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Comeback America: The Nation’s Fiscal
Challenge and A Way Forward
Dallas CPA Society Member Conference
Dallas CPA Society
Dallas, TX
May 26, 2011
Hon. David M. Walker
Founder and CEO
The Comeback America Initiative
and
Former Comptroller General of the United States
Growth of Government
2
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
Social Security Act of 1965
(Medicare)
$1,000
Korean Conflict
1950-53
Vietnam Conflict
1960-75
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
$0
1945
$500
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
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%
23%
1970
2010
Source: CBO, Budget and Economic Outlook: Fiscal Years 2011 Through 2021, Historical Tables
4
More on Autopilot
5
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
$2,500
$2,000
$1,500
$2,108
$2,228
$1,000
$500
$225
$0
Outlays
Revenues
SOURCE: CBO, The Budget and Economic Outlook: Fiscal Years 2011 to 2021, Projections Data, Table 1-4. Compiled by TCAII.
6
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.
7
Projected Surplus?
8
Historical Debt Burdens
9
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
10
Growing Foreign Dependency
11
Comparative Debt Burdens
12
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.
13
** 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.
Fiscal Fitness Index: Overall Results
with U.S. Under NFRRC Plan
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
US under NFRRC plan
Denmark
Brazil
United Kingdom
India
Canada
Netherlands
Poland
Norway
Israel
Rank
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Country
Slovakia
Korea
Mexico
Austria
Slovenia
Finland
France
Spain
Germany
Belgium
Italy
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.
Our Fiscal Future
15
CBO’s Public Debt Projections
200%
As a Percentage of GDP
180%
160%
Actual
140%
Projection: Alternative Fiscal Scenario
120%
106%
Projection: Extended-Baseline
Scenario
100%
80%
60%
79%
40%
20%
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0%
SOURCE: CBO, Supplemental Data for the Congressional Budget Office's Long-Term Budget Outlook (June 2010), Figure 1-2.
Compiled by TCAII.
16
Impact of Health Reform
17
Federal Revenues &
the Political Party in Power
$3,000
Democratic Controlled Congress
Republican Controlled congress
Split Congress
Democratic President
Republican President
Billions of Constant 2005 Dollars
$2,500
Economic Growth and Tax
Relief Reconciliation
Act of 2001
&
Invasion of Afghanistan
Jobs and Growth Tax
Relief Reconciliation
Act of 2003
&
Invasion of Iraq
$2,000
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
$0
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
$500
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
18
Federal Revenue Composition
19
Tax Burden
United States
United Kingdom
Turkey
Spain
Mexico
Korea
Italy
Germany
France
Canada
0%
5%
10%
15%
20%
25%
30%
Total Tax Revenues as a Percentage of GDP
35%
40%
45%
Source: OECD (2010), Revenue Statistics: Comparative Tables, OECD Tax Statistics (Database). Compiled by TCAII.
Note: Total Tax Revenues are net and include sub-national government (State & Local).
20
Progressive Tax System
21
Individual Tax Expenditures
22
Effective Tax Rates
23
Corporate Tax Expenditures
24
Statutory Corporate Tax Rates
40%
The United States holds one of the highest rates of corporate tax within the OECD at 39%
Total Corporate Tax Rates
35%
30%
OECD Average: 26%
25%
20%
15%
10%
5%
0%
SOURCE: OECD Tax Database, Corporate and Capital Income Taxes, 2009. Compiled by TCAII.
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
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
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
Statutory Debt Ceiling
Recessions
$14,000
Billions of 2010 Dollars
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
SOURCE: OMB, The Budget, Historical Tables, Table 7.3 - Statutory Limits on Federal Debt; Bureau of Labor Statistics, Inflation Calculator;
NBER, US Business Cycle Expansions and Contractions.
29
The Debt Ceiling Debate
We must raise the debt ceiling. The Real Questions are:
• How much it should be raised?, and
• What conditions should be attached to any increase in the
debt ceiling limit?
30
The Debt Ceiling Debate - Continued
Given the deteriorating financial condition of the federal government and
rising concern regarding spending , deficits and debt, the following
conditions are illustrative of the types of conditions that should be
considered:
• Short-term Spending:
 Agreeing to cut discretionary spending, excluding war costs, to fiscal 2008 levels adjusted
for population growth over 2-3 years.
• Structural Deficits:
 Enacting tough but realistic statutory budget controls that could include:



meaningful PAYGO rules on the spending and tax side;
tough but realistic discretionary spending caps, and;
specific debt/GDP targets that begin in 2013-2014 with automatic enforcement mechanisms (e.g.,
spending cuts and temporary tax surcharges or preference reduction).
 Authorize and fund a major citizen education and engagement effort that will occur
during late 2011 and 2012 to prepare the way for tough choices beginning in 2013.
31
A Phased Approach
•
Calendar 2011






•
2011 – 2013


•
Tough 2011 and 2012 Budgets (Short-Term)
Earmarks Moratorium (Short-Term)
Selected Pay and Hiring Freezes (Short-Term)
Leading By Example (Short-Term)
Statutory Budget Controls (Structural)
Transformation and Accountability Task Force (Structural)
Congressional Hearings
Citizen Education/Engagement
2013 -?




Comprehensive Social Security Reform (Structural)
Role and Size of Government (Structural)
Health Care Coverage Reform and Cost Controls (Structural)
Comprehensive Tax Reform (Structural)
32
A Three Pronged Test
for Policy Creation
•
The policy should make economic sense, be socially
equitable and culturally acceptable
•
The math behind the policy must work
•
The policy must be politically feasible
33
New Players on the
Fiscal Responsibility Field
Comeback America Initiative (CAI)
Bridgeport, CT
www.TCAII.org
No Labels
Washington, DC
www.nolabels.org
34