The Financial Condition and Fiscal Outlook of the U.S. Government Background Charts

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1 The Financial Condition and Fiscal Outlook of the U.S. Government Background Charts May 13, 21

2 The Foundation s Research Team prepared this set of charts under the supervision of Susan Tanaka (former Associate Director and Senior Analyst, Congressional Budget Office, and Budget Examiner, Office of Management and Budget). Ann Futrell (former Analyst, Congressional Budget Office) directed the construction of the charts by Tim Roeper, Kristin Francoz, and Purnima Anand, and Natasha Caesar assisted with the Team s efforts.

3 Table of Contents Section Debt and Deficits Spending Revenues Health Care Personal Finances I II III IV V

4

5 Section I: Debt and Deficits Page Debt held by the public:18-21 (percentage of GDP) 1 Debt held by the public: projections through 28 under current policies (percentage of GDP) 2 Composition of the total debt: debt held by the public and intragovernmental debt (current dollars and percentage of GDP) 3 U.S. public debt including state and local debt (percentage of GDP): U.S. public debt levels compared to other countries (percentage of GDP) 5 Historical deficits: (percentage of GDP) 6 Deficits: projections through 28 under current policies (percentage of GDP) 7 Impacts of alternative assumptions on projections of the long-term fiscal gap 8 Little impact on the projected gap between spending and revenues if tax cuts expire and troops are withdrawn from Iraq and Afghanistan (percentage of GDP) 9 The projected, widening gap between spending and revenues (percentage of GDP) 1 Waiting to close the fiscal gap, by using spending cuts or tax increases alone, would lead to more and more difficult choices in the future 11 Projected growth in spending by category compared with projected revenues through 24 (percentage of GDP) 12

6 Section I: Debt and Deficits (continued) Page Projected growth in spending by category compared with projected revenues through 24 if interest rates increase by 2 percent (percentage of GDP) 13 Historical Treasury interest rates 14 Impact on projected cost of net interest of a 2 percent increase in interest rates 15 Growth in U.S. dependency on foreign lenders to finance the public debt 16 Largest foreign holders of Treasury securities (February 21) 17 Foreign purchases of Treasury securities by maturity 18 Historical and projected U.S. net external debt (percentage of GDP) 19 Growth in foreign purchases of Treasury Inflation Protect Securities 2 Fiscal Exposures (75-year present value in trillions of dollars) 21

7 Percentage of GDP Since 18, U.S. debt held by public has exceeded 6% of GDP only during World War II Civil War Great Depression WWI WWII TARP & Recession NOTE: Debt held by the public refers to all federal debt held by individuals, corporations, state or local governments, and foreign entities. SOURCES: Data from the Congressional Budget Office, Long Term Budget Outlook: June 29; the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21 Update, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 1-Debt and Deficits

8 Future U.S. debt held by the public is projected to soar if current policies remain unchanged Percentage of GDP 1,4 1,2 1, % of GDP Actual Projected 11% 187% 33% 457% 652% 896% 1,197% NOTE: Debt held by the public refers to all federal debt held by individuals, corporations, state or local governments, and foreign entities. SOURCES: Data from the Congressional Budget Office, Long Term Budget Outlook: June 29; the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook, January 21 Update, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 2-Debt and Deficits

9 The total debt includes debt held by the public (domestic and foreign investors) and debt the government owes to various government programs* 14 $ 12.9 Trillion Trillions of Dollars Intragovernmental Debt Debt Held by the Public $ 5.6 Trillion $2.2 (23%) $3.4 (35%) 57 % of GDP $4.5 (31%) $8.4 (58%) 89 % of GDP 2 April 3, 21 *Intragovernmental debt refers to Treasury securities held by federal trust funds (e.g., Social Security and Medicare) and other government accounts. Debt held by the public refers to any federal debt held by individuals, corporations, state or local governments, and foreign entities. NOTE: Totals may not add due to rounding. SOURCES: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget: February 21, Historical Tables; and the Department of Treasury, Daily Treasury Statement (April 3, 21). Compiled by PGPF. 3-Debt and Deficits

10 Within 1 years, the total public debt in the U.S. (including state and local government held debt) is projected to reach Greece s current debt level Percentage of GDP NOTES: Projected state and local government debt was assumed to be held constant as a percent of the economy at the average of years 2 to 29 (14.4%). Public debt here refers to all federal debt held by individuals, corporations, state or local governments, and foreign entities, in addition to state and local government debt. SOURCES: Data from the Federal Reserve, Flow of Funds Accounts of the United States; the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21 Update, alternative simulation using Congressional Budget Office assumptions; and the Congressional Budget Office, Long Term Budget Outlook, June 29. Compiled by PGPF. 4-Debt and Deficits

11 Public debt levels in the U.S are comparable to some of the most financially troubled countries in Europe Percentage of GDP Greece Italy Portugal Ireland Spain United Kingdom United States NOTE: All 29 and 21 numbers are projections. Public debt here refers to state and local governmental debt as well as debt held by the public, or all federal debt held by individuals, corporations, state or local governments, and foreign entities. SOURCE: International data from the International Monetary Fund. U.S. data from the Federal Reserve, Flow of Funds Accounts of the United States; and the Office of Management and Budget, The 211 Budget: Historical Tables. Compiled by PGPF. 5-Debt and Deficits

12 Up until the Great Depression, the U.S. experienced more budget surpluses than deficits Deficits (+) and Surpluses ( ) as a Percentage of GDP Civil War Great Depression WWI WWII SOURCES: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21; the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21 Update, alternative simulation using Congressional Budget Office assumptions; and the Historical Statistics of the United States, Millennial Edition Online, Cambridge 26. Compiled by PGPF. 6-Debt and Deficits

13 Under current policies, federal deficits are projected to more than double as a percentage of GDP even after the economy recovers Deficits (+) and Surpluses ( ) as a Percentage of GDP Actual Projected 1% 16% 24% 33% 44% 57% % NOTE: Current policy estimates assume extension of the 21 and 23 tax cuts, alternative minimum tax (AMT) exemption amount is indexed to inflation, Medicare physician payments are not reduced, and discretionary spending grows with GDP. SOURCES: Data the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21; and the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21 Update, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 7-Debt and Deficits

14 Using alternative assumptions would affect projections of the long-term fiscal gap Baseline and alternative assumptions used in projections of the fiscal gap: 1 Baseline Assumptions Alternative Health Care Alternative Productivity Alternative Immigration Excess health care cost growth: Baseline Health care costs per person grow 2% faster than GDP per capita; alternatives are 1% and.5%. Productivity: Baseline output per hour increases by 2.3% percent per year; alternatives are 2.8% and 1.8% Immigration: Baseline is 1 million immigrants per year; alternatives are 1.3 million and.7 million. Fiscal Gap as a Percentage of GDP % 1%.5% Excess Health Care Cost Growth 1.8% 2.3% 2.8% Productivity Growth 1. Mil. 1.3 Mil..7 Mil. Rate of Immigration NOTE: The fiscal gap refers to the increase in taxes or reduction in non interest spending required to keep the debt to GDP ratio stable over the next 75 years. SOURCE: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Analytical Perspectives, February 21. Compiled by PGPF. 8-Debt and Deficits

15 Elimination of Bush tax cuts and withdrawal of troops from Iraq and Afghanistan would have a small impact on the long-term fiscal gap Percentage of GDP Historical Projected Primary Spending Revenues Primary Spending (excluding net interest) Tax cuts expire on schedule Revenues End deployment to Iraq and Afghanistan % GDP difference in % GDP difference in 28 SOURCE: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21; the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21, alternative simulation based on Congressional Budget Office assumptions; and the Congressional Budget Office, Budget Outlook: January 21. Compiled by PGPF. 9-Debt and Deficits

16 Percentage of GDP Over three quarters of the long-term budget gap in 28 is caused by escalating projected interest costs assuming the baseline interest rate of 5.% Historical Projected Primary Spending (excluding net interest) Total Spending Revenues Net Interest 57% of GDP % of GDP SOURCES: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21; and the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21, alternative simulation based on Congressional Budget Office assumptions. Compiled by PGPF. 1-Debt and Deficits

17 If we wait to close the fiscal gap, by using spending cuts or revenue increases alone, we would face more and more difficult choices in the future Percentage of GDP % Spending Cuts Revenue Increase 5% Revenue Increase Spending Cuts 48% Spending Cuts 64% Revenue Increase NOTE: Spending refers to non-interest spending. The amounts shown are the non-interest spending cuts or revenue increases from the projected levels required to close the projected fiscal gap by using only one or the other, not both. The fiscal gap refers to the reduction in spending or increase in revenues required to keep debt-to-gdp no higher than the 21 level in 285. SOURCE: Data from the Congressional Budget Office, Long-Term Budget Outlook, June 29. Compiled by PGPF. 11-Debt and Deficits

18 Percentage of GDP Without reforms, within 12 years, future revenues will only cover Social Security, Medicare, Medicaid and interest on the debt assuming the baseline interest rate of 5.% 9 % 4 % 5% 5% 1% 9 % 2 % 6% 5% 5% Revenue 9 % 2 % 9% 6% 9% 9 % 2 % 11% 6% 14% Discretionary Spending Other Mandatory Medicare & Medicaid Social Security Net Interest SOURCE: Data from the Government Accountability Office The Federal Government s Long Term Fiscal Outlook: January 21, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 12-Debt and Deficits

19 Percentage of GDP Without fiscal reforms, federal interest costs alone would consume all projected revenues by 24 if baseline interest rates rise 2 percent to 7.%. (The historical interest rate since 198 is 6.4%.) 9 % 4 % 5% 5% 9 % 2 % 6% 5% 2 % 7 % Revenue 9 % 2 % 9% 6% 12 % 9 % 2 % 11% 6% 2 % Discretionary Spending Other Mandatory Medicare & Medicaid Social Security Net Interest NOTE: The projections use implied CBO interest rates through 22, and an interest rate of 5. percent thereafter. A 2 percent rate increase would be within historic range for Treasury interest rates. SOURCE: Data from the Government Accountability Office The Federal Government s Long Term Fiscal Outlook: January 21, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 13-Debt and Deficits

20 Current Treasury interest rates are low by historical standards Month 1 Year Interest Rate Year Average Interest Rate: 6.5% over past 3 years Apr 6 NOTE: The U.S. Treasury Department did not offer 3 year bonds between 23 and 26. SOURCE: Data from the Federal Reserve Statistical Release, Table H.15, Selected Interest Rates, Historical Data, accessed April 14, 21. Complied by PGPF. 14-Debt and Deficits

21 A rate increase of just two percent from baseline levels of 5. percent have a dramatic effect on interest costs 25 Percentage of GDP Additional Interest from Rate Increase from 5.% to 7.% Baseline Net Interest 5.7% of GDP 14.1% of GDP NOTE: The projections use implied CBO interest rates through 22, and an interest rate of 5. percent thereafter. SOURCE: Data from the Government Accountability Office The Federal Government s Long term Fiscal Outlook: January 21, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 15-Debt and Deficits

22 U.S. dependency on foreign lenders to finance the public debt has risen sharply 197 Total Debt: $283 billion Foreign Holdings: 5% 199 Total Debt: $2,412 billion Foreign Holdings: 19% 21 est. Total Debt: $8,387 billion Foreign Holdings: 47% NOTE: 21 data reflects debt levels through February 21. SOURCES: Data for 197 and 199 from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Analytical Perspectives, February 21. Data for 21 from Department of Treasury, Daily Treasury Statement (February 26, 21) and Treasury International Capital Reporting System, April 15, 21 release. Compiled by PGPF. 16-Debt and Deficits

23 Foreign holdings of U.S. Treasury securities are concentrated among a few countries Country Holdings (in billions of U.S. dollars) February 21 Holdings (as a percent of total U.S. debt) Total Foreign Holdings: 47% China $ % Japan $ % United Kingdom $ % Oil Exporters $ % Brazil $17.8 2% All other countries $1, % NOTE: U.S. debt here refers to debt held by the public, or all federal debt held by individuals, corporations, state or local governments, and foreign entities. All numbers reflect debt levels as of December 29. SOURCES: Data from the United States Treasury, Treasury International Capital System, Major Holders of Treasury Securities, April 3, 21. U.S. debt is debt held by the public, U.S. Treasury, Debt to the Penny, February 26, 21. Compiled by PGPF. 17-Debt and Deficits

24 Billions of Constant 29 Dollars 1,2 1, Foreign purchases of marketable Treasury securities are overwhelmingly in shorter maturities, indicating sizeable interest-rate risk upon rollover years 1 Years 2 7 Years 1 year or less NOTE: Purchases reflect gross foreign purchases of bills (4 week, 13 week, 26 week, 52 week, and cash management bills); notes (2 year, 3 year, 5 year, 7 year, and 1 year) and bonds (3 year). Data excludes sales of Treasury Inflation Protected Securities (TIPS), and also is not net of sales. SOURCE: Data from the U.S. Treasury, Office of Debt Management, Investor Class Auction Allotments. Compiled by PGPF. 18-Debt and Deficits

25 By itself, the U.S. net external debt projection is unsustainable under baseline assumptions and worse if fiscal conditions erode Percentage of GDP Cline Baseline Projection Cline Fiscal Erosion Scenario Historical Data Actual Projected 133% 64% NOTE: Displays U.S. net international investment position: a positive number means external liabilities are greater than external assets. SOURCE: Bureau of Economic Analysis and William Cline, Long term Fiscal Imbalances, U.S. External Liabilities, and Future Living Standards, in C. Fred Bergsten, ed., The Long term International Economic Position of the United States, Peterson Institute for International Economics, 29. Compiled by PGPF. The projected path is so unsustainable and dangerous that a crisis would virtually be certain to occur long before the U.S. reached such a painful point of reckoning. William Cline, Peterson Institute for International Economics 19-Debt and Deficits

26 Growth in purchases by foreign investors of Treasury Inflation Protected Securities (TIPS) reflect concern about U.S. inflation outlook Billions of Constant 29 Dollars $1.1 billion Or 5.1% of foreign purchases of long-term Treasury securities 19% increase $29.2 billion Or 6.4% of foreign purchases of long-term Treasury securities NOTES: Purchases only reflect gross foreign purchases (they exclude gross sales of TIPS by foreign investors). Data reflects TIPS with maturities of 5, 1, 2 and 3 years; and total long term Treasury security purchases reflect securities with maturities of 5 7, 1, and 3 years. Treasury Inflation Protected Securities were first offered in SOURCE: Data from the U.S. Treasury, Office of Debt Management, Investor Class Auction Allotments. Compiled by PGPF. 2-Debt and Deficits

27 Major Fiscal Exposures: Another measure of the federal government s fiscal condition In Trillions of Dollars 2 29 Explicit liabilities $6.9 $14.1 Publicly held debt Military & civilian pensions & retiree health Other Major Fiscal Exposures Commitments & contingencies.5 2. E.g., Pension Benefit Guaranty Corporation, undelivered orders Social insurance promises Future Social Security benefits Future Medicare benefits Future Medicare Part A benefits Future Medicare Part B benefits Future Medicare Part D benefits Total $2.4 $61.9 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, 29 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% 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. Does not include civil service and military retirement funds, unemployment insurance and debt held by other government accounts outside of Social Security and Medicare. SOURCE: Data from the Department of Treasury, 29 Financial Report of the United States Government. Compiled by PGPF. 21-Debt and Deficits

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29 Section II: Spending Federal spending: (percentage of GDP) 1 Composition of federal spending: 197, 21 (est.), and 24 (est.) 2 Composition of federal spending in 21 (excluding stimulus package) 3 Historical spending for R&D: (percent of total spending) 4 International comparison of countries with highest military expenditure in 28 Historical spending growth by major category: (percentage of GDP) Timeline of when projected net interest costs will exceed areas of spending and revenue Projected growth in Medicare, Medicaid and Social Security: (percentage of GDP) Contributing factors in projected growth for Medicare, Medicaid and Social Security: (percentage of GDP) Historical Social Security trust fund cash flows: (percentage of GDP) Page

30 Section II: Spending(continued) Page Projected Social Security trust fund cash flows: (percentage of GDP) 11 Impacts of raising taxable maximum income for payroll taxes on Social Security trust fund cash flows: (percentage of GDP) Impacts of balancing Social Security benefits and receipts on the long term fiscal gap: (percentage of GDP) 12 13

31 Percentage of GDP Federal spending is projected to soar far above its 5-year average of 2.5 percent of GDP if current policies remain unchanged Historical Projected 28 % % 62% 28 92% of GDP SOURCES: Data from the Historical Statistics of the United States, Millennial Edition Online, Cambridge 26, the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21, and the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook, January 21 Update, alternative simulation using Congressional Budget Office assumptions. Compiled by PGPF. 1-Spending

32 Total Mandatory 38% Mandatory programs including Social Security, Medicare, Medicaid and other entitlement programs and interest costs are taking over more and more of the federal budget Net Interest 7% Total Mandatory 62% Net Interest 5% Total Mandatory 82% Discretionary 18% Mandatory Programs 31% Discretionary 62% Mandatory Programs 57% Discretionary 38% Net Interest 35% Mandatory Programs 47% Total Spending 197: $9 Billion (Constant 29 Dollars) Total Spending 21: $3.5 Trillion (est.) (Constant 29 Dollars) Total Spending 24: $12.3 Trillion (est.) (Constant 29 Dollars) SOURCES: Data derived from the Office of Management and Budget, FY 211 Budget, Historical Tables, February 21; and the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook, January 21 Update, alternative simulation using Congressional Budget Office assumptions. Calculated by PGPF. 2-Spending

33 Nondefense discretionary includes many programs that could promote future economic growth 21 (est.) Net Interest 6% Defense 19% Mandatory 55% Other 2% Education 4% Transportation 3% Health* 2% All Other Programs 11% NOTES: *Discretionary health programs include National Institutes of Health, Center for Disease Control and Prevention, & Indian Health Service. Spending excludes the 29 Stimulus package and emergency funding for activities in Iraq and Afghanistan. R&D investment spending over the last decade has been about 3.1% of GDP, or 15% of the budget, and makes up a large part of non defense discretionary spending. SOURCE: Data from the Congressional Budget Office The Budget and Economic Outlook: Fiscal Years 21 to 22, January 21. Compiled by PGPF. 3-Spending

34 As a Percentage of Total Spending Growth in entitlements has already crowded out important investments such as federal spending for R&D, which has dropped by more than half as a percent of total spending since the late 196s 52% decrease since late 6s NOTE: Research and development includes spending in major public physical capital, education and training. The top sources of allocations of R&D in the U.S. are Defense systems development, the National Institutes of Health (NIH), education, transportation, NASA, Nuclear Security Administration (NSA), National Science Foundation (NSF),the Defense Advanced Research Projects Agency (DARPA), and the Air Force, Army, and Navy. SOURCE: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21. Compiled by PGPF. 4-Spending

35 U.S. spending on defense exceeds the next largest fourteen defense budgets combined in 28 7 In billions of dollars $581 billion India Saudi Arabia Italy Japan Germany Russia UK Australia Spain Canada Brazil South Korea $67 billion U.S.A. 1 France China SOURCE: Data from Stockholm International Peace Research Institute, 15 Major Spender Countries in 28. Compiled by PGPF. 5-Spending

36 Growth in Social Security, Medicare and Medicaid have more than offset declines in defense since the late 196s 3 25 Percentage of GDP All Other Programs Net Interest Medicare & Medicaid 5 Social Security Defense SOURCE: Data from the Office of Management and Budget, FY 211 Budget, Historical Tables, February 21. Compiled by PGPF. 6-Spending

37 Unless current polices change, net interest costs are projected to exceed total federal revenues in 246 Projected net interest will exceed.. In year Medicaid spending, 1.7% of GDP 212 Defense spending, 3.6% of GDP* 217 Medicare spending, 3.9% of GDP 218 Social Security, 5.4% of GDP 222 Total Revenues, 18.1% of GDP 246 *Assumes that troops in Iraq and Afghanistan would be reduced to only 6, troops by 215, and that projected defense spending would grow at the same rate as GDP thereafter. NOTE: Net Interest already exceeds most federal budget functions including Science, Space and Technology (25), Transportation (4), and Education (5). The projections use implied CBO interest rates through 22, and an interest rate of 5. percent thereafter. If interest rates rise, projected interest costs will exceed projected program costs earlier. SOURCES: Data from the Congressional Budget Office, Analysis of the President s Budget: March 21 and Government Accountability Office The Federal Government's Long Term Fiscal Outlook: January 21 Update. Compiled by PGPF. 7-Spending

38 Social Security, Medicare and Medicaid, the three largest entitlement programs, are projected to more than double as a percentage of GDP under current policies Percentage of GDP 3% 25% 2% 15% 1% 5% % 2% of GDP 3% of GDP 5% of GDP Medicaid Medicare Social Security Fiscal Year 4 % of GDP 14% of GDP 6% of GDP SOURCE: Data from the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21 Update, alternative simulation using Congressional Budget Office Assumptions. Compiled by PGPF. 24 % of GDP 8-Spending

39 Aging drives most of the projected cost growth in Social Security, Medicare and Medicaid until 254. After that year, excess cost growth of health spending takes over as the leading driver of cost growth. Sources of Projected Growth in Social Security, Medicare and Medicaid as Percentage of GDP Effect of Aging In the Absence of Aging and Excess Health Care Cost Growth Effect of Excess Health Care Cost Growth % of GDP 6% of GDP 9% of GDP Fiscal Year NOTE: Excess health care cost growth is the amount growth in age adjusted health care costs per person exceeds the growth in per capita GDP. SOURCE: Data from the Congressional Budget Office, The Long Term Budget Outlook, June 29. Compiled by PGPF % 4.8% 8.9% 9-Spending

40 Since its inception, the Social Security program has experienced more surpluses than deficits Social Security Cash Surpluses (+) and Deficits ( ) as a Percentage of GDP NOTE: Excludes interest earnings. SOURCE: Data from the Office of Management and Budget, FY 211 Budget, Historical Tables, February 21. Compiled by PGPF. 1-Spending

41 In the future, persistent cash deficits are projected for Social Security Social Security Surpluses /Deficits In Percent of GDP Social Security Surplus.9 % of GDP ($114 Billion*) 24 Social Security Deficit 1.3 % of GDP ($342 Billion*) Deficit 1.4% of GDP ($7 Billion*) * In 29 Dollars. NOTE: CBO projections show negative cash deficits in 21 and 211. Excludes interest earnings. SOURCE: Data from the Social Security Administration, Provisions Affecting Payroll Tax Rates: 29. Compiled by PGPF. 11-Spending

42 Social Security Surpluses and Deficits In Percent of GDP Raising the taxable maximum wage level subject to payroll taxes would somewhat increase Social Security cash receipts and reduce projected deficits Savings when raising the taxable maximum wage level NOTE: : Assumes that wage cap for payroll taxes will be raised to include 9 percent of total covered earnings, from $16,8 to $181,5 in 21. More recent projections show negative cash deficits in 21 and 211. SOURCE: Data from the Social Security Administration, Provisions Affecting Payroll Tax Rates: 29. Compiled by PGPF. 15% decrease 12-Spending

43 Balancing Social Security benefits and receipts would have a small impact on the long term fiscal gap Percentage of GDP Historical Projected Primary Spending (excluding net interest) Revenues Primary Spending Revenues % of GDP Change 15.6% of GDP Gap NOTE: Balancing Social Security is defined as having Social Security benefit payments no higher than Social Security payroll tax receipts. SOURCE: Data from the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21; CBO Analysis of America s Future Act of 21. Compiled by PGPF. 13-Spending

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45 Section III: Revenues Composition of revenues: 21 1 Composition of revenues: (percentage of GDP) 2 Federal revenues: (percentage of GDP) 3 Impact on the projected deficit of restoring pre 21 tax rates (percentage of GDP) 4 Impact on projected federal revenues of extending 21 and 23 tax cuts (percentage of GDP) 5 Top 5 most expensive tax expenditures 6 Top 5 corporate tax expenditures 7 Relative size of the top 5 tax expenditures to large spending areas 8 Median household income tax rates by quintile (percentage of total income) 9 Median individual income tax rates by quintile (percentage of total income) 1 Page

46 Section III: Revenues (continued) Page Share of pre tax income and total federal taxes by quintile 11 Share of pre tax income for high and low income households 12 International comparison of tax burdens 13

47 Individual income and payroll taxes comprise most of federal receipts 21: Total Revenues $2,177 billion Corporate Income Taxes 7% Payroll Taxes 4% Other 9% Excise 3% Estate and Gift 1% Customs Duties 1% Individual Income Taxes 43% Miscellaneous 4% SOURCE: Data from the Congressional Budget Office, Preliminary Analysis of the President s Budget, March 21. Compiled by PGPF. 1-Revenues

48 The composition of federal revenues has been relatively constant since the mid-197s 25 Actual Current Law Projection* Percentage of GDP Other Receipts Corporate Income Taxes Social Insurance Taxes Individual Income Taxes 1% 2% 6% 11% * The Current Law Projection assumes that the 21 and 23 tax cuts expire as scheduled. SOURCES: Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21, and Congressional Budget Office, Analysis of the President s Budgetary Proposals for FY 211, March 21. Compiled by PGPF. 2-Revenues

49 Percentage of GDP Since 197, federal revenues have averaged 18 percent of GDP and will return to about that level if the 21 and 23 tax cuts are extended Actual GAO Projected* 4 Year Average *Projections assume the 21 and 23 tax cuts are extended and the alternative minimum tax (AMT) exemption amount is adjusted to inflation. SOURCES: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Historical Tables, February 21, and the Government Accountability Office, The Federal Government s Long Term Fiscal Outlook: January 21 Update. Compiled by PGPF. 3-Revenues

50 Restoring pre-21 tax rates on households earning over $25, will have a small impact on projected deficits. 6 5 Percentage of GDP % 5.5% 4.7% 3.4% 5.1% % OMB Baseline Deficit Deficit if Upper Income Tax Provisions in FY11 Budget are Implemented * Deficit if 21 and 23 Tax Cuts to Expire for Everyone SOURCE: Office of Management and Budget, A New Era of Responsibility: The 211 Budget, February 21. * Includes expanding/reinstating income tax rates, reinstating the personal exemption phase out and limitation on itemized deductions, and imposing a 2 percent tax rate on capital gains and dividends for taxpayers with income over $25, (married) and $2, (single). 4-Revenues

51 Extending the 21 and 23 tax cuts would reduce federal revenues by $2.7 trillion between 211 and 22 Billions of Dollars 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, Revenues Under Current Law Baseline Revenues with Tax Cuts * SOURCE: Data from the Congressional Budget Office, Analysis of the President s Budget: March 21 and The Budget and Economic Outlook, January 21. Compiled by PGPF. * Includes interactive effects of extending the tax cuts (EGTRRA and JGTRRA) and indexing the AMT (Alternative Minimum Tax) 5-Revenues

52 Tax expenditures, deductions, credits, and other special provisions total an estimated $1 trillion annually and provide substantial benefits that are not counted in the budget Top 5 Tax Expenditures 1. Exclusion of employer provided health insurance from taxable income.* Tax Revenue Lost (FY21) $262 billion 2. Exclusion of pension contributions and earnings.** $122 billion 3. Deduction of mortgage interest on a primary residence. $92 billion 4. Deduction of non business state and local taxes (includes income, property and sales taxes) $53 billion 5. Capital gains (except agriculture, timber, iron ore, and coal).*** $45 billion Total of Top 5 $573 billion * Includes the exclusion from payroll taxes and income taxes. ** Includes employer pension plans, employee and employer contributions to 41k plans, IRAs, and Keough plans. *** In addition, the biodiesel producer tax credit results in a $2 million reduction in excise tax receipts in 21. NOTE: Numbers may not add due to rounding. SOURCE: Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Analytic Perspectives, February Revenues

53 The top 5 corporate tax expenditures, deductions, credits and other special provisions are relatively small compared to the largest tax expenditures Top 5 Corporate Tax Expenditures Tax Revenue Lost (FY21) 1. Deferral of income from controlled foreign corporations $31 billion 2. Deduction for U.S. production activities $8.8 billion 3. Credit for increasing research activities $5.8 billion 4. Deferred taxes for financial firms on certain income earned overseas $5.5 billion 5. Credit for low income housing investments $ 5.4 billion Total of Top 5 $56.4 billion NOTE: Numbers may not add due to rounding. SOURCE: Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Analytic Perspectives, February Revenues

54 The value of the five largest tax expenditures is sizeable relative to major spending programs in 21 Billions of Dollars $8 $7 $6 $5 $4 $3 $2 $1 $ Top 5 Tax Expenditures Medicare Social Security Defense NOTE: Health Insurance, Retirement Saving, Mortgage Interest, and State & Local taxes are categories of spending that reduce taxable income. SOURCE: Data from the Office of Management and Budget, A New Era of Responsibility: The 211 Budget, Analytic Perspectives, February Revenues

55 The U.S. tax system has progressive attributes: effective median tax rates rise with income (households by income quintile in 21) 3 Percent of Income % 7.9% 15.5% 18.7% 22.2% 27.9% Lowest Quintile Less than $17,8 Second Quintile $17,8 $34,8 Middle Quintile $34,8 $63,4 Fourth Quintile $63,4 $14,2 Top Quintile $14,2+ Top 1% $532,5+ NOTE: Effective federal tax rate is calculated as total federal taxes paid divided by cash income. Federal taxes include individual and corporate income tax, and payroll taxes for Social Security and Medicare. SOURCE: Data from the Tax Policy Center. Compiled by PGPF. 9-Revenues

56 2 Effective median individual income tax rates are negative or zero for households with incomes below $34,8 18.8% Percentage of Total Income % % 3.2% 6.4% 1.8% 1 Lowest Quintile <$17,8 Second Quintile $17,8 $34,8 Middle Quintile $34,8 $63,4 Fourth Quintile $63,4 $14,2 Top Quintile $14,2+ Top 1% $532,5+ SOURCE: Data from the Tax Policy Center. Compiled by PGPF. 1-Revenues

57 High-income households earn a disproportionate share of pre-tax income and pay a disproportionate share of total federal taxes Percent % Top.5% (15% ) 69% % 13% 8% 17% 9% 4% 1% 4% Share of Total Pre Tax Income Share of Total Federal Taxes Top.5% (23% ) Top Quintile $67,4+ Fourth Quintile $45,2 $67,399 Middle Quintile $3,5 $45,199 Second Quintile $17,9 $3,499 Lowest Quintile Less than$17,9 NOTE: Data for 25 in 25 dollars. SOURCE: Congressional Budget Office, Historical Effective Tax Rates: : Additional Data on Sources of Income and High Income Households December 28. Compiled by PGPF. 11-Revenues

58 The share of total pre-tax income has increased for the wealthy but decreased for low income households since 198 Percentage of Total Pre Tax Income Top.5% Lowest Quintile 6.6 % 5.7 % 14.6 % 4. % SOURCE: Data from Congressional Budget Office, Historical Effective Tax Rates, 1979 to 25: Additional Data on Sources of Income and High Income Households, December 28. Compiled by PGPF. 12-Revenues

59 Total tax burdens are lower in the U.S. than many other industrial countries 6 Total Tax Revenue as a Percentage of GDP % 43% 36% 33% 18% 28% Sweden France OECD Total Canada Mexico United States NOTE: Data for each country is as of 27. OECD is the Organization of Economic Cooperation and Development. Total tax revenue includes federal, state and local. SOURCE: Data from OECD Statistics Extract. Compiled by PGPF. 13-Revenues

60

61 Section IV: Health Care Federal health expenditures: (as percentage of GDP) 1 Growth in health care consumption per capita: (constant 29 dollars) 2 Projected health care costs per capita: (constant 29 dollars) 3 International comparison of health care costs (as percentage of GDP) 4 International comparison of health care costs per capita (U.S. dollars) 5 Selected US health outcomes ranked against other nations 6 International comparison of CT scanners per capita 7 International comparison of MRI units per capita 8 International comparison of angioplasty per 1, people 9 International comparison of coronary bypass operations per 1, people 1 Growth in U.S. population (65 and older) by age group 11 Comparison of U.S. health care costs per person by age group 12 Page

62 Section IV: Health Care (continued) Composition of health care coverage, pre and post enactment of health care reform law 13 Comparison across U.S. states of Medicare costs per person 14 Portion of Medicare spending that go towards services in the last year of life 15 Page Comparison across U.S. states of number of visits to specialist by Medicare beneficiaries in last two years of life 16

63 U.S. health expenditures are projected to soar to more than one-third of the economy by Actual Projected 34 % 3 29 % Percentage of GDP % 7 % 8 % 12 % 13 % 17 % 22 % SOURCE: Data from the Congressional Budget Office, The Long Term Fiscal Outlook: June 29. Compiled by PGPF. 1- Health Care

64 Per Capita Consumption in 29 Dollars 4, 35, 3, 25, 2, 15, 1, 5, In the future, the share of per capita consumption that is devoted to health care will rise from 24 percent in 21 to 4 percent in 23. It was 17 percent in 199. Actual Projected 24% 76% Health Spending Non Health Spending 4% 6% Calendar Year NOTE: Total spending is equal to the sum of personal and government consumption as defined by the Bureau of Economic Analysis. SOURCE: Data from the Congressional Budget Office, The Long Term Budget Outlook, June 29. Compiled by PGPF. 2- Health Care

65 Average health care costs per American are projected to soar to over $3, in 25 from $8,64 in $32,47 (297% increase from 21) Current 29 Dollars $8, Calendar Year SOURCE: Data from the Congressional Budget Office, The Long Term Budget Outlook: June 29; and the U.S. Census Bureau. Compiled by PGPF. 3- Health Care

66 U.S. health care costs are far higher than those of any other OECD country Percentage of GDP % 8% 9% 9% 9% 1% 1% 1% 11% 11% 16% ** Japan* UK Australia Italy Sweden Austria Canada Germany Switzerland France US *Japan data from 26. ** Estimate for the United States in 21 is 17 percent of GDP. NOTE: Health care costs in 27, unless otherwise noted. SOURCE: Data from OECD Health Data 29, November 29. Compiled by PGPF. 4- Health Care

67 Per Capita Health Care Costs U.S. Dollars 8, 7, 6, 5, 4, 3, 2, 1, Currently, Americans spend about twice as much per capita on health care than other OECD countries with no appreciable difference in health outcomes $2,581 $2,992 $3,357 $2,686 $3,323 $3,895 $3,588 $4,417 $3,61 $7,29 Japan* UK Australia Italy *Japan data from 26. NOTE: Per capita health expenditures in 27, unless otherwise noted. Comparison uses Purchasing Power Parity, which adjusts exchange rates to assume identical price of goods in different countries. SOURCE: Data from OECD Health Data 29, November 29. Compiled by PGPF. Sweden Canada Germany Switzerland France US 5- Health Care

68 Even though the U.S. spends more on health care than other countries, its health outcomes are generally no better Outcome 15% Rank Heart 29% Attacks U.S. = 4% deaths 64% per 1 people in 25 Life Expectancy at Birth U.S. = 78.1 years in 26 Infant Mortality U.S. =.67% deaths per live birth in 26 Obesity U.S. = 34% over age 15 in 26 9 out of out of 3 28 out of 3 14 out of 14 34% SOURCE: Data from OECD Health Data 29, November 29. Compiled by PGPF. 6- Health Care

69 The U.S. has the most CT scanners per capita of any OECD country Per Million Population Canada France Germany Netherlands Switzerland United Kingdom United States NOTE: Number of CT scanners in 26. SOURCE: Data from OECD Health Data 29, November 29 and OECD Health Data 28, December 28. Compiled by PGPF. 7- Health Care

70 By far, the U.S. has highest number of MRI units per capita of any OECD country Per Million Population Canada France Germany** Netherlands* Switzerland United Kingdom *As of 25. **As of 26. NOTE: Number of MRI units in 27, unless otherwise noted. SOURCE: Data from OECD Health Data 29, November 29 and OECD Health Data 28, December 28. Compiled by PGPF. United States 8- Health Care

71 The U.S. has more angioplasty operations per capita than any other OECD country other than Germany Per 1, Population (in patient) Canada France Germany Netherlands Switzerland United Kingdom United States NOTE: Number of angioplasty operations in 26. SOURCE: Data from OECD Health Data 29, November 29. Compiled by PGPF. 9- Health Care

72 The U.S. has the most coronary bypass graft operations per capita of any OECD country, other than Germany Per 1, Population (in patient) Canada France Germany Netherlands Switzerland United Kingdom 84.5 United States NOTE: Number of MRI units in 26. SOURCE: Data from OECD Health Data 29, November 29. Compiled by PGPF. 1- Health Care

73 The size of the population ages 85 and older is expected to triple in size from 2.4 million to 7.4 million between 198 and Millions of People SOURCE: Data from the Center for Medicare & Medicaid Services, Office of the Actuary Last Year of Life Study. Compiled by PGPF. 11- Health Care

74 $3, $25, Per capita health care spending by those ages 85+ was 7 times higher than per person spending by those under the age of 65 $25,691 Health Costs Per Person $2, $15, $1, $5, $5,276 $3,581 $1,778 $16,389 $ All Ages SOURCE: Data from the Center for Medicare and Medicaid Services, National Health Expenditures: 28, reflects 24 data. Compiled by PGPF. 12- Health Care

75 In 219, health care reform legislation will lower the number of uninsured Americans primarily through the creation of health insurance exchanges and expanded Medicaid coverage Without Reform After Health Care Reform Act Exchanges 7% Medicare 17% Medicaid & CHIP 1% Medicare 18% Medicaid & CHIP 15% Nongroup & Other 9% Uninsured 16% Employer 48% Uninsured 6% Nongroup & Other 7% Employer 47% NOTE: Nongroup refers to people who purchase health insurance under individual plans. SOURCE: Data from the Congressional Budget Office, Cost Estimate: H.R. 4872, Reconciliation Act of 21, March 2, 21 and Centers for Medicare & Medicaid Services, National Health Expenditures Historical and Projections, : January 21. Compiled by PGPF. 13- Health Care

76 Medicare spending per capita varies substantially across the States 14, Medicare Spending per Enrollee 12, 1, 8, 6, 4, 2, $11,883 $7,754 $11,594 $11,697 $7,531 $11,849 $7,493 $1,2 New Jersey Iowa Florida Louisiana Hawaii Texas New Mexico United States NOTE: Data estimated for 29 using average annual growth rates from SOURCE: Data derived from the Center for Medicare and Medicaid Services, National Health Expenditures: 28. Calculated by PGPF. 14- Health Care

77 Almost three out of every ten Medicare dollars is spent for people who are in the last year of life Other Medicare Spending (1999 Survivors) 71% Medicare Spending In the Last Year of Life (1999 Decedents) 29% NOTE: Data in SOURCE: Data from the Center for Medicare & Medicaid Services, Office of the Actuary Last Year of Life Study. Compiled by PGPF. 15- Health Care

78 The number of visits made to specialists by Medicare beneficiaries in the last two years of life varies by State Medical Specialist Visit per Decedent New Jersey Florida California Oregon Minnesota Massachusetts SOURCE: Dartmouth Atlas Group. Compiled by PGPF. 16- Health Care

79 Section V: Personal Finances Poverty levels by age groups: (percentage of age group) 1 Ratio of covered workers to beneficiaries: International comparison of ratio of those 65 and older to total work force 3 Historical look at longevity of those 65 and older: Population 65 and older as a percentage of total population: Variations in life expectancy at birth by income 6 Japan s ratio of elderly population rises, national savings declines: Importance of Social Security benefits to seniors (percentage of total income) 8 Variation in lifetime Social Security benefits by income and by birth cohort 9 International comparison of households savings (percentage of disposable income) 1 Growth in U.S. household debt: (percentage of disposable income) 11 U.S. personal savings: (percentage of disposable income) 12 Net national savings: (percentage of GDP) 13 Page

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81 25 2 Poverty levels for the young population have remained higher than other age groups and have been on the rise, while the poverty levels for the elderly have declined Under 18 Years Percent in Poverty Years 65 Years and Older SOURCE: Data from the U.S. Census Bureau, poverty statistics. Compiled by PGPF. 1-Personal Finances

82 As the population ages, there will be many fewer covered workers for each Social Security beneficiary Workers per Beneficiairy SOURCE: Data from the Social Security Administration 29 Trustees Report. Compiled by PGPF. 2-Personal Finances

83 Now and in the future, the U.S. population is slightly older than that of emerging countries, but younger than most developed nations United States Brazil Mexico China Canada Switzerland UK France Germany Spain Japan Italy Ages 65+ as Percentage of Total Labor Force SOURCE: Data from the OECD Economic Outlook Volume 29 Issue 2: December 29. Compiled by PGPF. 3-Personal Finances

84 As the baby boomers retire, the result will be a nation of Floridas Population 65 and over as a percent of the total population % 2 % 21 % 16 % 13 % 12 % 13 % 11 % 9 % 1 % 8 % SOURCE: Data from the OECD, Factbook 29. Compiled by PGPF. 4-Personal Finances

85 Remaining Years of Life at Age At age 65, people today live 5 percent longer on average than in 194. By 285, longevity at age 65 is projected to be 8 percent longer than years remaining Historical Projected SOURCE: Data from the Social Security Administration, Trustees Report: 29. Compiled by PGPF. 5-Personal Finances

86 Over the last two decades, improvements in life expectancy at birth have been greater for those with higher socio-economic status Life Expectancy at Birth Most Deprived 75.8 Least Deprived 74.7 (+1.7 years) 79.2 (+ 3.4 years) NOTE: The deprivation index considers 11 different factors, among them education, wealth, occupation, and income. SOURCE: Data from Gopal K. Singh and Mohammad Siahpush, "Widening Socioeconomic Inequalities in U.S. Life Expectancy, 198 2," International Journal of Epidemiology, vol. 35, no. 4 (26), pp Compiled by PGPF. 6-Personal Finances

87 Japan s example: As the elderly population increases as a share of the population, household savings rate declines % 2 Elderly Population % of Total Percentage Household Savings % of GDP 2.6% SOURCE: Data from the OECD Economic Outlook Volume 29 Issue 2: December 29. Compiled by PGPF. 7-Personal Finances

88 Social Security benefits account for most of low-income seniors total income 9 Social Security Benefits As a Percent of Total Income % Total (Median $26,35) 81% 79% Lowest Quintile (Median $1,7) Second Quintile (Median $14,4) 61% Third Quintile (Median $21,6) 4% Fourth Quintile (Median $31,75) 15% Highest Quintile (Median $58,) NOTE: Data assumes that seniors spend down a portion of their assets to supplement their income in retirement. Total asset levels for each quintile is imputed based upon total asset income. SOURCE: Data derived from the Social Security Administration Income of the Population 55 or Older: 28. Calculated by PGPF. 8-Personal Finances

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