America’s National Debt

1. America’s National Debt An Overview of the Challenge and the Implications for Young People

2. 175,000 in Debt That’s every baby’s burden – and unless we do something about growing debt now, it will only get worse. Overview of Federal Budget Challenge

3. Important Concepts • What’s the difference between deficits and debt? • Deficits: The annual imbalance between revenues and spending • Debt: The accumulation of deficits over time • Public debt: Federal government securities held by Americans and foreigners • Intragovernmental debt: Held by government trust funds (e.g., Social Security) and other accounts • What are “unfunded liabilities”? • Benefits (e.g., Social Security or Medicare) that have been promised to be paid in the future, with no dedicated source of revenue to fund them Overview of Federal Budget Challenge

4. Projecting the Future? • Projections of future deficits and debt are based on assumptions about the future • Examples of assumptions that could affect projections • Changes to current spending and tax policies • Population trends • Workforce participation rates • Projections can be wrong—too low or too high: • Spending and tax policies may or may not change • Health care breakthroughs could change birth or death rates • Immigration policy changes could affect the age mix of the population • People may decide to work longer and retire later Overview of Federal Budget Challenge

5. U.S. Budget Deficits or Surpluses, 1961-2008 Deficits rise from 0 in 1969 to $340 billion in 1992. The budget attains an $86 billion surplus in 2000. Deficits rise to $568 billion in 2004, and are projected to be about $500 billion in 2008. Overview of Federal Budget Challenge

6. Current Policy Trends Lead to Large Sustained DeficitsFiscal Years 2009-2018 Billions of Dollars 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Fiscal Year Source: Congressional Budget Office, March 2008 and Concord Coalition analysis. CBO March 2008 Baseline The Concord Coalition Plausible Baseline assumes that discretionary spending grows at the rate of nominal GDP, that war costs slow gradually, and that all expiring tax provisions are extended with AMT relief. Overview of Federal Budget Challenge

7. National Debt, 1940-2007 (in non-inflation adjusted dollars) Overview of Federal Budget Challenge

8. Unless Changes are Made, the National Debt Will Grow Even Faster Source: Heritage Foundation; CBO data 1962 ‘72 ‘82 ‘92 2002 ‘12 ‘22 ‘32 ‘42 ‘50 Overview of Federal Budget Challenge

9. Public Debt Projected to Soar Overview of Federal Budget Challenge

10. Entitlement Spending is Consuming an Ever Larger Share of the Federal Budget 2007 1966 1986 2006 Social Security Medicare & Medicaid Defense All other spending Net interest Sources: Office of Management and Budget and the Department of the Treasury. Note: Numbers may not add to 100 percent due to rounding. Overview of Federal Budget Challenge

11. Selected Federal Discretionary Spending(FY 2008 Projected) Source: Congressional Budget Office, January 2008 *includes ground, air, and water Overview of Federal Budget Challenge

12. Composition of Actual FY 2007 Federal Government Revenues and Outlays (Deficit: $163 Billion) Interest Domestic* Defense Other Entitlements Medicare & Medicaid Social Security Estate & Gift Taxes Other Taxes Corporate Taxes Billions of Dollars Social Insurance Taxes Individual Income Taxes Outlays: $2.73 trillion Revenue: $2.57 trillion *Includes all appropriated domestic spending such as education, transportation, homeland security, housing assistance, and foreign aid. Source: CBO 2008. Overview of Federal Budget Challenge

13. Current fiscal policy is on an unsustainable path Interest All Other Medicaid Average tax revenue Medicare Social Security Source: Government Accountability Office, March 2008 Overview of Federal Budget Challenge

14. Social Security and Medicare Part A Cumulative Cash • Surpluses and Deficits in Constant 2008 Dollars, 2008 through 2085 $496 Billion: Cumulative Social Security Cash Surplus -$27 Trillion: Cumulative Social Security Cash Deficits -$55 Trillion: Cumulative Medicare Part A Cash Deficits In Billions of Constant 2008 Dollars -82.6 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits 2008 2010 2020 2030 2040 2050 2060 2070 2080 Calendar Year Source: Social Security Trustees’ Report—March 2008 (Intermediate Projections) Overview of Federal Budget Challenge

15. Health Care Costs Rising Faster • Than Economic Growth Key Aspect of Rising Federal Spending and Debt Overview of Federal Budget Challenge

16. Medicare Obligations Will Explode as Health Care Costs Rise As a Percentage of GDP Calendar Year General Revenues required to fund the program Income from dedicated taxes, premiums, and state transfers Source: Medicare Trustees’ Report, 2007 Overview of Federal Budget Challenge

17. State and Local Government Deficits Add to Federal Fiscal Challenges Percent of GDP Federal Surplus/Deficit Combined State, Local, and Federal Surplus/Deficit 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. Overview of Federal Budget Challenge

18. State Governments Face Growing Medicaid Costs, Squeezing Other Spending Source: National Association of State Budget Officers, State Expenditure Report 2006 Overview of Federal Budget Challenge

19. Consequences of Declining Personal SavingsWe No Longer Owe National Debt to OurselvesWe Have Less to Supplement Social Security and Medicare • Americans are saving at the lowest rate since the Great Depression, according to Commerce Dept. • About 40% of Americans say they are saving nothing for retirement. • One in four Americans told the Employee Benefit Research Institute that they have no savings at all. • Debt payments consume 15% of the average U.S. family’s income, and 40% of low-income families’; 1 in 7 families is dealing with a debt collector Overview of Federal Budget Challenge

20. Percent of Debt Held by the Public Owned by Foreigners (1980-2007) Source: United States Treasury Department Overview of Federal Budget Challenge

21. Current Fiscal Policy Is Unsustainable • The “Status Quo” is Not an Option • We face large and growing structural deficits largely due to rising health care costs and demographic trends • GAO simulations show that balancing the budget in 2040 could require actions as large as cutting total spending by 60 percent or raising federal taxes to double today's level. • Faster Economic Growth Can Help, 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 of only 3.2 percent per year • Tough choices will be required Overview of Federal Budget Challenge

22. The Sooner We Get Started, the Better • Compound interest is currently working against us • Less change would be needed, and there would be more time to make adjustments • Demographic changes will make reform even more difficult over time Overview of Federal Budget Challenge

23. Framing the Discussion • Which Federal programs and policies should be changed and how? • Entitlement programs • Other spending • Tax policy • How can budget processes and controls be reformed? • What should be the roles of government, business and individuals in ensuring economic well-being in 21st-century America? • Investing in the future (education, infrastructure, science, environment, etc.) • Providing income security and good living standards • Providing health care for all Americans Overview of Federal Budget Challenge

24. Overview of Federal Budget Challenge