Comeback America: The Nation’s Fiscal

Challenge and A Way Forward

Webinar

Hooks Books with Government Information Group Bridgeport, CT

November 3, 2011

Hon. David M. Walker

Founder and CEO

The Comeback America Initiative

and

Former Comptroller General of the United States

1800 2011 2040

US GDP: $9.25

Billion

(Constant 2011 Dollars)

Projected US GDP: $15.24

Trillion

(Constant 2011 Dollars)

Projected US GDP: $29.7

Trillion

(Constant 2011 Dollars)

Source: Historical Statistics of the United States, Millennial Edition On Line, Cambridge 2006; CBO, The Budget and Economic Outlook: An Update, August 2011;

CBO, CBO’s Long-Term Budget Outlook, Supplemental Data, June 2011. Compiled by TCAII.

Note: Federal Spending for 2040 is based on the Alternative Scenario Estimates.

2

Growth of Government

42%

20%

4%

15%

12%

7%

Defense Other Discretionary Medicare and Medicaid

Social Security Other Mandatory Net Interest

2010

Source: CBO, Budget and Economic Outlook: Fiscal Years 2011 Through 2021, Historical Tables. Compiled by TCAII. Note: All numbers are in constant 2010 dollars .

($944 Billion) ($2.901 Trillion)

20%

19%

23%

20%

12%

6%

1970

3

307 % Growth in

2010 Dollars

Composition of Federal Spending (% of Total Outlays)

4

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

19

45

19

47

19

49

19

51

19

53

19

55

19

57

19

59

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

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95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

Bil

lio

ns

of

Con

stan

t 2005 D

oll

ars

Fiscal Years

Democratic Controlled Congress Republican Controlled Congress

Split Congress Republican President

Democratic President

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. Compiled by TCAII.

Social Security Act of 1965

(Medicare)

Medicare Prescription Drug,

Improvement, and Modernization Act

of 2003and the Invasion of Iraq

America Recovery and

Reinvestment Act of 2009

Patient Protection and

Affordable Care

Act of 2010

Gramm-Rudman-Hollings

Balanced Budget and Emergency

Deficit Control Act of 1985

Budget Enforcement

Act of 1990

Deficit Reduction

Act of 1993 2001 Invasion

of Afghanistan

Vietnam Conflict

1960-75

Korean Conflict

1950-53

End of WWII

End of Statutory Budget Controls 2002

Federal Spending & the Political Party in Power

5

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

19

45

19

46

19

47

19

48

19

49

19

50

19

51

19

52

19

53

19

54

19

55

19

56

19

57

19

58

19

59

19

60

19

61

19

62

19

63

19

64

19

65

19

66

19

67

19

68

19

69

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70

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

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81

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82

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84

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86

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88

19

89

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19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Bil

lio

ns

of

Con

stan

t 2005 D

oll

ars

Fiscal Years

Democratic Controlled Congress Republican Controlled congress

Split Congress Democratic President

Republican President

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

Revenue Act of 1964

End of WWII

Economic Recovery

Tax Act of 1981

Tax Reform Act of 1986

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

of 1993

Korean Conflict

1950-53

Vietnam Conflict

1960-75

Federal Revenues &

the Political Party in Power

6

Federal Debt Burdens

7

Growing Foreign Depends

In Trillions of Dollars 2000 2010

Explicit Liabilities $ 6.9 $16.4

•Publicly Held Debt 3.4 9.1

•Military & Civilian Pensions & Retiree Health 2.8 5.7

•Other Major Fiscal Exposures 0.7 1.6

Commitments & Contingencies 0.5 2.1

E.g. Pension Benefit Guaranty Corporation, Undelivered Orders

Trustees’

Estimates

Actuary's

Alternative

Scenario

Social Insurance Promises 13.0 30.8 43.1

•Future Social Security Benefits 3.8 8.0 8.0

•Future Medicare Benefits 9.2 22.8 35.1

Future Medicare Part A Benefits 2.7 2.7 7.3

Future Medicare Part B Benefits 6.5 12.9 20.6

Future Medicare Part D Benefits - 7.2 7.2

Total $20.4 $49.3 $61.6

SOURCE: Data from the Department of Treasury, 2010 Financial Report of the United States Government.

NOTE: 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. Actuary 2011 alternative scenario estimates for unfunded Medicare liabilities are $37 Trillion (Part A: $8.5; Part B: $21; Part D: $7.5)

8

Federal Financial Hole (For Fiscal 2000 and 2010)

9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Outlays Revenues

Bil

lio

ns

of

U.S

. D

oll

ars

Discretionary

Spending

Mandatory Spending

Net Interest

$1,353 Billion

$2,023 Billion

$221 Billion

Mandatory spending and net interest are equal to about 97% of total revenue.

This means there is only 3% of federal revenues left to cover all discretionary

Source: Congressional Budget Office, Budget and Economic Outlook: An Update, August 2011, Budget Projections, Table: 1.2. Compiled by TCAII.

$3,597 Billion

$2,314 Billion

Fiscal Gap 2011 (After Debt Ceiling Increase)

10

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Rea

l 2

01

0 D

oll

ars

Democrat Controlled Congress Republican Controlled Congress Split Congress

Republican President Democratic 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.

End of WW2 $22,183

As of 12/31/2010 $45,426

Total Federal Debt & the Political Party in Power

11

1. Australia

2. New Zealand

3. Estonia

4. Sweden

5. China

6. Luxembourg

7. Chile

8. Denmark

9. United Kingdom

10. Brazil

11. Canada

12. India

13. Poland

14. Netherlands

15. Norway

16. Slovakia

17. Korea

18. Mexico

19. Israel

20. Slovenia

21. Austria

22. Finland

23. France

24. Spain

25. Germany

26. Belgium

27. Italy

28. United States 29. Hungary

30. Ireland

31. Japan

32. Iceland

33. Portugal

34. Greece

Source: CAI & Stanford University’s Schools of International Policy Studies and Public Policy Program, Sovereign Fiscal Responsibility Index.

Fiscal Fitness Index: Overall Results (Best to Worst)

12

$3,361

$4,363

$3,978 $4,218

$2,983

$3,722 $3,487

$7,960

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

OECD Average Canada France Germany New Zealand Sweden United Kingdom United States

Per

Ca

pit

a H

ealt

h C

are

Cost

s

U.S

. D

oll

ars

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.

The United States spends more than double the OECD average with below average

health care results.

Comparative Health Costs

13

U.S.A

China

United Kingdom

France

Russia

Japan

Saudi Arabia

Germany

India

Italy

Brazil

South Korea

Australia

Canada Turkey

0

100

200

300

400

500

600

700

In B

illi

on

s o

f C

on

sta

nt

20

09

Do

lla

rs

$698 Billion

$646 Billion

SOURCE: Stockholm International Peace Research Institute, SIPRI Military Expenditure Database 2011. Compiled by TCAII.

The United States spent more on defense in 2010 than the other 14 highest

defense budgets combined. The Majority of which are our allies

Relative Defense Spending

14

Payroll Taxes 35%

Individual Income Taxes

47%

Corporate Income

Tax 8%

0

Excise

3%

Estate and Gift 1%

Custom Duties 1%

Miscellaneous 4%

Other 9%

Total Revenue in 2011 $2.3 Trillion

Source: Congressional Budget Office, The Budget and Economic Outlook: An Update, August 201.

Note: New figures for the components of other spending were not published. The same percentage of revenues for these figured is assumed from the June 2011 CBO report.

Federal Revenue Composition

15

Progressive Tax System

16

Effective Tax Rates

• 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.

17

Key Systemic Challenges

Scope of CAI’s illustrative Fiscal Frameworks:

• Budget Controls and Process Reforms

• Social Security

• Medicare, Medicaid, and Healthcare

• Defense and Other Spending

• Comprehensive Tax Reforms

• Constitutional Amendments

18

CAI’s Fiscal Framework

19

Fiscal Reforms Must Meet a Feasibility Test:

1) Do they 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?

Feasibility Test

• 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 the experience of others (e.g., countries, states) to

replicate success and avoid mistakes?

• Can we afford and sustain it in its present form?

20

Transforming Government (Basic Questions for Policies & Programs)

21

Baselines Matter

$9.3 Trillion

$4.7 Trillion

$3.5 Trillion

$10.6 Trillion

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Cu

mu

lati

ve

Def

icit

($ B

illi

on

s)

President's "Adjusted CBO August Baseline" "Current Policy" Baseline With Automatic Cuts

Current Law Baseline Without Automatic Cuts Current Law Baseline With Automatic Cuts

Source: Congressional Budget Office, Budget and Economic Outlook August 2011. ―Current law baseline with automatic cuts‖ assumes $1.2 in automatic

cuts due to the Budget Control Act of 2011 provisions. ―Current Policy‖ Baseline assumes a continuation of certain policies that are not written into current

law, including the extension of expiring tax provisions from Bush/Obama tax cuts, indexing the Alternative Minimum Tax for Inflation, maintaining

Medicare payment rates, and a reduction in troops deployed for overseas in Afghanistan to 45,000 by 2015. President’s ―Adjusted CBO August Baseline‖ is

from ―Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction‖ September 2011.

• The Super Committee must first decide how it will

keep score:

Current Law Baseline, or

Current Policy Baseline

• It should then focus its recommendations on the

following:

– Meeting or exceeding the established deficit-reduction

target

– Helping generate economic growth and reducing

unemployment

– Facilitating greater deficit-reduction progress from 2012

through 2013

The Super Committee

23

0

10

20

30

40

50

60

70

80

90

100

1974 2011

Per

cen

tag

e

Approve

Dissaprove

84% Approval After Sept 11th

13% Approval in August after Debt Ceiling Debate

“Do you approve or disapprove of the way Congress is handling it’s job?”

84% Disapproval in August after Debt Ceiling Debate

Source: Gallup/Newsweek. Compiled by TCAII.

Public Approval of Congress

• Educate others using the Fiscal Facts prepared

presentation and notes

• For further information about:

– Non-partisan facts and possible solutions on fiscal sustainability

Sign up at

The Comeback America Initiative’s website

www.TCAII.org

– Providing progress over partisanship sign up at

No Labels website

www.NoLabels.org

• Encourage other to check out these sites and sign up

24

What Can You Do?

Questions?

25