This is the accessible text file for CG Presentation number GAO-07- 739CG entitled 'Saving Our Future Requires Tough Choices Today' which was released on April 10, 2007. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. United States Government Accountability Office: Saving Our Future requires Tough Choices Today: The Maxwell School of Citizenship and Public Affairs: Syracuse University: Syracuse, NY: April 4, 2007: The Honorable David M. Walker: Comptroller General of the United States: GAO-07-739CG: Composition of Federal Spending: [See PDF for image] - graphic text 3 pie charts with 5 items each. 1966: Defense: 43.0%; Social Security: 15.0%; Medicare & Medicaid: 1.0%; Net interest: 7.0%; All other spending: 34.0%. 1986: Defense: 28.0%; Social Security: 20.0%; Medicare & Medicaid: 10.0%; Net interest: 14.0%; All other spending: 29.0%. 2006: Defense: 20.0%; Social Security: 21.0%; Medicare & Medicaid: 19.0%; Net interest: 9.0%; All other spending: 32.0%. Source: Office of Management and Budget. Note: Numbers may not add to 100 percent due to rounding. [End of figure] Federal Spending for Mandatory and Discretionary Programs: [See PDF for image] - graphic text 3 pie charts with 3 items each. 1966: Discretionary: 67%; Mandatory: 26%; Net Interest: 7%. 1986: Discretionary: 44%; Mandatory: 42%; Net Interest: 14%. 2006: Discretionary: 38%; Mandatory: 53%; Net Interest: 9%. Source: Office of Management and Budget. [End of figure] Fiscal Year 2005 and 2006 Deficits and Net Operating Costs: Dollars in billions. On-Budget Deficit; Fiscal Year 2005: ($494); Fiscal Year 2006: ($434). Unified Deficit[A]; Fiscal Year 2005: ($318); Fiscal Year 2006: ($248). Net Operating Cost[B]; Fiscal Year 2005: ($760); Fiscal Year 2006: (450). Sources: The Office of Management and Budget and the Department of the Treasury. [A] Includes $173 billion in Social Security surpluses for fiscal year 2005 and $185 billion for fiscal year 2006; $2 billion in Postal Service surpluses for fiscal year 2005 and $1 billion for fiscal year 2006. [B] Fiscal year 2005 and 2006 net operating cost figures reflect significant but opposite changes in certain actuarial costs. For example, changes in interest rates and other assumptions used to estimate future veterans' compensation benefits increased net operating cost by $228 billion in 2005 and reduced net operating cost by $167 billion in 2006. Therefore, the net operating costs for fiscal years 2005 and 2006, exclusive of the effect of these actuarial cost fluctuations, were ($532) billion and ($617) billion, respectively. [End of table] Major Reported Long-Term Fiscal Exposures ($ trillions): Explicit liabilities (Publicly held debt, military & civilian pensions & retiree health, other); 2000: $6.9; 2006: $10.4; Percent Increase: 52%. Commitments & Contingencies: e.g., PBGC, undelivered orders; 2000: $0.5; 2006: $1.3; Percent Increase: 140%. Implicit exposures; 2000: $13.0; 2006: $38.8; Percent Increase: 197%. Implicit exposures: Future Social Security benefits; 2000: $3.8; 2006: $6.4; Percent Increase: [Empty]. Implicit exposures: Future Medicare Part A benefits; 2000: $2.7; 2006: $11.3; Percent Increase: [Empty]. Implicit exposures: Medicare Part B benefits; 2000: $6.5; 2006: $13.1; Percent Increase: [Empty]. Implicit exposures: Medicare Part D benefits; 2006: $8.0; Percent Increase: [Empty]. Total; 2000: $20.4; 2006: $50.5; Percent Increase: 147%. Source: 2000 and 2006 Financial Report of the United States Government. Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year and all other data are as of September 30. Totals may not add due to rounding. Percentage increases are based on actual data and may differ from increases calculated from rounded data shown in table. [End of table] Understanding the Size of Major Reported Fiscal Exposures: Our fiscal burden can be translated and compared as follows: 2006 data: Major reported fiscal exposures: $50.5 trillion. Total household net worth: $53.3 trillion: * Ratio of fiscal exposures to net worth: 95 percent. Burden: Per person: $170,000; Per full-time worker: $400,000; Per household: $440,000. Income: Median household income: $46,326; Disposable personal income per capita: $31,519. Ratio of household burden to median income: 9.5. Sources: GAO analysis of data from the Department of the Treasury, Federal Reserve Board, U.S. Census Bureau and Bureau of Economic Analysis. [End of table] Potential Fiscal Outcomes: Under Baseline Extended (January 2001) Revenues and Composition of Spending as a Share of GDP: [See PDF for image] - graphic text: Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars per group. 2005; Net interest: 0.8%; Social Security: 4.3%; Medicare & Medicaid: 3.7%; All other spending: 8.0%; Revenue: 20.3%. 2015[A]; Net interest: 0%; Social Security: 5.1%; Medicare & Medicaid: 4.9%; All other spending: 5.6%; Revenue: 20.4%. 2030[A]; Net interest: 0%; Social Security: 6.6%; Medicare & Medicaid: 9.4%; All other spending: 4.0%; Revenue: 20.4%. 2040[A]; Net interest: 0%; Social Security: 6.7%; Medicare & Medicaid: 9.0%; All other spending: 4.4%; Revenue: 20.4%. Source: GAO’s January 2001 analysis. Notes: Revenue as a share of GDP increases through 2011 due to (1) real bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) increased revenue from tax-deferred retirement accounts. After 2011, revenue as a share of GDP is held constant—implicitly assuming action to offset the increased revenue from real bracket creep, the AMT, and tax-deferred retirement accounts. [A] All other spending is net of offsetting interest receipts. [End of figure] Potential Fiscal Outcomes Alternative Simulation-Discretionary Spending Grows with GDP and Expiring Tax Provisions Extended (January 2007) Revenues and Composition of Spending as a Share of GDP: [See PDF for image] - graphic text: Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars per group. 2006; Net interest: 1.7%; Social Security: 4.2%; Medicare & Medicaid: 3.9%; All other spending: 10.5%; Revenue: 18.4%. 2015; Net interest: 2.1%; Social Security: 4.6%; Medicare & Medicaid: 4.9%; All other spending: 9.6%; Revenue: 17.6%. 2030; Net interest: 5.9%; Social Security: 6.8%; Medicare & Medicaid: 8.3%; All other spending: 9.5%; Revenue: 17.8%. 2040; Net interest: 12.1%; Social Security: 7.6%; Medicare & Medicaid: 10.3%; All other spending: 9.5%; Revenue: 17.8%. Source: GAO’s January 2007 analysis. Notes: AMT exemption amount is retained at the 2006 level through 2017 and expiring tax provisions are extended. After 2017, revenue as a share of GDP is held constant—implicitly assuming that action is taken to offset increased revenue from real bracket creep, the AMT, and tax- deferred retirement accounts. [End of figure] Current Fiscal Policy Is Unsustainable: The "Status Quo" is Not an Option: * We face large and growing structural deficits largely due to known demographic trends and rising health care costs. * GAO's simulations show that balancing the budget in 2040 could require actions as large as: - Cutting total federal spending by 60 percent or: - Raising federal taxes to two times today's level: Faster Economic Growth Can Help, but It Cannot Solve the Problem: * Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double digit range every year for the next 75 years. * During the 1990s, the economy grew at an average 3.2 percent per year. * As a result, we cannot simply grow our way out of this problem. Tough choices will be required. The Way Forward: A Three-Pronged Approach: 1. Improve Financial Reporting, Public Education, and Performance Metrics: 2. Strengthen Budget and Legislative Processes and Controls: 3. Fundamental Reexamination & Transformation for the 21St Century (i.e., entitlement programs, other spending, and tax policy): Solutions Require Active Involvement from both the Executive and Legislative Branches: Key National Indicators: What: A portfolio of economic, social, and environmental outcome-based measures that could be used to help assess the nation's and other governmental jurisdictions' position and progress: Who: Many countries and several states, regions, and localities have already undertaken related initiatives (e.g., Australia, New Zealand, Canada, United Kingdom, Oregon, Silicon Valley (California) and Boston): Why: Development of such a portfolio of indicators could have a number of possible benefits, including: * Serving as a framework for related strategic planning efforts: * Enhancing performance and accountability reporting: * Informing public policy decisions, including much needed baseline reviews of existing government policies, programs, functions, and activities: * Facilitating public education and debate as well as an informed electorate: Way Forward: Consortium of key players housed by the National Academies domestically and related efforts by the OECD and others internationally: Key National Indicators: Where the United States Ranks: The United States may be the only superpower, but compared to most other OECD countries on selected key economic, social, and environmental indicators, on average, the U.S. ranks: 16 0ut Of 28: OECD Categories for Key Indicators (2006 OECD Factbook): Population/Migration; Energy; Environment; Quality of Life; Macroeconomic trends; Labor Market; Education; Economic Globalization; Prices; Science & Tech; Public Finance. Source: 2006 OECD Factbook. Moving the Debate Forward: The Sooner We Get Started, the Better: * The miracle of compounding is currently working against us: * Less change would be needed, and there would be more time to make adjustments: * Our demographic changes will serve to make reform more difficult over time: Need Public Education, Discussion, and Debate: * The role of government in the 21St Century: * Which programs and policies should be changed and how: * How government should be financed: These Challenges Go Beyond Numbers and Dollars-It's About Values and People: Source: GAO. On the Web: Web site: [Hyperlink, http://www.gao.gov/cghome.htm]: Contact: Paul Anderson, Managing Director, Public Affairs AndersonP1@gao.gov (202) 512-4800: U.S. Government Accountability Office 441 G Street NW, Room 7149 Washington, D.C. 20548: Copyright: This is a work of the U.S. government and is not subject to copyright protection in the United States. 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