saving for our future requires tough choices today (david m. walker)

8/7/2019 Saving For Our Future Requires Tough Choices Today (David M. Walker)

1/23

The Hon. David M. WalkerComptroller Generalof the United States


2/23

2

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.


3/23

3

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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4

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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5

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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6

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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7

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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8

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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9

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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10

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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11

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.


12/23

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


13/23

12

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


14/23

13

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.


15/23

14

Health Care Is the Nations Top TaxExpenditure in Fiscal Year 2005

..

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16/23

15

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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16

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


18/23

17

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.


19/23

18

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


20/23

19

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


21/23

20

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


23/23

The Hon. David M. WalkerComptroller Generalof the United States

saving for our future requires tough choices today (david m. walker)

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