Download Fiscally Speaking Tour

8/17/2011
Fiscally Speaking Tour
Southeastern Accounting Show
Georgia Society of CPAs
Atlanta GA
Atlanta,
August 18th, 2011
Hon. David M. Walker
Founder and CEO
The Comeback America Initiative
and
Former Comptroller General of the United States
The Bottom Line
“If we do not take steps to keep our economy strong for “If
d
k
k
f
both today and tomorrow, our national security, international standing, standard of living, social safety net, and even our domestic tranquility will suffer over time.”
‐Hon. David M. Walker, Former Comptroller General Hon David M Walker Former Comptroller General
of the United States (1998‐2008)
2
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8/17/2011
Growth of Government 3
Composition of Federal Spending
(% of Total Outlays)
Defense
Social Security
Other Discretionary
Other Mandatory
7%
Medicare and Medicaid
Net Interest
6%
20%
12%
12%
42%
15%
20%
19%
4%
20%
1970
307 % Growth in
2010 Dollars
($944 Billion)
Source: CBO, Budget and Economic Outlook: Fiscal Years 2011 Through 2021, Historical Tables
Note: All numbers are in constant 2010 dollars .
23%
2010
($2.901 Trillion)
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8/17/2011
Federal Spending & the Political Party in Power
$3,500
Republican Controlled Congress
Split Congress
Republican President
Patient Protection and
Affordable Care
Act of 2010
America Recovery and
Reinvestment Act of 2009
Democratic President
$3,000
Billions of Constant 2005 Dollars
Democratic Controlled Congress
End of Statutory Budget Controls 2002
$2,500
Deficit Reduction
Act of 1993
2001 Invasion
of Afghanistan
Budget Enforcement
Act of 1990
$2,000
Medicare Prescription Drug,
Improvement, and Modernization Act
of 2003and the Invasion of Iraq
Gramm-Rudman-Hollings
Balanced Budget and Emergency
Deficit Control Act of 1985
$1,500
End of WWII
$1,000
Social Security Act of 1965
(Medicare)
Korean Conflict
1950-53
Vietnam Conflict
1960-75
$500
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
1959
1957
1955
1953
1951
1949
1947
1945
$0
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
5
Federal Debt Burdens
$16
$14
Intragovernmental Held
Debt
Publicly Held Debt
In Trillions of U.S. Dollars
$12
$14.6 Trillion
96% of GDP
$4 7 Trillion
$4.7
31.1% of GDP
$10
$8
$6
$4
$2
$5.6 Trillion
58% of GDP
$2.3 Trillion
23% of GDP
$9.9 Trillion
66.1% of GDP
$3.4 Trillion
35% of GDP
$0
Sepetember 30th 2000
August 11th 2011
SOURCE: 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.
6
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8/17/2011
Federal Financial Hole
(For Fiscal 2000 and 2010)
In Trillions of Dollars
Explicit Liabilities
2000
2010
$ 6.9
$16.4
•Publicly Held Debt
3.4
9.1
•Militaryy & Civilian Pensions & Retiree Health
2.8
5.7
•Other Major Fiscal Exposures
0.7
1.6
0.5
2.1
Commitments & Contingencies
E.g. Pension Benefit Guaranty Corporation, Undelivered Orders
Trustees’
Estimates
Social Insurance Promises
13.0
30.8
Actuary's
Alternative
Scenario
43.1
•Future Social Security Benefits
3.8
8.0
8.0
•Future
F t M
Medicare
di
Benefits
B fit
92
9.2
22 8
22.8
35 1
35.1
ƒFuture Medicare Part A Benefits
2.7
2.7
7.3
ƒFuture Medicare Part B Benefits
6.5
12.9
20.6
ƒFuture Medicare Part D Benefits
Total
-
7.2
7.2
$20.4
$49.3
$61.6
SOURCE: Data from the Department of Treasury, 2010 Financial Report of the United States Government.
NOTE: Numbers may not add due to rounding. Trustees’ Estimates for Medicare and Social Security benefits are from the Social Security and Medicare Trustees reports, which are as of January 1,
2010 and show social insurance promises for the next 75 years. 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.
7
Fiscal Gap 2011
$4,000
Even if we cut all of discretionary spending in 2011 the
Federal Government would still be operating a $105 billion deficit.
$3,500
Billions of 2010 Dollars
$3,000
Discretionary
Spending
$1 375
$1,375
$2,500
$2,000
$1,500
$2,108
$
$2,228
$1,000
$500
$225
$0
Outlays
SOURCE: CBO, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, Projections Data, Table 1-4. Compiled by TCAII.
Revenues
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8/17/2011
Historical Receipts & Outlays $12,000
$10,000
Receipts per capita
Outlays per Capita
Real 2010 Dollars
$8,000
$6,000
$4,000
$2,000
$0
1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
SOURCES: OMB Historical Tables, Table 1.3 - Summary Receipts, Outlays, and Surpluses or Deficits (-) in Current Dollars;
Bureau of Labor Statistics, and U.S. Census Bureau. Compiled by TCAII.
9
Projected Surplus?
10
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8/17/2011
Total Federal Debt Per Capita & The Political Party In Power
$50,000
Democrat Controlled Congress
Republican Controlled Congress
Split Congress
$45,000
As of 12/31/2010 $45,426
$40,000
Real 2010 Dollars
$35,000
$30,000
$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
Party of the President
SOURCES: U.S. Census Bureau, U.S. Department of Treasury, U.S. Bureau of Labor Statistics, U.S. House, and U.S. Senate. Compiled by TCAII
NOTE: All amounts are adjusted for inflation and in 2010 Dollars. Federal Debt is the total public debt outstanding and intragovernmental holdings.
2005
2010
11
Comparative Debt Burdens
160%
2011
2016
Gross Total Debt As a Percentage of G
G
GDP
140%
120%
100%
80%
60%
40%
20%
0%
Greece
Italy
Portugal
Ireland
Spain
United Kingdom
United States
SOURCE: International Monetary Fund, World Economic Outlook Database. 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).
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8/17/2011
Growing Foreign Dependency
13
Fiscal Fitness Index: Overall Results Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Country
Australia
New Zealand
Estonia
Sweden
China
Luxembourg
Chile
Denmark
United Kingdom
Brazil
Canada
India
Poland
Netherlands
Norway
Slovakia
Korea
Rank
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Country
Mexico
Israel
Slovenia
Austria
Finland
France
Spain
Germany
Belgium
Italy
United States
Hungary
Ireland
Japan*
Iceland**
Portugal
Greece
Source: Sovereign Fiscal Responsibility Index.
Note: *Japan’s debt was downgraded by Moody’s 1/29/11.
14
** Iceland’s Sustainable Fiscal Path reflects reforms enacted after an IMF bailout and there is a legal case pending in regard to foreign losses incurred due to the failure of Landsbanki.
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8/17/2011
CBO’s Public Debt Projections
200%
Actual
180%
Projection: Alternative Fiscal Scenario
160%
Projection: Extended-Baseline Scenario
140%
187%
120%
100%
80%
60%
84%
40%
20%
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
2035
0%
SOURCE: CBO, Supplemental Data for Congressional Budget Office's Long-Term Budget Outlook (June 2011), Figure 1-2.
Compiled by TCAII.
15
Impact of Health Reform
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8/17/2011
Medicare Costs Per Beneficiary $12,000
Part D
Part B
HI
$10,000
Real 2005 Dollars
$8,000
$6,000
$4,000
$2,000
$0
1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: CMS, 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, Table V. B1;
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Comparative Health Costs
9,000
$7,960
8,000
The United States spends more than double the OECD average with below average
health care results.
Per Capita Health Care Costs
U.S. Dollars
7,000
6,000
5,000
$4,363
$3,978
4,000
$4,218
$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.
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8/17/2011
Relative Defense Spending
700
The United States spent more on defense in 2010 than the other 14 highest
defense budgets combined. The Majority of which are our allies
$698 Billion
$646 Billion
Turkey
Canada
Australia
South Korea
In Billiions of Constant 2009 Dollars
600
Brazil
500
Italy
India
Germany
400
Saudi Arabia
Japan
300
U.S.A
Russia
France
200
United Kingdom
100
China
0
SOURCE: Stockholm International Peace Research Institute, SIPRI Military Expenditure Database 2011. Compiled by TCAII.
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Federal Revenues & the Political Party in Power
$3,000
Billions of Constant 2005 Dollars
$2,500
Democratic Controlled Congress
Republican Controlled congress
Split Congress
Democratic President
Republican President
$2,000
Economic Growth and Tax
Relief Reconciliation
Act of 2001
&
Invasion of Afghanistan
Jobs and Growth Tax
Relief Reconciliation
Act of 2003
&
Invasion of Iraq
Omnibus Budget
Reconciliation Act
Tax Reform Act of 1986 of 1993
Economic Recovery
Tax Act of 1981
$1,500
Revenue Act of 1964
$1,000
End of WWII
Vietnam Conflict
1960-75
Korean Conflict
1950-53
$500
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
$0
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
20
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8/17/2011
Progressive Tax System
21
Effective Tax Rates
22
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8/17/2011
Effective Corporate Tax Rate
35%
30%
Effective Corporate Tax Rate
25%
Average Effective Tax Rate 20.9%
20%
15%
10%
5%
0%
Ireland
Australia
United Kingdom
Germany
Italy
Canada
France
Mexico
United States
Japan
SOURCE: American Enterprise Institute, "Report Card on Effective Corporate Tax Rates: United States Gets an F".
Note: The effective corporate tax rate takes into account tax offsets, the present value of depreciations, and other deductions that narrow the tax base. Average includes countries not included
in the table.
23
State Pension and Health Costs
30%
16.4%
Retiree Health Obligations
Retiree Pension Obligations
14.5%
Actuarially Required Contribution as
Percent Share of State Revenue
25%
9.6%
20%
8.8%
15%
10.8%
12.1%
10%
11.8%
0.6%
11.3%
9.8%
0.6%
1.5%
8 4%
8.4%
7.3%
7.1%
5%
0.3%
3.5%
3.0%
0%
New Jersey
Alabama
South Carolina
Georgia
North Carolina
Mississippi
Florida
Tennessee
North Dakota
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.
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8/17/2011
State Rankings by Taxpayer’s Burden
Best to Worst (Thousands of Dollars)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14
14.
15.
16.
17.
$15.1
Wyoming
North Dakota $ 6.4
$ 2.5
Nebraska
$ 2.2
Utah
$
South Dakota $ 0.3
$ 0.4
Iowa
$ 0.7
Montana
$ 0.7
Arkansas
$ 1.2
Tennessee
$ 1.4
Alaska
$ 1.9
Minnesota
$ 2.3
Indiana
$ 2.5
Florida
$26
$ 2.6
Oregon
$ 2.6
Arizona
$ 2.8
Colorado
$ 2.9
Idaho
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31
31.
32.
33.
34.
Nevada
$ 4.2
Missouri
$ 4.6
Ohio
$ 4.7
Virginia
$ 4.8
Wisconsin
$
$ 5.1
Texas
$ 5.7
Kansas
$ 5.8
Washington
$ 6.5
Pennsylvania
$ 8.2
Georgia
$ 8.9
New Mexico
$ 9.0
South Carolina $ 9.7
Oklahoma
$ 10.0
North Carolina $ 11.2
North Carolina
$ 11 2
New Hampshire $ 11.6
Vermont
$ 12.5
Alabama
$ 12.9
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48
48.
49.
New York
Maine
Mississippi
Rhode Island
Michigan
California
Delaware
Maryland
Louisiana
West Virginia
Massachusetts
Kentucky
Hawaii
Illinois
New Jersey
50. Connecticut
Numbers in red denote burden per taxpayer, Numbers in black denote a surplus per taxpayer
Source: 2009, Institute for Truth in Accounting
$ 13.7
$ 14.3
$ 14.3
$ 14.3
$
$ 14.7
$ 15.1
$ 15.9
$ 16.5
$ 16.8
$ 18.9
$ 20.1
$ 23.8
$ 25.0
$ 26 8
$ 26.8
$ 34.6
$ 41.2
25
Key Systemic Challenges
•
Expansion of government at all levels
•
Health Care Costs
•
Retirement Income Costs
•
Disability and Welfare Related Costs
•
Critical Infrastructure Needs
•
Education Costs
•
Corrections Costs
•
Outdated and Inadequate Revenue Systems
•
Myopia, Tunnel Vision, Special Interests and Self‐Interest.
26
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8/17/2011
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 di
ll t
f
i
d t t bili
d bt/ GDP t
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 q
y
g ,
quality and personal responsibility
•
Pursue comprehensive tax reform that makes the system more streamlined, understandable, equitable and competitive while also generating adequate revenues
27
A Way Forward ‐ Continued
•
Review, re‐prioritize and re‐engineer the base of the federal government, including national security strategies, to focus on the future, eliminate waste, generate real results and ensure sustainability
•
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)
28
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8/17/2011
Feasibility Test
Fiscal Reforms Must Meet a Feasibility Test:
1)) Do they
y 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?
29
Preemptive (Prudent) Framework
Examples
• Budget Controls & Process Reforms
– PAYGO rules on spending and taxes.
– Spending caps that only exempt interest and Social Security.
– Debt/GDP targets with automatic enforcement mechanisms.
• Social Security
–
–
–
–
–
Focus most changes on people under age 55.
Increase early and full retirement age.
Modify cost-of-living index formula.
Make benefit formula more progressive.
Consider a taxable wage base increase.
• Healthcare
–
–
–
–
–
Repeal the CLASS Act provisions of the ACA.
Subject federal health expenditures to an annual budget.
Transform federal payment system to an evidence-based and outcome-oriented approach.
Rationalize healthcare promises.
Reduce taxpayer subsidies to higher income beneficiaries.
30
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8/17/2011
Preemptive (Prudent) Framework Cont.
Examples
• Defense
– Reduce U.S. forces in Iraq and Afghanistan to no more than 45K by Dec. 31, 2014.
– Require DoD planning to consider current and expected resource levels.
– Require the DoD to implement the systemic acquisition and contracting reforms recommended by
th GAO
the
GAO.
– Reduce DoD overhead by at least 25%.
• Other Spending
–
–
–
–
Switch all relevant federal benefits programs to chain-linked CPI.
Reduce discretionary spending to 2008 levels adjusted for inflation.
Reform federal insurance programs and tax payer subsidies.
Make $500 billion in additional during fiscal 2012-2013.
• Revenues
– Do not allow federal revenues to exceed 21.5% of GDP.
– Move to enact comprehensive income tax reform that eliminates and targets tax expenditures
while reducing the top marginal tax rate for individuals and corporations to no more than 25%.
– Allow corporations to deduct dividends paid.
– Consider a consumption tax of up to 5% if necessary.
31
Reactive (Crisis) Framework
Examples
Reactive Framework Differences
(This framework is in case Washington fails to properly manage the debt and interest rates rise.)
• Social Security
– Reforms will impact everyone under the age of 60.
– Increase retirement eligibility ages one additional year.
– Taxable wage base would increase in 2014.
• Healthcare
–
–
–
–
Repeal Affordable Care Act and Medicare Modernization Act
Accelerate the increase in the eligibility age for Medicare.
Accelerate changes in reducing health care subsidies for higher income individuals.
Delay move towards universal healthcare.
32
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8/17/2011
Reactive (Crisis) Framework Cont.
Examples
• Defense
– Accelerate all actions in making the Pentagon and military forces more efficient.
– Accelerate troop withdrawals in Iraq & Afghanistan to 2012.
• Other Spending
– Accelerate changes and lower spending caps.
– Eliminate additional investments in fiscal 2012-2013.
• Revenues
– Repeal
p the Middle Class Tax Relief Act of 2010.
– Impose temporary deficit surcharge of 0.7% for 2013-2014.
33
Comparison
Baseline
EPI
CAI Preemptive Framework
2021
2035
2021
2035
2021
2035
Receipts
20.8%
23.3%
21.6%
24.1%
20.8%
21.5%
Outlays
24.0%
28.3%
24.5%
27.8%
21.8%
23.1%
Deficit*
3.2%
5.0%
2.9%
3.7%
1.0%
1.5%
Debt
76.7%
91.5%
76.5%
81.7%
62.9%
51.4.%
CAI Reactive Framework
Heritage
Fiscal Commission
2021
2035
2021
2035
2021
2035
Receipts
20.8%
21.5%
18.3%
18.5%
20.3%
21.0%
Outlays
20.1%
21.8%
18.1%
17.7%
21.8%
21.0%
Deficit*
-0.7%
0.3%
-0.2%
-0.8%
1.6%
0.0%
Debt
50.9%
28.2%
58.2%
30.0%
68.5%
40.0%
Note: Fiscal Commission data for 2021 is from the Commission for a Responsible Federal Budget re-estimate of the Fiscal Plan and data for 2035 is taken from the assumptions
found within the Fiscal Commission report “The Moment or Truth”. Deficit*: Negative numbers represent surpluses.
34
17
8/17/2011
Results
12%
Deficits
Current Law Baseline
Preemptive Framework
Reactive Framework
10%
8%
6%
4%
2%
0%
-2%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Public Debt
100%
90%
Current Law Baseline
Preemptive Framework
Reactive Framework
80%
70%
60%
50%
40%
30%
20%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
35
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
A
i th
the experience
i
off others
th (e.g.,
(
countries,
t i states)
t t ) to
t replicate
li t
success and avoid mistakes?
•
Can we afford and sustain it in its present form?
36
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8/17/2011
New Players on the Fiscal Responsibility Field
Comeback America Initiative (CAI)
C
b kA
i I iti ti (CAI)
Bridgeport, CT
www.TCAII.org
No Labels
Washington DC
Washington, DC
www.nolabels.org
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19