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Comeback America: Turning the Country Around and Restoring Fiscal Responsibility September 15, 2010 North Carolina CPAs Ashville, NC David M. Walker President and CEO The Peter G. Peterson Foundation and Former Comptroller General of the United States Total Federal Spending (As Percentage of U.S. Economy) Total Spending 2% 1800 2010 2040 24% 38% Size of the Total Economy: $8.8 Billion Projected Size of the Total Economy: $14.4 Trillion Projected Size of the Total Economy: $28.7 Trillion (Constant 2009 Dollars) (Constant 2009 Dollars) (Constant 2009 Dollars) SOURCES: Data from the Congressional Budget Office, Long-Term Budget Outlook: June 2009; Long-Term Budget Outlook: June 2010, alternative fiscal scenario. Compiled by PGPF. NOTE: The alternative fiscal scenario includes several changes to current law that are widely anticipated to occur (i.e. adjustments to Medicare payment rates). 1 Composition of Federal Spending (% of Total Spending) Medicare and Medicaid Net Interest 20% Social Security Defense 4% 43% 15% 12% 42% Other Mandatory 5% Other Discretionary 19% 21% 61% 20% 34% 19% 7% Total Spending 1970: $900 Billion (Constant 2009 Dollars) 6% 15% Total Spending 2010 (estimated): $3.5 Trillion (Constant 2009 Dollars) SOURCES: Data from the Office of Management and Budget, A New Era of Responsibility: The 2011 Budget, Historical Tables; and the Congressional Budget Office, Preliminary Analysis of the President’s Budget: March 2010. Compiled by PGPF. 2 Mandatory programs and interest costs are taking over more and more of the federal budget, crowding out important discretionary programs Total Mandatory 38% Net Interest 7% Total Mandatory 62% Net Interest 5% Total Mandatory 82% Discretionary 18% Mandatory Programs 31% Discretionary 62% Total Spending 1970: $900 Billion Mandatory Programs 57% Discretionary 38% Total Spending 2010: $3.5 Trillion (est.) Net Interest 35% Mandatory Programs 47% Total Spending 2040: $12.3 Trillion (est.) SOURCES: Data derived from the Office of Management and Budget, FY 2011 Budget, Historical Tables, February 2010; and the Government Accountability Office, The Federal Government’s Long-Term Fiscal Outlook, January 2010 Update, alternative simulation using Congressional Budget Office assumptions. Calculated by PGPF. Notes: Data are in constant 2009 dollars. Mandatory programs include Social Security, Medicare, Medicaid and other entitlement programs. 3 The total debt includes debt held by the public (domestic and foreign investors) and debt the government owes to various government programs* Trillions of Dollars 14 12 10 $ 13.2 Trillion Intragovernmental Debt $4.5 (31%) Debt Held by the Public 8 6 $ 5.6 Trillion 4 $2.2 (23%) 2 $3.4 (35%) 91 % of GDP $8.7 (60%) 57 % of GDP 0 September 30, 2000 July 30, 2010 SOURCES: Data from the Office of Management and Budget, A New Era of Responsibility: The 2011 Budget: February 2010, Historical Tables; and the Department of Treasury, Daily Treasury Statement (April 30, 2010). Compiled by PGPF. NOTE: Totals may not add due to rounding. *Intragovernmental debt refers to Treasury securities held by federal trust funds (e.g., Social Security and Medicare) and other government accounts. Debt held by the public refers to all federal debt held by individuals, corporations, state or local governments, and foreign entities. 4 The following table illustrates the U.S. government’s explicit liabilities, commitments and unfunded social insurance promises In Trillions of Dollars Explicit liabilities 2009 $6.9 $14.1 Publicly held debt 3.4 7.6 Military & civilian pensions & retiree health 2.8 5.3 Other Major Fiscal Exposures 0.7 1.3 0.5 2.0 13.0 45.8 Commitments & contingencies E.g., Pension Benefit Guaranty Corporation, undelivered orders Social insurance promises Total 2000 Future Social Security benefits 3.8 7.7 Future Medicare benefits 9.2 38.2 Future Medicare Part A benefits 2.7 13.8 Future Medicare Part B benefits 6.5 17.2 Future Medicare Part D benefits -- 7.2 $20.4 $61.9 SOURCE: Data from the Department of Treasury, 2009 Financial Report of the United States Government. Compiled by PGPF. NOTE: Numbers may not add due to rounding. Estimates for Medicare and Social Security benefits are from the Social Security and Medicare Trustees reports, which are as of January 1, 2009 and show social insurance promises for the next 75 years. 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. Does not include civil service and military retirement funds, unemployment insurance and debt held by other government accounts outside of Social Security and Medicare. 5 Prior to the Great Depression deficits were unusual in the U.S. Budget surpluses occurred in over two-thirds of the years between 1800 and 1930. Deficits (+) and Surpluses (-) as a Percentage of GDP 35 WWII 30 25 Great Depression 20 WWI 15 Civil War 10 5 0 -5 1800 1830 1860 1890 1920 1950 1980 2010 SOURCES: Data from the Office of Management and Budget, A New Era of Responsibility: The 2011 Budget, Historical Tables, February 2010; the Government Accountability Office, The Federal Government’s Long-Term Fiscal Outlook: January 2010 Update, alternative simulation using Congressional Budget Office assumptions; and the Historical Statistics of the United States, Millennial Edition Online, Cambridge 2006. Compiled by PGPF. 6 Social Security Cash Surpluses (+) and Deficits (-) as a Percentage of GDP Since its inception, the Social Security program has experienced more surpluses than deficits 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 1936 1944 1952 1960 1968 1976 1984 1992 2000 2008 SOURCE: Data from the Office of Management and Budget, FY 2011 Budget, Historical Tables, February 2010 and Social Security Administration, 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, August 2010. Compiled by PGPF. NOTE: Excludes interest earnings. 7 By 2030, revenues will not even cover spending on mandatory programs and net interest, assuming the baseline interest rate of 5.0% 50 45 Percentage of GDP 40 35 30 9% 25 20 15 10 5 9% Revenue 9% 9% 2% 2% 9% 4% 6% 5% 5% 5% 0 2010 1% 5% 2020 2% Other Mandatory 11% Medicare & Medicaid 6% Social Security 6% 9% 2030 Discretionary Spending 14% Net Interest 2040 SOURCE: Data from the Government Accountability Office The Federal Government’s Long-Term Fiscal Outlook: January 2010, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 8 Since 1800, U.S. Debt Held by the Public has exceeded 60 percent of GDP (the maximum debt ceiling used by the European Monetary Union) only during World War II Percentage of GDP 120 WWII 100 80 TARP & Recession 60 Great Depression 40 Civil War WWI 20 0 1800 1830 1860 1890 1920 1950 1980 2010 SOURCES: Data from the Congressional Budget Office, Long-Term Budget Outlook: June 2009; the Government Accountability Office, The Federal Government’s Long-Term Fiscal Outlook: January 2010 Update, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. NOTE: Debt held by the public refers to all federal debt held by individuals, corporations, state or local governments, and foreign entities. 9 Total government debt in the U.S is higher than some of the most financially troubled countries in Europe Percentage of GDP 2010 2015 160 140 120 100 80 60 40 20 0 Greece Italy Portugal Ireland Spain United United Kingdom States SOURCE: Data from the International Monetary Fund, IMF Fiscal Monitor Series: Navigating the Fiscal Challenges Ahead, May 14, 2010. Compiled by PGPF. NOTE: Both 2010 and 2015 figures are estimates. Total Government debt (also referred to as general government gross debt) measures all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date in the future. This includes central, state and local government debt. 10 Future U.S. Debt Held by the Public is projected to soar if current policies remain unchanged 900 Percentage of GDP 800 Actual 854% Projected 700 650% 600 483% 500 400 300 200 344% 60 % of GDP 233% 146% 87% 100 0 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 SOURCES: Data from the Congressional Budget Office, Long-Term Budget Outlook: June 2009; Long-Term Budget Outlook: June 2010, alternative fiscal scenario. Compiled by PGPF. NOTE: Debt held by the public refers to all federal debt held by individuals, corporations, state or local governments, and foreign entities. The alternative fiscal scenario includes several changes to current law that are widely anticipated to occur (i.e. adjustments to Medicare payment rates). 11 U.S. dependency on foreign lenders to finance the public debt has risen sharply 1970 1990 2010 est. Total Debt: $283 billion Total Debt: $2,412 billion Total Debt: $8,633billion Foreign Holdings: 5% Foreign Holdings: 19% Foreign Holdings: 46% SOURCES: Data for 1970 and 1990 from the Office of Management and Budget, A New Era of Responsibility: The 2011 Budget, Analytical Perspectives, February 2010. Data for 2010 from Department of Treasury, Daily Treasury Statement (June 30, 2010) and Treasury International Capital Reporting System, April 15, 2010 release. Compiled by PGPF. NOTE: 2010 data reflects debt levels through February 2010. 12 Billions of Constant 2009 Dollars Foreign purchases of marketable Treasury securities are overwhelmingly in shorter maturities, indicating sizeable interest-rate risk upon rollover 900 800 700 600 30 years 10 Years 2-7 Years 1 year or less 443 500 400 340 300 200 100 0 291 182 104 46 5 2001 2002 2003 2004 26 7 22 2005 2006 2007 2008 2009 2010 SOURCE: Data from the U.S. Treasury, Office of Debt Management, Investor Class Auction Allotments. Compiled by PGPF. NOTE: Purchases reflect gross foreign purchases of bills (4-week, 13-week, 26-week, 52-week, and cash-management bills); notes (2year, 3-year, 5-year, 7-year, and 10-year) and bonds (30-year). Data excludes sales of Treasury Inflation Protected Securities (TIPS), and also is not net of sales. Foreign purchases for 2010 as of June 2010. 13 A rate increase of just two percent from baseline levels of 5.0 percent have a dramatic effect on interest costs 25 Additional Interest from Rate Increase from 5.0% to 7.0% Baseline Net Interest Percentage of GDP 20 5.7% of GDP 15 10 14.1% of GDP 5 0 2010 2015 2020 2025 2030 2035 2040 SOURCE: Data from the Government Accountability Office The Federal Government’s Long-term Fiscal Outlook: January 2010, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. NOTE: The projections use implied CBO interest rates through 2020, and an interest rate of 5.0 percent thereafter. 14 Total U.S. health expenditures (both public and private) are projected to soar to more than one-third of the economy by 2040 40 Actual Projected 34 % 35 29 % Percentage of GDP 30 25 22 % 20 17 % 15 12 % 10 5 5% 7% 13 % 8% 0 1960 1970 1980 1990 2000 2010 2020 2030 2040 SOURCE: Data from the Congressional Budget Office, The Long-Term Fiscal Outlook: June 2009. Compiled by PGPF. 15 In the future, the share of per capita consumption that is devoted to health care will rise from 24 percent in 2010 to 40 percent in 2030. It was 17 percent in 1990. Per Capita Consumption in 2009 Dollars 40,000 Actual Projected 35,000 30,000 40% Health Spending 25,000 24% 20,000 15,000 76% 10,000 60% Non-Health Spending 5,000 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Calendar Year SOURCE: Data from the Congressional Budget Office, The Long-Term Budget Outlook, June 2009. Compiled by PGPF. NOTE: Total spending is equal to the sum of personal and government consumption as defined by the Bureau of Economic Analysis. 16 Currently, Americans spend about twice as much per capita on health care than other OECD countries with no appreciable difference in health outcomes Per Capita Health Care Costs U.S. Dollars 8,000 $7,290 7,000 6,000 5,000 4,000 3,000 $2,581 $2,992 $3,895 $3,357 $3,323 $4,417 $3,601 $3,588 $2,686 2,000 1,000 US France Switzerland Germany Canada Sweden Italy Australia UK Japan* 0 SOURCE: Data from OECD Health Data 2009, November 2009. Compiled by PGPF. NOTE: Per capita health expenditures in 2007, unless otherwise noted. Comparison uses Purchasing Power Parity, which adjusts exchange rates to assume identical price of goods in different countries. *Japan data from 2006. 17 Medicare spending per beneficiary varies substantially across states Medicare Spending per Enrollee 14,000 12,000 $11,697 $11,883 $11,594 $11,849 $10,002 10,000 $7,531 $7,754 8,000 $7,493 6,000 4,000 2,000 0 Florida Hawaii Iowa Louisiana New Jersey New Mexico Texas United States Avg. SOURCE: Data derived from the Center for Medicare and Medicaid Services, National Health Expenditures: 2008. Calculated by PGPF. NOTE: Data estimated for 2009, the most recent available, uses average annual growth rates from 1991-2004. 18 Almost three out of every ten Medicare dollars is spent for people who are in the last year of life Medicare Spending in the Last Year of Life* 29% Other Medicare Spending** 71% 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. 19 The U.S. spent more on defense in 2008 than did the countries with the next 14 highest defense budgets combined 700 In billions of dollars 600 $581 billion 500 400 300 India Saudi Arabia Italy Japan Germany Australia $607 billion Spain Canada Brazil South Korea U.S.A. Russia 200 100 UK France China 0 SOURCE: Data from Stockholm International Peace Research Institute, 15 Major Spender Countries in 2008. Compiled by PGPF. 20 Individual income and payroll taxes comprise most of federal receipts 2010: Total Revenues $2,177 billion Corporate Income Taxes 7% Payroll Taxes 40% Other 9% Individual Income Taxes 43% Excise 3% Estate and Gift 1% Customs Duties 1% Miscellaneous 4% SOURCE: Data from the Congressional Budget Office, Preliminary Analysis of the President’s Budget, March 2010. Compiled by PGPF. 21 The composition of federal revenues has been relatively constant since the mid-1970s 25 Actual Other Receipts 20 Percentage of GDP Current Law Projection* 1% 2% 15 6% Corporate Income Taxes Social Insurance Taxes 10 11% 5 Individual Income Taxes 0 1935 1945 1955 1965 1975 1985 1995 2005 2015 SOURCES: Office of Management and Budget, A New Era of Responsibility: The 2011 Budget, Historical Tables, February 2010, and Congressional Budget Office, Analysis of the President’s Budgetary Proposals for FY 2011, March 2010. Compiled by PGPF. * The “Current Law Projection” assumes that the 2001 and 2003 tax cuts expire as scheduled. 22 “Tax expenditures,” (deductions, credits, and other special provisions) total an estimated $1 trillion annually and provide substantial benefits that are not reflected in the budget Top 5 Tax Expenditures Estimated Tax Revenue Foregone (FY 2010) 1. Exclusion of employer provided health insurance from taxable income.* $262 billion 2. Exclusion of pension contributions and earnings.** $122 billion 3. Deduction of mortgage-interest on a primary residence. $92 billion 4. Deduction of non-business state and local taxes (includes income, property and sales taxes) $53 billion 5. Capital gains (except agriculture, timber, iron ore, and coal).*** $45 billion Total of Top 5 $573 billion SOURCE: Data from the Office of Management and Budget, A New Era of Responsibility: The 2011 Budget, Analytic Perspectives, February 2010. Compiled by PGPF. NOTE: Numbers may not add due to rounding. * Includes the exclusion from payroll taxes and income taxes. ** Includes employer pension plans, employee and employer contributions to 401k plans, IRAs, and Keough plans. *** In addition, the biodiesel producer tax credit results in a $200 million reduction in excise tax receipts in 2010. 23 Effective median individual income tax rates are negative or zero for households with incomes below $34,800 Percentage of Total Income 20 18.8% 15 10.8% 10 6.4% 5 3.2% 0% 0 -5 -4.2% -10 Lowest Quintile Second Quintile Middle Quintile Fourth Quintile <$17,800 $17,800$34,800$63,400$34,800 $63,400 $104,200 Top Quintile $104,200+ Top 1% $532,500+ SOURCE: Data from the Tax Policy Center. Compiled by PGPF. 24 The top 5 corporate tax expenditures, deductions, credits and other special provisions are relatively small compared to the largest tax expenditures Top 5 Corporate Tax Expenditures Tax Revenue Lost (FY2010) 1. Deferral of income from controlled foreign corporations $31 billion 2. Deduction for U.S. production activities $8.8 billion 3. Credit for increasing research activities $5.8 billion 4. Deferred taxes for financial firms on certain income earned overseas $5.5 billion 5. Credit for low-income housing investments $ 5.4 billion Total of Top 5 $56.4 billion SOURCE: Data from the Office of Management and Budget, A New Era of Responsibility: The 2011 Budget, Analytic Perspectives, February 2010. Compiled by PGPF. NOTE: Numbers may not add due to rounding. 25 High-income households earn a disproportionate share of pre-tax income and pay a disproportionate share of total federal taxes 100 Top 0.5% (15% ) 90 Top 0.5% (23% ) 80 Percent 70 55% Top Quintile $67,400+ 69% 60 Fourth Quintile $45,200-$67,399 50 40 30 20 13% 10 8% 0 Middle Quintile $30,500-$45,199 20% 17% 9% 4% Share of Total Pre-Tax Income 4% 1% Share of Total Federal Taxes Second Quintile $17,900-$30,499 Lowest Quintile Less than$17,900 SOURCE: Congressional Budget Office, Historical Effective Tax Rates: 1979- 2005: Additional Data on Sources of Income and High-Income Households December 2008. Compiled by PGPF. NOTE: Data for 2005 in 2005 dollars. 26 U.S. household debt has reached historically high levels as a percent of disposable Income 122% Household Debt as a Percentage of Disposable Income 140 120 100 80 60 251% Increase since 1950 35% 40 20 0 1950 1960 1970 1980 1990 2000 2010 (Q1) SOURCES: Data from the Federal Reserve, Flow of Funds Accounts—Liabilities of Households and Nonprofit Organizations; and Bureau of Economic Analysis, Personal Income and Its Disposition: February 2010. Compiled by PGPF. 27 Current U.S. personal savings as a percent of disposable income has fallen to historically low levels Percentage of Disposable Income 30 WWII 25 20 15 10 Great Depression 4.3% 5 0 -1.7% -5 1930 1940 1950 1960 1970 1980 1990 2000 2009 SOURCE: Data from Bureau of Economic Analysis, Personal Income and Its Disposition: February 2010. Compiled by PGPF. 28 The net national savings rate is at its lowest level since the Great Depression WWII Net National Savings as a Percentage of GDP 20 16.1% 15 10 Great Depression 5 0 -2.5% -5 -10 -7.5% 1930 1940 1950 1960 1970 1980 1990 2000 SOURCE: Data from the Bureau of Economic Analysis, National Income and Product Accounts. Compiled by PGPF. NOTE: The net national savings rate comprises both public and private savings net of consumption-related expenditures. 2009 29 Under current policies, state and local deficits are projected to more than double as a percentage of GDP, even after the economy recovers Deficits (+) and Surpluses (-) as a Percentage of GDP 6 5 Actual Projected 4 3 2 1 0 2000 2010 2020 2030 2040 2050 2060 SOURCE: Data from the General Accountability Office State and Local Government’s Fiscal Outlook March 2010 Update. Compiled by PGPF. 30 Future state & local expenditures on health care are the primary source of their poor fiscal outlook. Non-Health Expenditures 12 Health Expenditures Percent of GDP 10 8 6 4 2 0 2000 2010 2020 2030 2040 2050 2060 SOURCE: Data from the General Accountability Office State and Local Government’s Fiscal Outlook March 2010 Update. Compiled by PGPF. NOTE: State level health expenditures are primarily Medicaid and health insurance for government employees and retirees. 31 Unfunded Federal and State Employee Retirement Liabilities in Fiscal Year 2008 In Billions of Dollars (Present Value) $4,000 $3,500 $3,000 $1,162 Pension Liabilities Health Liabilities $2,500 $2,000 $1,500 $2,609 $1,000 $555 $500 $456 $0 Federal Civilian and Military Retirement Liabilities State Employee Retirement Liabilities SOURCE: Pew Center on the States, The Trillion Dollar Gap February 2010; U.S. Treasury Department Financial Report of the U.S. Government 2008. NOTE: Data is as of the end of fiscal year 2008. The unfunded liability is the difference between the present discounted value of future liabilities and current assets. For the purposes of converting future liabilities into present value, most states use a discount rate of approximately 8%, based on assumed returns on investing their pension funds. 32 Federal and State Employee Retirement Liabilities in Fiscal Year 2008 State Pension Liabilities State Health Liabilities Funded 5% Unfunded 16% Funded 84% Unfunded 95% SOURCE: Pew Center on the States, The Trillion Dollar Gap February 2010; U.S. Treasury Department Financial Report of the U.S. Government 2008. NOTE: Data is as of the end of fiscal year 2008. The unfunded liability is the difference between the present discounted value of future liabilities and current assets. For the purposes of converting future liabilities into present value, most states use a discount rate of approximately 8%, based on assumed returns on investing their pension funds. 33 Share of State Revenue in Percent Actuarially Required Contribution to Retiree Health and Pension Funds (as a Share of State Revenue) in Fiscal Year 2008 30 Retiree Pension Benefits 25 20 Retiree Health Benefits 16.4 % 14.5 % 16.0 % 15 10 5 0.6 % 12.1 % 11.8 % 9.5 % 1.4 % 6.6 % 5.7 % 4.3 % 3.0 % Iowa Minnesota Wisconsin North Carolina 0 New Jersey Alabama Hawaii 10.8 % 0.6 % NOTE: The actuarially required contribution is the annual contribution to the retiree pension and health funds required for future assets to be in line with future liabilities within 30 years. It has two components: a normal contribution to keep up with new benefit obligations accrued, and a catch-up payment to make up for the current gap between pension assets and liabilities. The data for both revenues and unfunded obligations are for fiscal year 2008. Most states end their fiscal year in June of 2008, and therefore these numbers do not include losses in the stock market that led to losses in most pension funds. 34 Moody’s Rating Structure Obligation Rating Top Rating/ Minimal Risk Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 CA C Bottom Rating/ Typically in Default SOURCE: Data from Moody’s Investors Service, Government-Related Issuers: Methodology Update, July 22, 2010. Compiled by PGPF. 35 State and City Moody’s Ratings State City Georgia –Aaa Alexandria, VA – Aaa Texas – Aaa Jacksonville, FL – Aa1 Virginia – Aaa San Francisco – Aa1 North Carolina – Aaa Atlanta – Aa2/A1 Alabama – Aa1 Washington – Aa2/Aa1 Florida –Aa1/Aa2 Asheville – Aa2 Connecticut - Aa2 Chicago – Aa2 New York – Aa2 Houston – Aa2 New Jersey –Aa2/Aa3 New York – Aa2 California – A1 Bridgeport, CT – A1 Illinois – A1 Miami – A1 SOURCE: Data from Moody’s Investor Services. Compiled by PGPF. NOTE: The most recent rating for Asheville, North Carolina, reflected in this chart, was assigned in 2000. Standard & Poor’s, however, assigned a comparable rating of AA+ to Asheville in June of 2010. 36 Key Systematic Factors Driving Deficits and Debt at the Federal, State and Local Levels of Government • Expansion of government at all levels • Health Care Costs • Retirement Income Costs • Disability and Welfare Related Costs • Critical Infrastructure Needs • Education Costs • Outdated and Inadequate Revenue Systems • Myopia, tunnel vision, special interests and self-interest. 37 A Way Forward Federal: • Implement statutory budget controls that address discretionary and mandatory spending as well as tax preferences in order to stabilize our debt/ GDP at a reasonable level • Achieve Social Security reform that makes the program solvent, sustainable, secure and more savings oriented • Reduce the rate of increase in health care costs and more effectively target related taxpayer subsidies and tax preferences • Ensure that all future health care reforms adequately consider coverage, cost quality and personal responsibility 38 A Way Forward- Continued • Pursue comprehensive tax reform that makes the system more streamlined, understandable, equitable and competitive while also generating adequate revenues • Review, re-prioritize and re-engineer the base of the federal government to focus on the future and generate real results • Ensure that we have process that will enable us to achieve the above objectives within a reasonable period of time State and Local: • • • • Reform pension and health systems to make them reasonable, affordable and sustainable Review, re-prioritize and re-engineer the base of government. Pursue comprehensive tax reform in coordination with the federal government. Consider an exchange of primary roles, functions and revenue sources as part of a new federalism or devolution effort (e.g., health care, education, infrastructure) 39 If we wait to stabilize our national debt, by using spending cuts or revenue increases alone, we would face more and more difficult choices in the future 40 35 Percent spending cuts required to stabilize the debt level Percent revenue increases required to stabilize the debt level 64% Percentage of GDP 30 25 48% 36 % 50% 20 15 10 5 0 2010 2030 2010 2030 SOURCE: Data from the Congressional Budget Office, Long-Term Budget Outlook, June 2009. Compiled by PGPF. NOTE: Spending refers to non-interest spending. The amounts shown are the non-interest spending cuts or revenue increases from the projected levels required to close the projected fiscal gap by using only one or the other, not both. The fiscal gap is a term that refers to the reduction in spending or increase in revenues required to keep debt-to-GDP no higher than the 2010 level in 2085. By waiting until 2030 to close the fiscal gap, then, spending would have to go from 24.8 to 13 percent of GDP, or revenue would have to rise from 19 to 31.2 percent of GDP. 40