CHARTS MAY 19, 2015 WASHINGTON, D.C.

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1 CHARTS MAY 19, 2015 WASHINGTON, D.C.

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3 America s economic recovery is finally taking hold and current deficits are down from their highs during the recession. But at the same time, far too many American families are being left out of the recovery, and our nation still faces an unsustainable long-term fiscal outlook. It is in this context with progress made, but work still to be done that America has an important opportunity to secure its fiscal and economic future. On the economic side, while lower unemployment and improvements in growth are fueling renewed optimism, the recovery is uneven and longer-term trends of income stagnation are of great concern. There is widespread agreement that we need to ensure continued access to opportunity for Americans. When it comes to our fiscal challenges, many said that the fragile nature of the recovery meant that fiscal action needed to be delayed until the economy was stronger. Now, as the economic recovery strengthens, lawmakers have a new and important opportunity to address America s unsustainable long-term fiscal outlook. The current economic environment allows more room to maneuver, and provides a window to plan for success making smart, reasoned decisions that will benefit America over the long term. The charts in this book outline the nature of the long-term challenges we face and what we have to gain if we take action to stabilize our fiscal outlook. It s clear that the United States is on an unsustainable fiscal path, driven by a structural long-term imbalance between spending and revenue. Without action, rising debt and interest payments will weigh down the economy and undermine investments in our future, including in key areas like education, research, and infrastructure. Moreover, unless we change course, critically important safety net programs could be threatened by sharp cuts that hurt the most vulnerable Americans. The charts also show that we can choose a better path. There s no shortage of good solutions to stabilize our long-term fiscal outlook and ensure our future isn t diminished by our past. The Peter G. Peterson Foundation regularly produces charts and analyses to explain the scope and seriousness of America s fiscal challenges and to help policymakers, experts, and the public make progress toward solutions. To view and share these charts and other materials, please visit #FiscalSummit 1

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6 U.S. debt held by the public is on an unsustainable path 200% 175% 150% DEBT HELD BY THE PUBLIC (% OF GDP) Actual Projected 183% in 2039 (Alternative Fiscal Scenario) 125% 100% 75% World War II 106% in 2039 (Current Law) 50% 25% 0% SOURCE: Congressional Budget Office, The 2014 Long-Term Budget Outlook, July Compiled by PGPF. NOTE: Data for the alternative fiscal scenario include economic feedback. #FiscalSummit 4

7 The growing debt is caused by a structural mismatch between spending and revenues 30% 25% FEDERAL REVENUES AND SPENDING (% OF GDP) Average Spending ( ) Actual Projected Spending 20% 15% 10% Average Revenues ( ) Revenues 5% 0% SOURCE: Congressional Budget Office, The 2014 Long-Term Budget Outlook, July 2014, and Updated Budget Projections: 2015 to 2025, March Compiled by PGPF. NOTE: Projections are from CBO s extended baseline scenario. #FiscalSummit 5

8 Healthcare is the major driver of the projected growth in federal spending over the long term 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% FEDERAL SPENDING (% OF GDP) Actual Projected Major Health Programs Social Security Defense Discretionary Nondefense Discretionary Other Mandatory 0% SOURCE: Congressional Budget Office, Historical Budget Data, April 2014, and The 2014 Long-Term Budget Outlook, July 2014; and PGPF projections based on CBO data. Calculated by PGPF. NOTE: Projections are based on CBO s extended baseline scenario. Major health programs include Medicare, Medicaid, Children s Health Insurance Program (CHIP), and the health exchanges. #FiscalSummit 6

9 The elderly population is growing rapidly and living longer U.S. POPULATION AGE 65+ (MILLIONS) Baby Boomers Turn SOURCE: U.S. Census Bureau, National Intercensal Estimates, and 2014 National Population Projections, December Compiled by PGPF. #FiscalSummit 7

10 Social Security moved from annual surpluses to annual deficits in % SOCIAL SECURITY SURPLUSES/DEFICITS (% OF GDP) Actual Projected Trust Fund Depleted 0.5% 0.0% Total Deficit $2.8 Trillion -0.5% -1.0% -1.5% -2.0% SOURCE: Social Security Administration, The 2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, July Compiled by PGPF. NOTE: Surplus/deficit numbers exclude interest income. The total deficit of $2.8 trillion is the present value of the cash deficits between 2014 and #FiscalSummit 8

11 As the population ages, fewer workers will be paying taxes to support each Social Security beneficiary WORKERS PER BENEFICIARY SOURCE: Social Security Administration, The 2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, July Compiled by PGPF. #FiscalSummit 9

12 The United States spends more than twice as much per capita on healthcare as the average developed country does HEALTHCARE COSTS PER CAPITA (DOLLARS) $10,000 $8,000 $8,745 $6,000 $6,080 $4,000 $2,000 $3,209 $3,289 $3,649 $3,997 $4,106 $4,288 $4,602 $4,811 $3,484 $0 Italy U.K. Japan Australia Sweden France Canada Germany Switzerland United States OECD Average SOURCE: Organization for Economic Cooperation and Development, OECD Health Statistics 2014, June Compiled by PGPF. NOTE: Per capita health expenditures are for 2012, except Australia for which 2011 data are the latest available. Chart uses purchasing power parities to convert data into U.S. dollars. #FiscalSummit 10

13 LIFE EXPECTANCY (YEARS) Life expectancy at birth in the United States is lower than in other developed countries, despite higher healthcare costs Italy Japan France Canada 82 U.K Germany United States $0 $2,000 $4,000 $6,000 $8,000 $10,000 HEALTHCARE SPENDING PER CAPITA SOURCE: Organization for Economic Cooperation and Development, OECD Health Statistics 2014, June Compiled by PGPF. NOTE: The trend line comes from a logarithmic regression. #FiscalSummit 11

14 Medical spending increases rapidly with age ANNUAL HEALTHCARE SPENDING PER CAPITA (DOLLARS) $40,000 $35,000 $30,000 $34,783 $25,000 $20,000 $15,000 $15,857 $10,000 $5,000 $0 $8,370 $3,628 $4, SOURCE: Centers for Medicare and Medicaid Services, National Health Expenditures by Age and Gender, May Data are for Compiled by PGPF. #FiscalSummit 12

15 Total U.S. health expenditures (both public and private) are projected to rise to nearly one-quarter of the economy by 2039 NATIONAL HEALTH SPENDING (% OF GDP) 25% Actual Projected 20% 22% 15% 15% 18% 10% 11% 5% 5% 7% 0% SOURCE: Centers for Medicare and Medicaid Services, National Health Expenditures, December 2014; and the Congressional Budget Office, The 2014 Long-Term Budget Outlook, July Compiled by PGPF. NOTE: CMS data are for The 2039 figure is based on the latest projection from CBO. National spending on healthcare is health consumption expenditures as defined in the national health expenditure accounts and excludes spending on medical research, structures, and equipment. #FiscalSummit 13

16 Corporate and individual tax expenditures are large in comparison to annual taxes collected, as well as to the government s major programs BUDGETARY COST (BILLIONS OF DOLLARS) $1,800 $1,500 $1.7 Trillion $1,200 $1.4 Trillion $900 $600 $300 $505 Billion $845 Billion $596 Billion $0 All Tax Expenditures Individual & Corporate Tax Revenues Medicare Social Security Defense SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2016, February Data are for Compiled by PGPF. NOTE: Medicare spending is net of premiums and payments from the states. Those receipts were $95 billion in Defense represents discretionary defense spending. Income tax revenues includes both individual and corporate income tax receipts. Tax expenditures are deductions, credits, exclusions, and preferential rates. The estimates include effects on income, payroll, and excise tax revenues, as well as effects on outlays. #FiscalSummit 14

17 The U.S. tax system is progressive, with higher-income taxpayers facing higher tax rates AVERAGE TAX RATE (% OF CASH INCOME) 40% Estate Tax Corporate Income Tax 33.4% 35.7% 30% Payroll Tax Individual Income Tax 23.8% 20% 16.6% 18.8% 20.3% 13.7% 10% 8.0% 3.1% 0% Lowest Quintile Second Quintile Middle Quintile Fourth Quintile 80-90th Percentile 90-95th Percentile 95-99th Percentile Top 1 Percent Top 0.1 Percent SOURCE: Tax Policy Center, Baseline Average Effective Federal Tax Rates by Cash Income Percentile; 2014, July Compiled by PGPF. NOTE: Data are for Individual income tax rates for the lowest and second lowest quintiles are negative and are netted against the payroll tax rate. A quintile is one fifth of the population. In 2013 dollars, the income breaks are 20%: $24,191; 40%: $47,261; 60%: $79,521; 80%: $134,266; 90%: $180,482; 95%: $261,471; 99%: $615,048; 99.9%: $3,170,865. #FiscalSummit 15

18 Compared with other major countries, the United States has had a low national saving rate 8% NET NATIONAL SAVING RATE (% OF GDP) 6% 4% G-7 Average (Excluding U.S.) 2% 0% -2% United States -4% SOURCE: Organization for Economic Cooperation and Development, National Accounts at a Glance, November Compiled by PGPF. NOTE: The G-7 is a group of seven advanced economies: Canada, France, Germany, Italy, Japan, the U.K., and the United States. #FiscalSummit 16

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20 Interest costs are projected to grow to unsustainable levels if current policies aren t changed 60% % OF GDP Revenues Actual Projected 50% 40% Noninterest Spending Net Interest Spending Total Spending 30% 20% 10% 0% SOURCE: Congressional Budget Office, The 2014 Long-Term Budget Outlook, July 2014; and Office of Management and Budget, Budget of the United States Government, Fiscal Year 2016, Historical Tables, February Calculated by PGPF. NOTE: Projections are based on CBO s alternative fiscal scenario. #FiscalSummit 18

21 INTEREST COSTS (% OF GDP) By 2066, interest costs on the federal debt will exceed federal revenues. If the economic effects of debt on interest rates are included, that date will occur in % 35% 30% 25% 20% 15% 10% 5% Interest Costs with Economic Effects Interest Costs without Economic Effects Revenues 0% SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024, February 2014, and The 2014 Long-Term Budget Outlook, July Calculated by PGPF. NOTE: Projections are based on CBO s alternative fiscal scenario and CBO s assumptions about the effects of high debt levels on interest rates. The effective interest rate on federal debt rises gradually until it is one-and-one-third percentage points higher in 2039 than in CBO s economic benchmark projections. #FiscalSummit 19

22 Interest costs will be the third largest category of the budget in 2023 FEDERAL SPENDING IN 2023 (BILLIONS OF DOLLARS) $1,500 $1,394 $1,000 $852 $500 $704 $697 $677 $659 $519 $0 Social Security Medicare Interest Other Mandatory Defense Discretionary Nondefense Discretionary Medicaid SOURCE: Congressional Budget Office, Updated Budget Projections: 2015 to 2025, March Compiled by PGPF. NOTE: Medicare is net of offsetting receipts. #FiscalSummit 20

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24 Mandatory spending and interest costs will climb significantly, while discretionary spending will fall to well below historical averages % OF FEDERAL SPENDING % of GDP 100% 90% 80% 70% 61% 68% 77% Mandatory Spending and Net Interest Costs 16% 14% 12% Actual Projected 60% 50% 10% 8% 20-Year Average ( ) 40% 30% 20% 10% 39% 32% 23% Discretionary Spending 6% 4% 2% Discretionary Spending 0% % SOURCE: Congressional Budget Office, Updated Budget Projections: 2015 to 2025, March Compiled by PGPF. #FiscalSummit 22

25 FEDERAL SPENDING (% OF GDP) By 2050, interest costs on the debt are projected to be four times what the federal government has historically spent on education, R&D, and infrastructure combined 12% 10.7% 10% 8% 7.0% Alternative Fiscal Scenario 6% 4% 2% 0% 2.6% R&D Infrastructure Education Average Spending ( ) 1.3% Interest Costs Current Law SOURCE: Congressional Budget Office, The 2014 Long-Term Budget Outlook, July 2014; and Office of Management and Budget, Budget of the United States Government, Fiscal Year 2016, Historical Tables, February Compiled by PGPF. NOTE: Infrastructure excludes defense. Data for the alternative fiscal scenario does not include economic feedback. #FiscalSummit 23

26 Discretionary spending funds a wide range of government programs Defense DISCRETIONARY BUDGET Defense Transportation Education Income Security Veterans Benefits and Services Health (Discretionary Only) Administration of Justice International Affairs Natural Resources and Environment General Science, Space and Technology Community and Regional Development General Government Energy Medicare Administrative Costs Social Security Administrative Costs Agriculture SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2016, February Data are for Compiled by PGPF. NOTE: Data excludes function 900, 990, and functions with negative outlays. Health (discretionary only) includes National Institutes of Health, Center for Disease Control and Prevention, veterans healthcare, and administrative costs for Medicaid. #FiscalSummit 24

27 The United States spends more on defense than the next seven countries combined DEFENSE SPENDING (BILLIONS OF DOLLARS) $700 $600 $601 Billion $610 Billion $500 China $400 $300 $200 $100 $0 Russia Saudi Arabia France United Kingdom India Germany United States SOURCE: Stockholm International Peace Research Institute, SIPRI Military Expenditure Database, April Data are for Compiled by PGPF. NOTE: Figures are in U.S. dollars, converted from local currencies using market exchange rates. #FiscalSummit 25

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30 The United States lags in the percentage of university students earning science and engineering degrees SCIENCE AND ENGINEERING DEGREES (% OF UNDERGRADUATE DEGREES) 50% 40% 44% 30% 31% 20% 23% 10% 16% 0% United States European Union Asia China SOURCE: National Science Foundation, Science and Engineering Indicators 2014, February Compiled by PGPF. NOTE: This chart includes natural sciences (physical, biological, agricultural, computer science, and mathematics) and engineering but excludes social sciences. #FiscalSummit 28

31 The United States ranks only 16 th in quality of overall infrastructure according to the World Economic Forum QUALITY OF OVERALL INFRASTRUCTURE Worst Best Germany Spain Belgium Portugal Denmark Luxembourg Canada U.S. Sweden Malaysia Switzerland UAE Singapore Hong Kong Japan Austria Finland Netherlands Iceland France SOURCE: World Economic Forum, The Global Competitiveness Report , Compiled by PGPF. NOTE: The World Economic Forum score on overall infrastructure includes transport, telephony, and energy. Only the top 20 ranked countries are shown. #FiscalSummit 29

32 The median real income for families in the United States has been relatively stagnant for two decades $80,000 MEDIAN FAMILY INCOME (2013 DOLLARS) $70,000 Average Income ( ) $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $ SOURCE: U.S. Census Bureau, Historical Income Tables, September Compiled by PGPF. #FiscalSummit 30

33 The United States ranks only 13 th in income mobility from one generation to the next INTERGENERATIONAL INCOME MOBILITY Least Mobile Most Mobile Chile U.K. Italy Spain Switzerland France U.S. Sweden Germany New Zealand Japan Canada Australia Finland Norway Denmark SOURCE: Miles Corak, Inequality from Generation to Generation: the United States in Comparison, Compiled by PGPF. NOTE: Mobility is measured as intergenerational earnings elasticity, an indicator of how closely children s earnings are related to those of their parents. In low-mobility countries, children s earnings in adulthood depend heavily on their parents earnings. #FiscalSummit 31

34 Although the incomes of the wealthy are volatile, they have grown much faster than the incomes of other groups $1,500,000 AVERAGE ANNUAL AFTER-TAX INCOME (2011 DOLLARS) $1,200,000 $900,000 $600,000 $300,000 $ Top 1%: Increase of $688,200 (+200%) Top 20%: Increase of $87,700 (+87%) Middle 20%: Increase of $15,400 (+35%) Lowest 20%: Increase of $7,800 (+48%) SOURCE: Congressional Budget Office, The Distribution of Household Income and Federal Taxes, 2011, November Compiled by PGPF. #FiscalSummit 32

35 Poverty levels among children have remained high, while poverty levels among the elderly have declined 30% % IN POVERTY 25% Under 18 Years 20% 15% 10% 5% 65 Years and Older 0% SOURCE: U.S. Census Bureau, Historical Poverty Tables, September Data are for Compiled by PGPF. #FiscalSummit 33

36 The growing federal debt is projected to reduce average income per person by $5,000 in 2039 AVERAGE INCOME LOSS PER CAPITA (2014 DOLLARS) $0 -$1,000 -$2,000 -$2,000 -$3,000 -$3,000 -$4,000 -$5,000 -$5,000 -$6, SOURCE: Congressional Budget Office, The 2014 Long-Term Budget Outlook, July Compiled by PGPF. NOTE: Income is measured as real gross national product (GNP) per person. The reduction to income is the difference between the level of income if debt rises as it does under the alternative fiscal scenario and the level of income if debt remains near its current share of GNP. #FiscalSummit 34

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38 Solutions do exist: PGPF Solutions Initiative III plans from five think tanks show stable or declining federal debt through % DEBT HELD BY THE PUBLIC (% OF GDP) 175% Current Policy 150% 125% 100% 75% 50% 25% 0% Bipartisan Policy Center American Enterprise Institute Economic Policy Institute Center for American Progress American Action Forum SOURCE: Peter G. Peterson Foundation, Solutions Initiative III, May See pgpf.org/solutions-initiative-iii for more details. NOTE: Current policy is defined as the alternative fiscal scenario without economic feedback from CBO s 2014 Long-Term Budget Outlook. #FiscalSummit 36

39 Delaying action raises the cost of stabilizing the debt in the long run SIZE OF BUDGET CHANGES NEEDED TO STABILIZE THE DEBT (% OF GDP) 7% 6% 5% 5.8% 4% 4.3% 3% 3.4% 2% 1% 0% If Fiscal Reforms Begin in SOURCE: Congressional Budget Office, The 2014 Long-Term Budget Outlook, July Calculated by PGPF. NOTE: Calculations are based on CBO s alternative fiscal scenario. #FiscalSummit 37

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