This is the accessible text file for CG Presentation number GAO-08-
234CG entitled 'Saving Our Future Requires Tough Choices Today' which
was released on October 25, 2007.
United States Government Accountability Office:
GAO:
Saving Our Future Requires Tough Choices Today:
University of Hartford:
Hartford, CT:
October 23, 2007:
The Honorable David M. Walker:
Comptroller General of the United States:
GAO-08-234CG:
Composition of Federal Spending:
[See PDF for image] - graphic text:
There are three pie charts, containing the following compositions of
spending by category:
Year: 1966;
Defense: 43%;
Social Security: 15%;
Medicare and Medicaid: 1%;
Net Interest: 7%;
All Other: 34%.
Year: 1986;
Defense: 28%;
Social Security: 20%;
Medicare and Medicaid: 10%;
Net Interest: 14%;
All Other: 29%.
Year: 2006;
Defense: 20%;
Social Security: 21%;
Medicare and Medicaid: 19%;
Net Interest: 9%;
All Other: 32%.
Source: Office of Management and Budget and the Department of the
Treasury.
[End of figure]
Federal Spending for Mandatory and Discretionary Programs:
[See PDF for image] - graphic text:
There are three pie charts, containing the following compositions of
spending by category:
Year: 1966;
Discretionary: 67%;
Mandatory: 26%;
Net Interest: 7%.
Year: 1986;
Discretionary: 44%;
Mandatory: 42%;
Net Interest: 14%.
Year: 2006;
Discretionary: 38%;
Mandatory: 53%;
Net Interest: 9%.
Source: Office of Management and Budget.
[End of figure]
Table: Fiscal Year 2005 and 2006 Deficits and Net Operating Costs:
On-Budget Deficit, Fiscal Year 2005 ($ Billion): (494);
On-Budget Deficit, Fiscal Year 2006 ($ Billion): (434);
Unified Deficit[a], Fiscal Year 2005 ($ Billion): (318);
Unified Deficit[a], Fiscal Year 2006 ($ Billion): (248);
Net Operating Cost[b], Fiscal Year 2005 ($ Billion): (760);
Net Operating Cost[b], Fiscal Year 2006 ($ Billion): (450);
Sources: Office of Management and Budget and Department of the
Treasury.
[a] Includes $173 billion in Social Security surpluses for fiscal year
2005 and $185 billion for fiscal year 2006; $2 billion in Postal
Service surpluses for fiscal year 2005 and $1 billion for fiscal year
2006.
[b] Fiscal year 2005 and 2006 net operating cost figures reflect
significant but opposite changes in certain actuarial costs. For
example, changes in interest rates and other assumptions used to
estimate future veterans’ compensation benefits increased net operating
cost by $228 billion in 2005 and reduced net operating cost by $167
billion in 2006. Therefore, the net operating costs for fiscal years
2005 and 2006, exclusive of the effect of these actuarial cost
fluctuations, were ($532) billion and ($617) billion, respectively.
[End of table]
Table: Major Fiscal Exposures ($ trillions):
Explicit liabilities (Publicly held debt, Military & civilian pensions
& retiree health, Other):
2000: $6.9;
2006: $10.4;
Percent increase: 52.
Commitments & contingencies (e.g., PBGC, undelivered orders):
2000: 0.5;
2006: 1.3
Percent increase: 140.
Implicit exposures:
2000: 13.0; (Future Social Security benefits: 3.8; Future Medicare Part
A benefits: 2.7; Future Medicare Part B benefits: 6.5; Future Medicare
Part D benefits: 0).
2006: 38.8; (Future Social Security benefits: 6.4; Future Medicare Part
A benefits: 11.3; Future Medicare Part B benefits: 13.1; Future
Medicare Part D benefits: 7.9).
Percent increase: 197.
Total, 2000: $20.4;
Total, 2006: $50.5;
Percent increase: 147.
Source: 2000 and 2006 Financial Report of the United States Government.
Note: Totals and percent increases may not add due to
rounding.Estimates for Social Security and Medicare are at present
value as of January 1 of each year and all other data are as of
September 30.
[End of table]
Table: How Big is Our Growing Fiscal Burden?
This fiscal burden can be translated and compared as follows:
Total major fiscal exposures: $50.5 trillion;
Total household net worth[1]: $53.3 trillion;
Burden/Net worth ratio: 95 percent.
Burden[2]:
Per person: $170,000;
Per full-time worker: $400,000;
Per household: $440,000.
Income:
Median household income[3]: $46,326;
Disposable personal income per capita[4]: $31,519.
Source: GAO analysis.
Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100,
2006:Q2 (Sept. 19, 2006); (2) Burdens are calculated using estimated
total U.S. population as of 9/30/06, from the U.S. Census Bureau; full-
time workers reported by the Bureau of Economic Analysis, in NIPA table
6.5D (Aug. 2, 2006); and households reported by the U.S. Census Bureau,
in Income, Poverty, and Health Insurance Coverage in the United States:
2005(Aug. 2006); (3) U.S. Census Bureau, Income, Poverty, and Health
Insurance Coverage in the United States: 2005(Aug. 2006); and (4)
Bureau of Economic Analysis, Personal Income and Outlays: October 2006,
table 2, (Nov. 30, 2006).
[End of table]
Potential Fiscal Outcomes Under Baseline Extended (January 2001);
Revenues and Composition of Spending as a Share of GDP.
[See PDF for image] - graphic text.
This is a line/stacked bar graph with one line (revenue) and four
stacked bars containing four spending items (Net interest, Social
Security, Medicare and Medicaid, and All other spending). The vertical
axis represents Percent of GDP and the horizontal axis represents
fiscal years 2005, 2015[a], 2030[a], and 2040[a].
Source: GAO’s January 2001 analysis.
[a] All other spending is net of offsetting interest receipts.
[End of graph]
Potential Fiscal Outcomes Under Alternative Simulation; Revenues and
Composition of Spending as a Share of GDP.
[See PDF for image] - graphic text.
This is a line/stacked bar graph with one line (revenue) and four
stacked bars containing four spending items (Net interest, Social
Security, Medicare and Medicaid, and All other spending). The vertical
axis represents Percent of GDP and the horizontal axis represents
fiscal years 2006, 2015, 2030, and 2040.
Source: GAO’s August 2007 analysis.
Notes: 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.
[End of graph]
State and Local Governments Face Increasing Fiscal Challenges:
[See PDF for image] - graphic text.
This is a line graph with two lines (Operating Surplus/Deficit Measure
and Net-lending/Net-borrowing). The vertical axis represents Percent of
GDP from -6 to +2 and the horizontal axis represents fiscal years 1980
through 2050.
Sources: Historical data from National Income and Product Accounts.
Historical data from 1980–2006, GAO projections from 2007–2050 using
many CBO projections and assumptions, particularly for next 10 years.
[End of graph]
State and Local Fiscal Challenges Add to the Federal Government’s
Fiscal Challenge:
[See PDF for image] - graphic text.
This is a line graph with two lines (Federal Surplus/Deficit and
Combined Surplus/Deficit). The vertical axis represents Percent of GDP
from -20 to +5 and the horizontal axis represents fiscal years 2000
through 2050.
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.
[End of graph]
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.
- GAO’s 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.
* 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 3.2 percent per
year.
- As a result, we cannot simply grow our way out of this problem. Tough
choices will be required.
The Way Forward: A Three-Pronged Approach:
1. Improve Financial Reporting, Public Education, and Performance
Metrics.
2. Strengthen Budget and Legislative Processes and Controls.
3. Fundamentally Reexamine & Transform for the 21st Century (i.e.,
entitlement programs, other spending, and tax policy).
Solutions Require Active Involvement from both the Executive and
Legislative Branches.
Key National Indicators:
* What: A portfolio of economic, social, and environmental outcome-
based measures that could be used to help assess the nation’s and other
governmental jurisdictions’ position and progress;
* Who: Many countries and several states, regions, and localities have
already undertaken related initiatives (e.g., Australia, New Zealand,
Canada, United Kingdom, Oregon, Silicon Valley (California) and
Boston);
* Why: Development of such a portfolio of indicators could have a
number of possible 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 existing government 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
Academies domestically and related efforts by the OECD and others
internationally.
Key National Indicators: Where the United States Ranks:
The United States may be the only superpower, but compared to most
other OECD countries on selected key economic, social, and
environmental indicators, on average, the U.S. ranks 16 out of 28.
OECD Categories for Key Indicators (2006 OECD Factbook):
* Population/Migration;
* Energy;
* Environment;
* Labor Market;
* Education;
* Public Finance;
* Science & Tech.;
* Quality of Life;
* Macroeconomic Trends;
* Economic Globalization
* Prices.
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.
These Challenges Go Beyond Numbers and Dollars—It’s About Values and
People.
{End of presentation]
On the Web:
Web site: [hyperlink, http://www.gao.gov/cghome.htm]:
Contact:
Susan Becker, Acting Manager, Public Affairs:
BeckerS@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
Copyright:
This is a work of the U.S. government and is not subject to copyright
protection in the United States. The published product may be
reproduced and distributed in its entirety without further permission
from GAO. However, because this work may contain copyrighted images or
other material, permission from the copyright holder may be necessary
if you wish to reproduce this material separately.