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Fiscal Solutions Tour
Fiscal Solutions Tour
Chicago, IL
November 12, 2010
David M. Walker
President and CEO
The Comeback America Initiative
and
Former Comptroller General of the United States
Total Federal Spending
(As Percentage of U.S. Economy)
2%
1800
Size of the Total
Economy: $8.8 Billion
Projected Size of the Total
Economy: $28.7 Trillion
(Constant 2009 Dollars)
(Constant 2009 Dollars)
SOURCES: Data from the Congressional Budget Office; Long-Term Budget Outlook: June 2010, alternative fiscal scenario. Data from Historical Statistics of the
United States, Millennial Edition On Line, Cambridge 2006. 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).
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Composition of Federal Spending
(% of Total Spending)
34%
43%
61%
Total Spending 1970:
$900 Billion (Constant 2009 Dollars)
Total Spending 2010 (estimated):
$3.5 Trillion (Constant 2009 Dollars)
2
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
Great
Depression
WWI
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.
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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 percent and CPI growth of 2.8 percent. 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.
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Without reforms, by 2022, future revenues will only cover Social
Security, Medicare, Medicaid, and interest on the debt. By 2046,
revenues won’t even cover interest costs.
5
Future U.S. Debt Held by the Public is projected to soar if current
policies remain unchanged
60 %
of GDP
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).
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Since its inception, the Social Security program has experienced
more surpluses than deficits
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Social Security Surpluses /Deficits In Percent of GDP
In the future, persistent cash deficits are projected for Social
Security
0.0
2000 Social Security Surplus
0.9 % of GDP ($114 Billion*)
0.0
In 2015, OASDI will begin operating
with a permanent cash flow deficit.
0.0
0.0
2080
Deficit
1.4 %
($722
billion*)
0.0
0.0
0.0
Actual
0.0
1970
1980
1990
2000
Projected
2010
2020
2030
2040
2050
2060
2070
2080
SOURCE: Data from the 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. Compiled by PGPF.
NOTE: CBO projections show negative cash deficits in 2010 and 2011. Excludes interest earnings.
* In 2009 Dollars.
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Key Dates and Data regarding the financial condition of
the Social Security and Medicare Trust Funds
Medicare 3
Social Security
Current Beneficiaries
53 million
46.3 million
Year the Trust Fund begins
permanently operating with a
negative cash flow
20151
2008 (HI Trust Fund)
Trust fund exhaustion year
2037
2029
Discounted Present Value (PV)
of unfunded promises2
$7.9 trillion
$22.8 trillion
Actuarial Balance as a % of GDP
0.71%
1.8%
SOURCE: Data from the 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; and Centers for Medicare & Medicaid Services, 2010 Medicare Trustees Report, August 2010.
Compiled by PGPF.
1.Estimated to operate with a negative cash flow in 2010 and 2011, and briefly return to positive cash flow in 2012 through 2014.
2.Excludes current “assets” in the Social Security and Medicare trust funds.
3.The projected financial position of combined Medicare Trust Funds under the 2010 Trustees’ Annual Report showed substantial improvements
from the new health care reform law, which are highly debatable and resulted in an adverse opinion from the Medicare’s Office of the Chief
Actuary.
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The U.S. spent more on defense in 2008 than did the countries
with the next 14 highest defense budgets combined
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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
•
Pursue comprehensive tax reform that makes the system more
streamlined, understandable, equitable and competitive while also
generating adequate revenues
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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)
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Illustrative Social Security Policy Options
•
Make little or no changes to those who are near retirement or are already
retired, and make a number of adjustments that would affect younger
workers:
•
Phase in increases in the normal and early retirement ages, and
index to life expectancy (with a modified disability access provision
•
Modify the current benefit formula to reduce the replacement rate
for middle and upper income workers, and possibly increase it for
lower income workers
•
Consider a modest adjustment to the COLA formula (e.g., a 0.5
reduction) so that everyone contributes something to the overall
reform
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Illustrative Social Security Policy Options (cont.)
•
Make little or no changes to those who are near retirement or are
already retired, and make a number of adjustments that would affect
younger workers:
•
Increase taxable wage base, if necessary
•
Address equity and other considerations
•
Consider mandatory supplemental individual savings accounts on a
payroll deduction basis (e.g., a minimum 2 percent payroll
contribution and a program designed much like the Federal thrift
Savings Plan with a real trust fund and real investments)
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Selected DoD Transformation Related Actions
• Revise the current approach to developing national military strategy (e.g.
order, integration, reserve constraints)
• Take a longer-range and more enterprise-wide approach to program
planning and budget integration (e.g. life-cycles, opportunity costs)
• Address the 15 systemic DoD acquisition and contracting challenges
• Employ a more strategic, integrated and value-based approach to business
information system efforts and financial audit initiatives
• Employ a total force management approach to planning and execution
(e.g. military, civilian, contractors)
• Reduce the number of layers, silos, and footprints
• Review and revise current military compensation policies and practices
(i.e. more targeted and market-based)
• Create a Chief Management Officer (CMO) to drive the business
transformation process
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Illustrative Policy Options to Trim Defense Spending:
Sustainable Defense Task Force Report
Policy Option
Estimated Savings
2011-2020
Reduce the US nuclear arsenal; adopt dyad, cancel
Trident III
$113.5 billion
Reduce troops to Europe and Asia, cut end strength by $80 billion
50,000
Roll back Army & USMC growth as wars in Iraq and
Afghanistan end
$147 billion
Reduce US Navy fleet to 230 ships
$126.6 billion
Retire two Navy aircraft carriers and naval air wings
$50 billion
Military compensation reform
$55 billion
Reform DoD’s health care system
$60 billion
Require commensurate savings in command, support
and infrastructure
$100 billion
TOTAL SAVINGS
$732.1 billion
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15 Largest Policy Options for Nondefense Spending:
CBO Estimates of Savings
Option #
Description
10-year Savings
400-1
Reduce highway funding; maintain positive balances in Highway Trust Fund
$93.0 billion
250-2
Delay the human lunar missions by five years
$23.6 billion
600-4
Increase payments by tenants in federally-assisted housing
$23.4 billion
Base cost-of-living adjustments for federal and military pensions and veterans’ benefits on alternative
measures of inflation
$22.6 billion
700-1
Reduce veterans’ disability compensation to account for Social Security Disability payments
$21.2 billion
400-6
Increase fees for Aviation Security
$19.5 billion
500-7
Eliminate subsidized loans to graduate students
$18.8 billion
270-11
Sell a portion of the Tennessee Valley Authority’s power assets
$16.0 billion
400-2
Eliminate the New Starts transit program
$14.9 billion
300-9
Eliminate federal grants for wastewater and drinking-water infrastructure
$11.1 billion
300-13
Prohibit new enrollments in the Department of Agriculture’s Conservation Stewardship Program
$10.9 billion
400-7
Eliminate or Reduce the Flood Insurance Subsidy on certain older structures
$10.7 billion
400-4
Eliminate grants to large and medium-sized hub airports
$10.7 billion
300-14
Prohibit Re-enrollments in the Conservation Reserve program
$10.5 billion
270-6
Eliminate Department of Energy’s applied research on energy-efficiency and renewable technologies
$10.4 billion
600-3
TOTAL
SOURCE: Congressional Budget Office, Budget Policy Options Vol. 2, June 2009.
$317.3 billion
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Basic Questions to Ask About Every Federal
Program and Policy
•
•
•
•
•
•
•
•
•
•
When was it created?
What conditions existed at the time? Have those conditions changed?
Have we modified the program/policy to reflect those changes?
What are we trying to accomplish? How do we measure success based on
desired outcomes?
How well are we doing in terms of goals, trends, and compared to similar
nations?
Is the program/policy still a priority for today and tomorrow?
Are their other programs intended to accomplish the same goal?
Are similar programs working in a coordinated and integrated manner?
Are we using the experience of others – state and local governments,
other nations, nonprofit agencies – to replicate success and avoid
common mistakes?
Can we afford and sustain the program/policy in its present form?
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