $20.4 trillion $46.4 trillion
Burden
PerPerson $72,000 $156,000
PerFull-time Worker $165,000 $375,000
Per Household $189,000 $411,000
Source: GAO analysis.
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Composition of Spending as a Share of GDPUnder Baseline Extended
Fiscal yea r
Revenue
Social Security
Medicare &MedicaidNetInterest
All other spending
PercentofGDP
Notes: In additiontothe expirationoftax cuts, revenue as a share ofGDP increases through 6 due to( ) real bracket creep,(2)more taxpayersbecoming subjecttothe AMT, and(3) increased revenue fromtax-deferred retirement accounts. After2 6, revenue as a share of GDP is heldconstant.
Source: GAOs January 2 6 analysis.
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Composition of Spending as a Share of GDPAssuming Discretionary Spending Grows with GDP after 2006
and All Expiring Tax Provisions are Extended
3
3F i
l
R v nu
So i l S u it
M di & M di idN t Int t
All oth p nding
Percent of GDP
Note: Thi includescert
in t
x provisions th
t expired
t theend of , such
s the increased AMT exemption amount.
Source: GAOs January
6analysis.
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Growth in Spending for Social Security,Medicare, and Medicaid Expected to
Outpace Economic Growth
%
%
%
%
%%
3 %
3 %
G Social SecuritySpending
MedicaidSpending
MedicareSpending
Note: Social Security and Medicare projections based on the intermediate assumptions of the 2005 TrusteesReports. Medicaidprojections based on CBOs December2003 long-term projections for federal spending on Medicaid under mid-rangeassumptions.
Source: GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration, Office of the Actuary,
Centers for Medicare and Medicaid Services, and the Congressional Budget Office.
Growth in constant dollars 2005-2030
72%
147%166%
331%
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Social Security, Medicare, and MedicaidSpending as a Percent of GDP
1
1
1 4 6 8
Percent of GDP
Social Security
Medicaid
Medicare
Source: GAO analysis based on data from the Office of the Chief Actuary, Social Security Administration, Office of the Actuary, Centers for
Medicare and Medicaid Services, and the Congressional Budget Office.
Note: Social Security and Medicare projections based on the intermediate assumptions of the 2006 Trustees Reports. Medicaid projectionsbased on CBOs January 2006 short-term Medicaid estimates and CBOs December 2005 long-term Medicaid projections under mid-range
assumptions.
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Slide 11
GAO2 Medicaid data (from DM #1501704, tab "Scenario 2", col. E & T)
Social Security, 2000-2005, see DM #1580398, tab "historical data" col. W. For 2006-2080, see tab VI.F4, col. E. MW 5/2/06
Medicare, 2000-2080 updated. See DM #1583396, tab "GDP", col. K MW 5/4/06
Social Security & Medicare & Medicaid data traced to source & formula for SS historical verified;
ok JAA 5/5/06GAO, 5/5/2006
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Debt per Capita Could Exceed GDP Per Capita by 20 0Assuming Discretionary Spending Grows with GDP after 2006
and All Expiring Tax Provisions are Extended
0
2 ,000
50 ,000
75 ,000
100 ,000
12 ,000
1 0 ,000
175 ,000
200 ,000
200 20 0 20 0
Debt per Capita GDP per Capita
Source: GAOs January 2006 analysis.
Per capita 2005 dollars
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Measured on an Outlay Equivalent Basis,TaxExpenditures Exceeded Discretionary
Spending for Most Years in the Last Decade
0
200
400
600
8001000
1200
1400
1600
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
2000
2001
2002
2003
2004
Fiscal Y ar Mandator
ndingDiscr
tiona r
spendingS um of tax expenditure ou tlay e quivalent estimates
Dollars in billions (in constant 2004 dollars)
Note: Outlay-equivalent estimates represent the amount of budget outlays that would be required if the government were toprovide taxpayers with the same after-tax income they receive through the tax expenditure. Outlay-equivalent estimates areuseful to compare tax expenditures and other parts of the federal budget. Summing tax expenditure estimates does not take intoaccount interactions between individual provisions.
Source: GAO Analysis of OMBs Budget Reports on Tax Expenditures, Fiscal Years 1976-2006.
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Health Care Is the Nations Top TaxExpenditure in Fiscal Year 2005
..
.4
11 .4 *
41 . **4
1
1
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Current Fiscal Policy Is Unsustainable
The Status Quo is Not an Option We face large and growing structural deficits largely due to known
demographic trends and rising health care costs.
GAOs 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 2 times today's level
FasterEconomic Growth Can Help, but It Cannot Solve theProblem
Closing the current long-term fiscal gap based on reasonable assumptionswould require real average annual economic growth in the double digitrange every year for the next 75 years.
During the 1990s, the economy grew at an average 3.2 percent per year.
As a result, we cannot simply grow our way out of this problem. Toughchoices will be required.
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The Way Forward:Three Pronged Approach
Re-impose Budget Controls Discretionary spending caps
PAYGO rules on both sides of the ledger(both historical and enhanced approaches)
Mandatory spending triggers and appropriate default mechanisms
Modified rules for selected items(e.g., earmarks and emergency designations)
Improve Accounting and Reporting and Metrics: Enhanced financial statement presentation Automatic present value disclosures for legislative debate on major tax and spending bills Issue a summary annual report that is useful and used Develop key national (outcome-based) indicators
Re-examine Policies and Programs: Restructure existing entitlement programs Reexamine the base of all other spending programs Review and revise existing tax policy, including tax preferences and enforcement programs Expand scrutiny of proposed new programs, policies, or activities
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Key National Indicators
WHAT: A portfolio of economic, social, and environmental outcome-basedmeasures that could be used to help assess the nations and other governmentaljurisdictions position and progress
WHO: Many countries and several states, regions, and localities have already
undertaken related initiatives (e.g., Australia, New Zealand, Canada, UnitedKingdom, Oregon, Silicon Valley (California) and Boston).
WHY: Development of such a portfolio of indicators could have a number ofpossible benefits, including
Serving as a framework for related strategic planning efforts
Enhancing performance and accountability reporting
Informing public policy decisions, including much needed baseline reviews of existinggovernment policies, programs, functions, and activities
Facilitating public education and debate as well as an informed electorate
WAY FORWARD: Consortium of key players housed by the National Academiesdomestically and related efforts by the OECD and others internationally.
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Key National Indicators:Where the Worlds Sole Superpower Ranks
The United States may be the only superpower, but compared tomost other OECD countries on selected key economic, social,and environmental indicators, on average, the U.S. ranks
OECD Categories for Key Indicators(2006 OECD Factbook)
Population/Migration Energy Environment Quality of Life
Macroeconomic Trends Labor Market Education Economic
Globalization
Prices Science & Tech. Public Finance
:
16 OUT OF2816 OUT OF28
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21st Century Challenges Report
Provides background, framework,and questions to assist in
reexamining the base
Covers entitlements & othermandatory spending, discretionaryspending, and tax policies andprograms
Based on GAOs work for theCongress
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Moving the Debate Forward
The Sooner We Get Started, the Better
The miracle of compounding is currently working against us
Less change would be needed, and there would be more time to
make adjustments Our demographic changes will serve to make reform more difficult
over time
Need Public Education, Discussion, and Debate
The role of government in the 21st Century
Which programs and policies should be changed and how
How government should be financed
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21TOLES 2006 The Washington Post.Reprinted with permission of UNIVERSAL PRESS SYNDICATE. All rights reserved.
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The Hon. David M. WalkerComptroller Generalof the United States
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