America’s National DebtAn Overview of the
Challengeand the
Implications for Young People
Overview of Federal Budget Challenge 2
175,000 in DebtThat’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
-$1,000
-$800
-$600
-$400
-$200
$0
$200
$400
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.
Source: Congressional Budget Office, March 2008 and Concord Coalition analysis.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fiscal Year
Billi
ons o
f Dol
lars
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
$0
$50
$100
$150
$200
$250
$300
$350
$400
Trill
ions
of D
olla
rs
1962 ‘72 ‘82 ‘92 2002 ‘12 ‘22 ‘32 ‘42 ‘50Source: Heritage Foundation; CBO data
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
Sources: Office of Management and Budget and the Department of the Treasury.Note: Numbers may not add to 100 percent due to rounding.
20%10%
14%
29% 28%
1%
7% 15%
34% 43%
1966 1986 2006
Defense Social SecurityNet interest
Medicare & MedicaidAll other spending
2007
9%
32%
19%
21%
20%
Overview of Federal Budget Challenge 11
Selected Federal Discretionary Spending(FY 2008 Projected)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$ B
illio
ns
Education Transpor-tation
IncomeSecurity
NaturalResources
& Env.
Veterans Foreign Aid HomelandSecurity
Science,Space, &
TechnologySource: 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)
581
561
309
549
493
238
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2,750
1163
870
370
13826
Interest
Domestic*
Social Security
Medicare & Medicaid
Other Entitlements
Defense
Estate & Gift Taxes
Other Taxes
Corporate Taxes
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.
Billi
ons o
f Dol
lars
Overview of Federal Budget Challenge 13
Current fiscal policy is on an unsustainable path
Social Security
MedicaidMedicare
All Other
Interest
Source: Government Accountability Office, March 2008
Average tax revenue
Overview of Federal Budget Challenge 14
Social Security and Medicare Part A Cumulative Cash
Surpluses and Deficits in Constant 2008 Dollars, 2008 through 2085
-$3,000
-$2,500
-$2,000
-$1,500
-$1,000
-$500
$0
$500
In B
illio
ns o
f Con
stan
t 20
08
Dol
lars
2008 2010 2020 2030 2040 2050 2060 2070 2080
Calendar YearSource: Social Security Trustees’ Report—March 2008 (Intermediate Projections)
$496 Billion: Cumulative Social Security Cash Surplus -$27 Trillion: Cumulative
Social Security Cash Deficits
-$55 Trillion: Cumulative Medicare Part A Cash Deficits
-82.6 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits
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
0
5
10
15
2006 2010 2020 2030 2040 2050 2060 2070 2080Calendar Year
As a
Per
cent
age
of G
DP
General Revenues required to fund the programIncome 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
-20
-15
-10
-5
0
5
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050Fiscal year
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.
Combined State, Local, and Federal
Surplus/Deficit
Percent of GDP
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 Savings
We 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)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1987 1990 1993 1996 1999 2002 2005Source: 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