solving america’s fiscal crisis part i: the fiscal crisis ahead andrew biggs, kevin hassett, and...
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Solving America’s Fiscal CrisisPart I: The Fiscal Crisis Ahead
Andrew Biggs, Kevin Hassett, and Alan ViardJune 13, 2012
Committee on Public Affairs
The Fiscal Crisis Ahead
Andrew Biggs, Kevin Hassett, and Alan ViardThe Union League Club, New York City
June 13, 2012
2005-20142006-2015
2007-20162008-2017
2009-20182010-2019
2011-20202012-2021
2013-2022
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Total Revenues Total Outlays
$ Bi
llion
s
How We Got Here Ten Year Cumulative Outlays and Revenues from Successive CBO Budget Outlooks
Notes: Data compiled from CBO budget baseline ten-year projections published annually in January 2004-January 2012.
19721974
19761978
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
0
5
10
15
20
25
Where Does Federal Revenue Come From?Pe
rcen
t of G
DP
Corporate Income Tax
Other Taxes
Social Insurance Tax
Individual Income Tax
Retirement P
lans
Employer Pro
vided Health In
surance
Mortg
age Inte
rest
Deduction
Earned In
come Tax Cre
dit
Child Tax Cre
dit
State and Lo
cal T
ax Deduction
Charitable Deducti
on0
20
40
60
80
100
120
140
$500 Billion Revenue Loss from Seven Tax Preferences$
bill
ions
, fisc
al 2
011
Lowest Quintile Second Quintile
Middle Quintile
Fourth Quintile
Next 10%
Next 5%
Next 4%
Top 1%
High-Income Groups Bear Much of Federal Tax Burden(All federal taxes, 2007)
Bottom Quintile
Second Q
uintile
Third Q
uintile
Fourth Q
uintile
Highest Quintile
Top 10%
Top 5%
Top 1%0
5
10
15
20
25
30
35
Higher-Income Taxpayers Pay Higher Federal Tax Rates(All federal taxes, 2007)
Perc
ent o
f Inc
ome
All households
2004 2005 2006 2007 2008 2009 2010 20110
10
20
30
40
50
60
Almost Half of Americans Pay No Federal Income TaxPe
rcen
t of T
ax U
nits
19811983
19851987
19891991
19931995
19971999
20012003
20052007
20092011
0
10
20
30
40
50
60
Corporate Tax Rate Higher in U.S. Than AbroadPe
cent
Tax
Rat
e
United States
OECD Average
Corporate Equity-Financed Non-Corporate Owner-Occupied Housing Corporate Debt-Financed-10
-5
0
5
10
15
20
25
30
35
40
36.1
20.6
-5.1-6.4
Tax Penalty on Corporate Equity-Financed Investment(Effective tax rates on investment)
Perc
ent
0
5
10
15
20
25
30
35
40
Corporate Assets Taxed Unevenly(Effective tax rates on investment)
Effec
tive
Tax
Rate
, Per
cent
2001 & 2003 Tax Cuts,
AMT Patch
Payroll T
ax Holiday
Other T
ax Provisi
ons
Sequester
Unemployment Benefits
DocFix
0
50
100
150
200
250221
9583
65
2611
The Impending Fiscal Cliff(Impact on Fiscal 2013 Deficit)$
Billi
ons
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000 Massive Spread of AMT, Under Current Law
Current Policy
Current Law
2012 2013 2012 2013 2012 20130
5
10
15
20
25
30
35
40
45
50
37.9
15.0 15.0
44.6
25.0
44.6
Top Tax Rates Slated to Rise Next Year (Includes Medicare tax and itemized-deduction
phase-out)
Perc
ent
Wages and Business Income
Capital Gains Dividends
Australi
a
Austria
Belgium
Canad
a
Denmark
Finlan
dFra
nce
German
y
Greece
Icelan
d
Irelan
dIsr
ael
ItalyJap
anKorea
Netherl
ands
New Ze
aland
Norway
Portuga
lSp
ain
Swed
en
Switz
erlan
d UKUSA
USA 2043
-200
-150
-100
-50
0
50
100
150
200
250
Net Debt in the US and Other Advanced EconomiesPe
rcen
t of G
DP
Gross Debt in the US and Other Advanced Economies
Australi
a
Belgium
Cyprus
Denmark
France
Greece
Irelan
dIta
lyKorea
New Ze
aland
Portuga
lSp
ain
Switz
erlan
dUSA
0
50
100
150
200
250
Perc
ent o
f GD
P
Sources: IMF WEO Database and CBO Long Term budget Outlook Alternative Fiscal Scenario
Experiences After a AAA Downgrade
IrelandJapan
New ZealandSpain
Venezuela
United States
Australia
Canada
DenmarkFinland
Sweden0
5
10
15
20
25
30
3
11
29
3
29.5
10 months
16.5
10.5
18.5
10.5 11.5
num
ber o
f yea
rs si
nce
AAA
dow
ngra
de
Countries that have NOT regained AAA rating
Countries that have regained AAA rating
num
ber o
f yea
rs t
o re
gain
AAA
ratin
g
Source: Standard & Poor's Sovereign Rating and Country T&C Assessment Histories
Q & A