David Walker: "America at a Crossroads" Lecture 1/9/12
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David Walker: "America at a Crossroads" Lecture 1/9/12

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The Center welcomed Hon. David M. Walker, Founder and CEO of Comeback America Initiative and Former Comptroller General of the United States, for a Pre-NH Primary Discussion: "America at a Crossroads: ...

The Center welcomed Hon. David M. Walker, Founder and CEO of Comeback America Initiative and Former Comptroller General of the United States, for a Pre-NH Primary Discussion: "America at a Crossroads: The Fiscal Challenges and a Way Forward". The event was held on Monday, January 9th in Filene Auditorium, Dartmouth College.

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David Walker: "America at a Crossroads" Lecture 1/9/12 David Walker: "America at a Crossroads" Lecture 1/9/12 Presentation Transcript

  • Comeback America: The Nation’s Fiscal Challenge and A Way Forward America at a Crossroads: Turning the Country Around and Restoring Fiscal Responsibility Dartmouth College Hanover, NH January 9, 2012 Hon. David M. Walker Founder and CEO The Comeback America Initiative and Former Comptroller General of the United States
  • Iowa’s Economic Concerns The price of gasoline Other The stock market No opinion 1% 2% 1% 3% 13% Taxes Unemployment The Federal Budget Deficit 20% 60%Source: CNN/ ORC, Polls, Iowa & New Hampshire, Period Dec. 21-27, 2011. Compiled by TCAII.Note: Mortgages and housing was under 1% and excluded from the graphic. Question posed was “thinking specifically about the economy, which of the followingis the most important economic issue facing the country today?” 2
  • New Hampshire’s Economic Concerns Mortgages and housing costs The price of gasoline Other The stock market 3% 2% 1% 5% 8% Taxes The Federal 49% Budget Deficit Unemployment 31%Source: CNN/ ORC, Polls, Iowa & New Hampshire, Period Dec. 21-27, 2011. Compiled by TCAII.Note: No opinion was under 1% and excluded from the graphic. Question posed was “thinking specifically about the economy, which of the following is the most importanteconomic issue facing the country today?” 3
  • 4 MythsThere are a number of myths about how to solve the Nation’sfiscal problems. The 4 most common are: We can Grow our way out We can Inflate our way out We can Tax our way out We can Cut our way outThe simple truth is that none of these by themselves will workand all of them will play a role in order to restore our fiscalsanity.Compiled by TCAII 4
  • Learning from the PastThe country is currently experiencing similar conditions as in1992 when Ross Perot first ran for President. Fiscal Irresponsibility Political Dysfunction Lack of Trust in Government Absence of Public Confidence in the FutureThe country is approaching an even bigger iceberg than in 1992.We corrected our course then and can do so again if we “wake-up” and get some committed and courageous leadership.Compiled by TCAII. 5
  • Deficits and Debt (as a percentage of GDP) 3.0%Federal Deficits (-) or Surpluses as a Percentage of GDP 2.4% 1.0% 1.4% 1.3% 0.8% -0.3% -1.4% -1.2% -1.5% -1.0% -2.2% -1.9% -2.9% -2.6% -3.4% -3.5% -3.2% -3.9% -3.9% -4.5% -4.7% -3.0% -8.9% -8.7% -5.0% -10.0% -7.0% U.S. Gross Debt as a Percentage of GDP 1992 2000 2011 -9.0% 98.7% 64.1% 57.3% -11.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Office of Management and Budget, Historical Tables, Table 1.3; Congressional Budget Office, The U.S. Federal Budget, December 2011: Infographic;.U.S. Department of Treasury, Bureau of the Public Debt, Debt to the Penny; CBO, Long-Term Budget Outlook (June 2011); Compiled by TCAII. Note: 2011 Gross debt as of Sept 31. 6
  • Congressional Approval Approve Disapprove No Opinion 3% 18% 10% 3% 11% 34% 56% 78% 86% 1992 2000 2011Source: Gallup, Political Polls. Compiled by TCAII.Note: 1992 Poll taken March 3rd, 2000 Poll taken December 2nd – 4th, and 2011 Poll taken December 15th – 18th. 7
  • Satisfaction with the U.S. Satisfied Dissatisfied No Opinion 6% 3% 2% 12% 26% 46% 51% 68% 86% 1992 2000 2011Source: Gallup, Political Polls. Compiled by TCAII.Note: The question asked by Gallup is worded as such “In general, are you satisfied with the way things are going in the United States at this time?1992 Poll taken November 11th – 12th, 2000 Poll taken December 2nd – 4th, and 2011 Poll taken November 3rd – 6th. 8
  • Selected Key Founding Principles• Limited but effective Government• Individual liberty and opportunity• Personal responsibility and accountability• Rule of law and equal justice under the law• Fiscal responsibility and intergenerational equity 9
  • Growth of Government Federal Spending 1800 2011 2040 2% 23.8% 36.8% US GDP: $8.89 Projected US GDP: $14.65 Projected US GDP: $28.54 Billion Trillion Trillion (Constant 2010 Dollars) (Constant 2010 Dollars) (Constant 2010 Dollars)Source: Historical Statistics of the United States, Millennial Edition On Line, Cambridge 2006; CBO, The Budget and Economic Outlook: An Update, August 2011;CBO, CBO’s Long-Term Budget Outlook, Supplemental Data, June 2011. Compiled by TCAII.Note: Federal Spending for 2040 is based on the Alternative Scenario Estimates. 10
  • Composition of Federal Spending (% of Total Outlays) Defense Other Discretionary Medicare and Medicaid Social Security Other Mandatory Net Interest 7% 6% 19% 12% 15% 42% 15% 18% 20% 4% 20% 21% 1970 2011 $944 Billion $3.47 TrillionSource: CBO, The Federal Budget, Infographic, December 2011, Historical Tables. Compiled by TCAII. Note: All dollar amounts are in constant 2010 dollars. . 11
  • Federal Spending & the Political Party in Power $4,000 Patient Protection and Democratic Controlled Congress Affordable Care Act of 2010 America Recovery and $3,500 Reinvestment Act of 2009 Republican Controlled Congress Medicare Prescription Drug, Improvement, and Modernization Act $3,000 of 2003 and the Invasion of Iraq Split Congress End of Statutory Budget ControlsBillions of Constant 2010 Dollars Deficit Reduction Act of 1993 2001 Invasion $2,500 Republican President of Afghanistan Budget Enforcement Act of 1990 Gramm-Rudman-Hollings Balanced Budget and Emergency $2,000 Democratic President Deficit Control Act of 1985 $1,500 End of WWII Social Security Act of 1965 (Medicare) $1,000 Korean Conflict Vietnam Conflict 1950-53 1960-75 $500 $0 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Fiscal Years Source: OMB, Budget, Historical Tables, Table 1.3—Summary of Receipts, Outlays, and Surpluses or Deficits (−) in Current Dollars, Constant (FY 2005) Dollars, and as Percentages of GDP: 1940–2016; Bureau of Labor Statistics, Inflation Calculator. Compiled by TCAII. 12
  • Federal Revenues & the Political Party in Power $3,000 Economic Growth and Tax Jobs and Growth Tax Relief Reconciliation Relief Reconciliation Democratic Controlled Congress Act of 2001 Act of 2003 & & Invasion of Afghanistan Invasion of Iraq $2,500 Republican Controlled congress Split Congress Omnibus BudgetBillions of Constant 2010 Dollars Reconciliation Act $2,000 of 1993 Democratic President Tax Reform Act of 1986 Economic Recovery Tax Act of 1981 $1,500 Republican President Revenue Act of 1964 $1,000 Vietnam Conflict End of WWII 1960-75 Korean Conflict 1950-53 $500 $0 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Fiscal Years Source: OMB, Budget, Historical Tables, Table 1.3—Summary of Receipts, Outlays, and Surpluses or Deficits (−) in Current Dollars, Constant (FY 2005) Dollars, and as Percentages of GDP: 1940–2016; Bureau of Labor Statistics, Inflation Calculator. Compiled by TCAII. 13
  • Federal Debt Burdens Intragovernmental Held Debt Publicly Held Debt $16 $14.8 Trillion 99% of GDP $14 $4.7 Trillion $12 31.1% of GDP In Trillions of U.S. Dollars $10 $8 $5.6 Trillion 58% of GDP $6 $10.1 Trillion $2.3 Trillion 67.5% of GDP $4 23% of GDP $2 $3.4 Trillion 35% of GDP $0 Sepetember 30th 2000 September 30th 2011SOURCE: U.S. Department of Treasury, Bureau of the Public Debt, Debt to the Penny; CBO, Long-Term Budget Outlook (June 2011); OMB, Historical Tables, Table 1.2.Compiled by TCAII. 14
  • Historical Debt Burden (1800 through 2011) Intragovernmental Debt Public Debt 140% 120% 100%Percentage of GDP 80% 60% 40% 20% 0% 1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: Congressional Budget Office, Long Term Budgetary Outlook 2009, Supplemental Data; Office of Management and Budget, Historical Tables, Table 7.1- Federal Debt at the End of the Year 1940 through 2016. Compiled by TCAII. 15
  • Total Federal Debt Per Capita & the Political Party in Power $50,000 Democrat Controlled Congress As of 9/30/2011 $46,467 $45,000 Republican Controlled Congress $40,000 Split CongressConstant 2010 Dollars Per Capita $35,000 Republican President $30,000 Democratic President $25,000 End of WW2 $ 22,183 $20,000 $15,000 $10,000 $5,000 $0 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010SOURCES: U.S. Census Bureau, U.S. Department of Treasury, U.S. Bureau of Labor Statistics, U.S. House, and U.S. Senate. Compiled by TCAIINOTE: All amounts are adjusted for inflation and in 2010 Dollars. Federal Debt is the total public debt outstanding and intragovernmental holdings. 16
  • Federal Financial Hole (For Fiscal 2000 and 2011) In Trillions of Dollars 2000 2011Explicit Liabilities $ 6.9 $17.4 •Publicly Held Debt 3.4 10.1 •Military & Civilian Pensions & Retiree Health 2.8 5.8 •Other Major Fiscal Exposures 0.7 1.5Commitments & Contingencies 0.5 1.9 E.g. Pension Benefit Guaranty Corporation, Undelivered Orders Actuarys Trustees’ Alternative Estimates ScenarioSocial Insurance Promises 13.0 33.7 46.1 •Future Social Security Benefits 3.8 9.2 9.2 •Future Medicare Benefits 9.2 24.7 37.0 Future Medicare Part A Benefits 2.7 3.3 8.5 Future Medicare Part B Benefits 6.5 13.9 21.0 Future Medicare Part D Benefits - 7.5 7.5Total $20.4 $53.2 $65.5 SOURCE: Data from the Department of Treasury, 2011 Financial Report of the United States Government. Compiled by TCAII. NOTE: Estimates for the Actuary’s Alternative Scenario are found in note 26 of the 2010 Financial Report of the United States. Future liabilities are discounted to present value based on a real interest rate of 2.9% and CPI growth of 2.8%. The totals do not include liabilities on the balance sheets of Fannie Mae, Freddie Mac, and the Federal Reserve. Assets of the U.S. government not included. 17
  • If The U.S. was a Household Household Income Statement Per Week (Constant 2010 Dollars)Household Income $ 961Household Expenses $ 1,495Household Deficit $ (533) Overall Household Debt, Liabilities, & Unfunded PromisesAverage Household Debt (as of Sept. 30, 2011) $ 126,000Average Household Total Liabilities and $ 531,000Unfunded Promises (as of Sept. 30, 2010) Sources: CBO, Budget and Economic Outlook: An Update, August 2011. Medicare and Social Security Trustees Report 2011;. Census Bureau, Current Population Survey, Table H-17. BLS, Inflation Calculator. Compiled by TCAII. Note: Household expenses and deficit are calculated based proportionally on the Federal Government’s finances and numbers may not add due to rounding. 18
  • Our Fiscal Future Revenues 50% 45% 8% Other 40% Spending 35% 14% 8% FederalPercentage of GDP 30% Healthcare Outlays 25% 9% 11% 6% 20% Social Security 12% 15% 8% 6% 10% 6% 19% 6% Net 5% 11% 5% Interest 5% 0% 1% 2011 2024 2040 2055Source: Congressional Budget Office, Long-Term Budget Outlook (June 2011), Summary Data for the Alternative Fiscal Scenario. Compiled by TCAII. 19
  • CBO’s Public Debt Projections Actual Projection: Alternative Fiscal Scenario Projection: Extended-Baseline Scenario 200% 180% 160% 187% 140% Percentage of GDP 120% 100% 80% 60% 40% 84% 20% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035SOURCE: CBO, Supplemental Data for Congressional Budget Offices Long-Term Budget Outlook (June 2011), Figure 1-2.Compiled by TCAII. 20
  • Comparative Debt Burdens 2011 2016 180% 160% 140% 120%Percentage of GDP 100% 80% 60% 40% 20% 0% Greece Italy Portugal Ireland Spain United Kingdom United States SOURCE: International Monetary Fund, World Economic Outlook Database, Sept. 2011. Compiled by TCAII. Note: Data for 2011 and 2016 are estimates. Gross debt consists of all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future. This includes debt liabilities in the form of SDRs, currency and deposits, debt securities, loans, insurance, pensions and standardized guarantee schemes, and other accounts payable. Thus, all liabilities in the GFSM 2001 system are debt, except for equity and investment fund shares and financial derivatives and employee stock options. Debt can be valued at current market, nominal, or face values (GFSM 2001, paragraph 7.110). 21
  • Growing Foreign Dependency Foreign Held Debt 1970 1990 2011 Total Public Debt Total Public Debt Total Public Debt $283 Billion $2,412 Billion $10,127 Billion 5% 19% 46%Source: Office of Management and Budget, Historical Tables; Department of Treasury, Major Holders of Treasury Securities, October 18, 2011, Debt to the Penny.Compiled by TCAII.Note: 2011 public debt and foreign held public debt reflect data from September 2011. 22
  • Sovereign Fiscal Responsibility Index (As of September 2011) 1. Australia (1) 18.Slovakia (16) 2. New Zealand (2) 19.Norway (15) 3. Sweden (4) 20.Austria (21) 4. Estonia (3) 21.France (23) 5. China (5) 22.Finland (22) 6. Chile (7) 23.Slovenia (20) 7. Luxembourg (6) 24.Germany (25) 8. India (12) 25.Spain (24) 9. Brazil (10) 26.Belgium (26) 10. Denmark (8) 27.Italy (27) 11. United Kingdom (9) 28.United States (28) 12. Netherlands (14) 29.Hungary (29) 13. Israel (19) 30.Iceland (32) 14. Canada (11) 31.Ireland (30) 15. Korea (17) 32.Japan (31) 16. Poland (13) 33.Portugal (33) 17. Mexico (18) 34.Greece (34)Source: Comeback America and Stanford Graduate Students’ Sovereign Fiscal Responsibility Index. Compiled by TCAII.Note: Based upon IMF data that was reported in September 2011 and does not take into consideration subsequent events. 23
  • Social Security and Medicare Key Dates and Data regarding the financial condition of the Social Security and Medicare Trust Funds Social Security MedicareCurrent Beneficiaries 55.0 Million 46.3 MillionYear the Trust Fund beginspermanently operating with a 2010 2008 (HI Trust Fund)negative cash flowTrust fund exhaustion year 2036 2024Discounted Present Value (PV) of $8 Trillion $35.1 Trillion²unfunded promises¹ 0.71% 1.9%Actuarial from the Social Security Administration, 2011 Annual Report of the Board of Trustees of the Federal Old-Age and SurvivorsSource: Data Balance as a % of GDPInsurance and Federal Disability Insurance Trust Funds; and Centers for Medicare & Medicaid Services, 2011 Medicare Trustees Report; 2010Financial Report of the United States Government, Notes to the Financial Statements, Note 26 . Compiled by TCAII. 1. Excludes current “assets” in the Social Security & Medicare trust funds. 2. Based on Medicare Actuarial projections that differ from current law. 24
  • Comparative Health Costs 9,000 $7,960 8,000 The United States spends more than double the OECD average with below average healthcare results. 7,000Per Capita HealthCare Costs 6,000 U.S. Dollars 5,000 $4,363 $4,218 $3,978 4,000 $3,722 $3,361 $3,487 $2,983 3,000 2,000 1,000 0 OECD Average Canada France Germany New Zealand Sweden United Kingdom United States Source: Organization for Economic Cooperation and Development, OECD Health Data 2011. Compiled by TCAII. Note: Per capita health expenditures for 2009 uses purchasing power parity for all dollar amounts. 25
  • Relative Defense Spending 800 The United States spent more on defense in 2010 than the 15 highest defense budget combined. $712 Billion 700 $673Israel Billion Turkey Canada 600 Australia In Billions of Constant 2010 Dollars South Korea Brazil Italy 500 India Germany 400 Saudi Arabia U.S.A Japan 300 Russia France 200 United Kingdom 100 China 0SOURCE: Stockholm International Peace Research Institute, SIPRI Military Expenditure Database 2011; Bureau of Labor Statistics, Inflation Calculator. Compiled by TCAII. 26
  • 2011 Federal Revenue Composition Total Revenue $2.2 Trillion in 2010 Dollars Individual Income Taxes Excise 47% 3% Corporate Income Tax 8% Estate and Gift 1% Other 9% Custom Duties 1% Miscellaneous 4% Payroll Taxes 35%Source: Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011. Compiled by TCAII.Note: New figures for the components of other spending were not published. The same percentage of revenues for these figured is assumed from the June 2011 CBO report. 27
  • Progressive Tax System 28
  • Effective Federal Income Tax Rates 25% 20% 18.9% 17.5% Effective Individual Federal Income Tax Rate 14.7% 15% 9.9% 10% 7.2% 5.7% 5% 3.2% 0.8% 0% -2.9% -5% -5.4% -6.7% -10% Less Than $10,000 - $20,000 - $30,000 - $40,000 - $50,000 - $75,000 - $100,000 - $200,000 - $500,000 - More Than $10,000 $20,000 $30,000 $40,000 $50,000 $75,000 $100,000 $200,000 $500,000 $1,000,000 $1,000,000Source: Urban Institute and Brookings Institution, Tax Policy Center, Distribution tables by Dollar Income Class, T11-0315 - Effective Federal Tax Rates by Filing Statusand Demographics, Under Current Law, by Cash Income Level, 2011. Compiled by TCAII. 29
  • CAI’s Fiscal FrameworkScope of CAI’s Illustrative Fiscal Frameworks:• Budget Controls and Process Reforms• Social Security• Medicare, Medicaid, and Healthcare• Defense and Other Spending• Comprehensive Tax Reforms• Constitutional AmendmentsCompiled by TCAII. 30
  • Feasibility TestFiscal Reforms Must Meet a Feasibility Test: 1) Do they make economic sense? 2) Are they socially equitable? 3) Are they culturally acceptable? 4) Do they pass a math test? 5) Are they politically feasible? 6) Can they achieve significant bipartisan support?Compiled by TCAII. 31
  • Transforming Government (Basic Questions for Policies & Programs) • When & why was it created? • Have conditions changed, and have we adapted? • How are we measuring success, and are we achieving desired outcomes? • Are there multiple programs, and if so are they working in an integrated manner? • Are we using the experience of others (e.g., countries, states) to replicate success and avoid mistakes? • Can we afford and sustain it in its present form?Compiled by TCAII. 32
  • A Phased Approach• Calendar Year 2012 › Resolution of Payroll, Unemployment, and Medicare Physician Payment Issues (Short-Term) › Tough 2013 Budget (Short-Term) › Bush/Obama Tax Cut Decision (Short-Term) › Possible Reconsideration of Debt Ceiling Automatic Spending Cuts (Short-Term) › Congressional Hearings (Structural) › Citizen Education/Engagement (Structural)• 2013 - ? › Tough Budget Controls (Structural) › Role and Size of Government (Structural) › Government Transformational Commission (Structural) › Comprehensive Social Security Reform (Structural) › Health Care Coverage Reform and Cost Controls (Structural) › Comprehensive Tax Reform (Structural) 33
  • What Can You Do?• Test your fiscal knowledge by going to www.fiscalIQ.net• To educate others use the Fiscal Facts prepared presentation and notes found on TCAII’s website.• For further information about: – Non-partisan facts and possible solutions on fiscal sustainability and responsibility Sign up at The Comeback America Initiative’s website www.TCAII.org – Promoting progress over partisanship sign up at No Labels website www.NoLabels.orgCompiled by TCAII. 34