Rising Debt: Sinking our Future?

presented by Sara Imhof, Midwest Regional Director THE CONCORD COALITION www.concordcoalition.org Rising Debt: Sinking our Future?

About The Concord Coalition
The Concord Coalition is a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy. The Concord Coalition was founded in 1992 by the late former Senator Paul Tsongas (D-Mass.), former Senator Warren B. Rudman (R-N.H.) and former U.S. Secretary of Commerce Peter Peterson. Former Senator Bob Kerrey (D-Ne.) became co-chair of the Concord Coalition in January 2002.

Current Fiscal Policy $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 In billions of 1996 constant (chain) dollars 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Fiscal Years

Gross National Debt 1980-2010 Source: Office of Management and Budget 2010.

Debt Held by the Public as a Percent of GDP 1940-2010 Source: OMB Historical Tables 2009. As a Percentage of GDP

Debt Held by the Public as a Percent of GDP 1940-2040 Source: GAO Analysis, 2010 and OMB Historical Tables 2010. As a Percentage of GDP Actual Projected World War II 108.6% 2010 63.6%

National Saving Is Very Low by Historical Standards Source: BEA, NIPA Tables 1.1.5 and 5.1 (2010).

Composition of Projected FY 2010 Federal Government Revenues and Outlays (Deficit: $1.34 Trillion) Estate & Gift Taxes ($21 billion) Other Taxes Corporate Taxes Social Insurance Taxes Individual Income Taxes Outlays: $3.49 trillion Revenue: $2.14 trillion *Includes all appropriated domestic spending such as education, transportation, homeland security, housing assistance, and foreign aid. Source: CBO August 2010. Interest Domestic* Social Security Medicare & Medicaid Other Entitlements Defense

Federal Spending vs. Revenues as a Percent of GDP (FY 1980-2020) CBO August Baseline Compared to the President’s Budget  CBO August 2010 Baseline  CBO’s Estimate of the President’s Budget Source: Congressional Budget Office, August 2010.. Average outlays: 21.0% Average revenues: 18.3% Percentage of GDP Actual Projected

Percent of Debt Held by the Public Owned by Foreigners (1987-2010) Source: United States Treasury Department, Treasury Bulletin, September 2010. Percentage of Ownership of Publicly-Held Debt

Interest Costs Go Through The Roof Source: Congressional Budget Office August 2010 and CBO’s Analysis of the President’s Budget, March 2010. Billions of Dollars

Without reforms, by 2022, future revenues will only cover Social Security, Medicare, Medicaid, and interest on the debt. By 2046, revenues won’t even cover interest costs. 5

Social Security, Medicare, & Medicaid as a Percentage of the Federal Budget All other Federal Spending $2.07 Trillion 59% Social Security, Medicare and Medicaid $1.42 Trillion 41% Source: Congressional Budget Office, August 2010.

Mandatory spending is consuming a growing share of the budget 62% 31% 7% 40% 15% 45% 39% 6% 55% Source: Congressional Budget Office, January 2010. 1970 1990 2010 Mandatory Discretionary Net Interest

Outlays of Select Mandatory Spending Programs (FY 2010 Projected) Source: Congressional Budget Office, January 2010.

Change in Composition of Discretionary Spending 68% 32% 60% 40% 50% 50% Defense Non-defense Source: Congressional Budget Office, January 2010.

Defense Discretionary Spending as a Percentage of GDP Source: Congressional Budget Office, August 2010. As a Percentage of GDP

Projected Growth in Entitlement Spending far Greater than Defense Spending Source: Government Accountability Office and Congressional Budget Office. 2010.

Non-Defense Discretionary Spending as a Percentage of GDP Source: Congressional Budget Office, January 2010. As a Percentage of GDP

Outlays of Select Non-Defense Discretionary Programs (FY 2010 Projected) Source: Congressional Budget Office, January 2010. *includes ground, air, and water Education Transportation Housing, Natural Veterans Foreign Aid General Science, Energy & Resources Government Space & Nutrition Asst. Technology

Automatic Growth Rate in the Big Three Entitlements Swamps Growth of Appropriations Projected Annual Growth Rate in Social Security, Medicare and Medicaid Annual Growth Rate in Social Security, Medicare and Medicaid outlays Plausible Annual Growth Rate in Discretionary Spending Source: Congressional Budget Office, January 2010.

Americans Want to Cut Spending – But Not on the Programs That Cost the Most Source: The Economist/YouGov Poll, April 2010 and Congressional Budget Office, January 2010.

America’s Population is Aging Population age 65 and Over Source: Social Security and Medicare Trustees’ Report, 2010. Year Percentage of Population Aged 65 and Over

Americans are living longer and having fewer children
Consequently, fewer workers are available
to support each Social Security recipient
1960: 5.1 to 1 Today: 3.1 to 1 2029: 2.2 to 1 Source: Social Security Administration, June 2010.

Since its inception, the Social Security program has experienced more surpluses than deficits 7

In the future, persistent cash deficits are projected for Social Security In 2015, OASDI will begin operating with a permanent cash flow deficit. 8

Health Care Costs are Rising Faster Than the Economy Source: Congressional Budget Office, June 2009. Percentage of GDP Historic Level of Federal Revenues Historic Level of Federal Spending Assumes that health care cost growth will not exceed GDP growth. Assumes that health care cost growth continues at the average rate for the past 40 years (2.5 percentage points greater than GDP growth.) Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth—consistent with the assumption used by the Medicare Trustees.

Medicare’s Fiscal Future Relates to ALL of us

U.S. spends much more, doesn’t get more Source: UC Atlas of Global Inequality

Medicare Costs Soar in the Coming Decades Calendar Year As a Percentage of GDP General Revenues required to fund the program Income from dedicated taxes, premiums, and state transfers Source: Medicare Trustees’ Report, May 2009.

Health Expenditures as a Percent of GDP (1960-2019) *Projected Source: Centers for Medicare and Medicaid Services, September 2010.

How Paying for Health Care Has Changed (1960-2008) Source: Centers for Medicare and Medicaid Services.

Almost three out of every ten Medicare dollars is spent for people who are in the last year of life SOURCE: Data from the Center for Medicare & Medicaid Services, Office of the Actuary Last Year of Life Study . Compiled by PGPF. NOTE: Data estimated for 2009, the most recent available. *Decedents. **Survivors. 17

Current fiscal policy is on an unsustainable path Federal Outlays as a Percentage of GDP Social Security Medicaid Medicare All Other Interest Source: Government Accountability Office, 2010. Average tax revenue

Key Points of Agreement from across the aisle, various personal and political perspectives
Current fiscal policy is unsustainable
There are no easy solutions, such as cutting waste fraud and abuse or growing our way out of the problem.
Finding solutions will require bipartisan cooperation and a willingness to discuss all options.
Public engagement and understanding is vital in finding solutions.
This is not about numbers. It is a moral issue.

Popular Myths that Impede Action
Myth: We can grow our way out of difficult budget choices.
Myth: Eliminating waste in government programs will solve the deficit problem.
Myth: The deficit problem can be solved by delivering health care more efficiently.
Myth: We just need to raise taxes starting with rolling back some or all of the Bush tax cuts.
Myth: Cutting taxes will increase revenues.

Long-Term Solutions
Mandatory spending drives the long-term problem
Social Security – solutions are known, political will lacking
More and more health care reform
Finish tax reform, might need to add-on (energy, V.A.T.)

How Can I Make a Difference?
Visit www.concordcoalition.org to learn more about these fiscal issues and sign up for our weekly e-mail.
Become a volunteer for the Concord Coalition and help us give the country a fiscal wake-up call.
Discuss the issue of fiscal responsibility with friends, family, and other members of your community.
Tell your Representative and Senators in Congress that we need strong leadership for fiscal responsibility.
Take personal responsibility for your own retirement and start saving now.
Become a Member of The Concord Coalition. We need your support!

The Concord Coalition is the most respected voice of fiscally responsible policy because it is a collection of many voices.
We rely on your support to help us continue our role as non-partisan analysts, educators and advocates.
And, this year, your contribution goes further, as all new and increased gifts are matched dollar for dollar
by The Peter G. Peterson Foundation.
To make your gift, go to concordcoalition.org and click on

Principles & Priorities Interactive Exercise
Congratulations!
You are now a member of Congress assigned to special committees charged with finding ways to reduce the projected federal deficit.
Consider
Economics : how will your decision affect the economy in the short term & long term?
Public Policy : what segment of the population wins or loses by your decisions (e.g., taxpayers, seniors, students, middle-class, sandwich generation, etc.)?
Politics : will you be re-elected? Can you explain to your constituents why you made your decisions?

Federal Revenue and Spending (FY2009) Revenues $ Bil % Spending $ Bil % Individual Income Taxes Health Care Payroll Taxes (SI, Medicare, & FICA) Social Security Other Taxes National Defense Corporate Income Taxes Income Security Total Revenue Other Interest Education Environmental International Affairs Total Outlays

Federal Revenue and Spending (FY2009) Revenues $ Bil % Spending $ Bil % Individual Income Taxes 915 26 Health Care 764 22 Payroll Taxes (SI, Medicare, & FICA) 891 25 Social Security 683 19 Other Taxes 161 5 National Defense 663 19 Corporate Income Taxes 138 4 Income Security 534 15 Total Revenue 2105 60 Other 526 15 DEFICIT 1417 40 Interest 191 6 Education 78 2 Environmental 46 1 International Affairs 37 1 Total Outlays 3522 100

Current Policy Trends Lead to Large Sustained Deficits Fiscal Years 2011-2020 CBO August 2010 Baseline The Concord Coalition Plausible Baseline assumes that discretionary spending grows at the rate of nominal GDP, that war costs slow gradually, that Medicare physician payment cuts are postponed, and that all expiring tax provisions (including those from the 2009 stimulus package) are extended with AMT relief. Source: Congressional Budget Office, August 2010 and Concord Coalition analysis. Billions of Dollars -$15.2 Trillion Deficit -$6.2 Trillion Deficit

Your Personal Priorities
Health
Medicare, Medicaid, safety-health inspections, veterans health
International Affairs
Internat’l dev’t/humanitarian assistance, internat’l security assistance, conducting foreign affairs and internat’l financial programs, etc.
Income Security
Unemployment comp., housing assistance, food stamps, nutrition programs, gen’l retirement/disability insurance (excluding SS), etc.
Education
All Dept. of Education spending
Interest
Interest on our debt (i.e., borrowed funds)
Other
Domestic homeland security, science and space technology, NIH, postal service subsidies, job training, general gov’t, etc.
Tax/Spending
Tax increases, spending cuts, combination of both?

Principles & Priorities
General Gov’t Spending
Options: 1 OR 2, 5, 7, 10, 12
National Defense / Homeland Security
Options: 15, 17, 20, 22
Revenues / Taxes
Options: 25 OR 26, 30
Entitlements (SS, Medicare, Medicaid)
Options: 33, 35, 37
Calculate your expenditures or savings (p. 11)… (IGNORE #6)
One person per committee to report out about fiscal policy decisions and group deliberations…

Discussion
How did your fiscal policy decisions reflect (or NOT) your previously stated priorities?
If not, which would you rather adjust your priorities or your fiscal policy decisions?
More taxes or less spending?
Were you more concerned about SHORT-term problems or LONG-term problems?
Do you think most members of Congress are concerned with short- or long-term problems?
Hard to do? Empathy for your elected officials?

Rising Debt: Sinking our Future?

by Paul Simon Public Policy Institute

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