This is the accessible text file for CG Presentation number GAO-07-1267CG entitled
'Saving Our Future Requires Tough Choices Today' which was released on September 24, 2007.
United States Government Accountability Office:
GAO:
Fiscal Wake-Up Tour Presentations in Los Angeles, Las Vegas, San Jose, and San Francisco:
September 11-14, 2007:
Composition of Federal Spending:
[See PDF for image] - graphic text:
There are three pie charts, containing the following compositions of spending by category:
Year: 1966;
Defense: 43%;
Social Security: 15%;
Medicare and Medicaid: 1%;
Net Interest: 7%;
All Other: 34%.
Year: 1986;
Defense: 28%;
Social Security: 20%;
Medicare and Medicaid: 10%;
Net Interest: 14%;
All Other: 29%.
Year: 2006;
Defense: 20%;
Social Security: 21%;
Medicare and Medicaid: 19%;
Net Interest: 9%;
All Other: 32%.
Source: Office of Management and Budget and the Department of the Treasury.
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:
There are three pie charts, containing the following compositions of spending by category:
Year: 1966;
Discretionary: 67%;
Mandatory: 26%;
Net Interest: 7%.
Year: 1986;
Discretionary: 44%;
Mandatory: 42%;
Net Interest: 14%.
Year: 2006;
Discretionary: 38%;
Mandatory: 53%;
Net Interest: 9%.
Source: Office of Management and Budget.
[End of figure]
Table: Fiscal Year 2005 and 2006 Deficits and Net Operating Costs:
On-Budget Deficit, Fiscal Year 2005 ($ Billion): (494);
On-Budget Deficit, Fiscal Year 2006 ($ Billion): (434);
Unified Deficit[a], Fiscal Year 2005 ($ Billion): (318);
Unified Deficit[a], Fiscal Year 2006 ($ Billion): (248);
Net Operating Cost[b], Fiscal Year 2005 ($ Billion): (760);
Net Operating Cost[b], Fiscal Year 2006 ($ Billion): (450);
Sources: Office of Management and Budget and 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 ($617) billion, respectively.
[End of table]
Table: Major Fiscal Exposures ($ 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; (Future Social Security benefits: 3.8; Future Medicare Part A benefits: 2.7; Future Medicare Part B benefits: 6.5; Future Medicare Part D benefits: 0).
2006: 38.8; (Future Social Security benefits: 6.4; Future Medicare Part A benefits: 11.3; Future Medicare Part B benefits: 13.1; Future Medicare Part D benefits: 7.9).
Percent increase: 197.
Total, 2000: $20.4;
Total, 2006: $50.5;
Percent increase: 147.
Source: 2000 and 2006 Financial Report of the United States Government.
Note: Totals and percent increases may not add due to rounding.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.
[End of table]
Table: How Big is Our Growing Fiscal Burden?
This fiscal burden can be translated and compared as follows:
Total major fiscal exposures: $50.5 trillion;
Total household net worth[1]: $53.3 trillion;
Burden/Net worth ratio: 95 percent.
Burden[2]:
Per person: $170,000;
Per full-time worker: $400,000;
Per household: $440,000.
Income:
Median household income[3]: $46,326;
Disposable personal income per capita[4]: $31,519.
Source: GAO analysis.
Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100, 2006:Q2 (Sept. 19, 2006); (2) Burdens are calculated using estimated total U.S. population as of 9/30/06, from the U.S. Census Bureau; full-time workers reported by the Bureau of Economic Analysis, in NIPA table 6.5D (Aug. 2, 2006); and households reported by the U.S. Census Bureau, in Income, Poverty, and Health Insurance Coverage in the United States: 2005(Aug. 2006); (3) U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2005(Aug. 2006); and (4) Bureau of Economic Analysis, Personal Income and Outlays: October 2006, table 2, (Nov. 30, 2006).
[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.
This is a line/stacked bar graph with one line (revenue) and four stacked bars containing four spending items (Net interest, Social Security, Medicare and Medicaid, and All other spending). The vertical axis represents Percent of GDP and the horizontal axis represents fiscal years 2005, 2015[a], 2030[a], and 2040[a].
Source: GAO’s January 2001 analysis.
[a] All other spending is net of offsetting interest receipts.
[End of graph]
Potential Fiscal Outcomes Under Alternative Simulation; Revenues and Composition of Spending as a Share of GDP.
[See PDF for image] - graphic text.
This is a line/stacked bar graph with one line (revenue) and four stacked bars containing four spending items (Net interest, Social Security, Medicare and Medicaid, and All other spending). The vertical axis represents Percent of GDP and the horizontal axis represents fiscal years 2006, 2015, 2030, and 2040.
Source: GAO’s August 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 returns to its historical level of 18.3 percent of GDP plus expected revenues from deferred taxes, i.e. taxes on withdrawals from retirement accounts. Medicare spending is based on the Trustees April 2007 projections adjusted for the Centers for Medicare and Medicaid Services alternative assumption that physician payments are not reduced as specified under current law.
[End of graph]
State and Local Governments Face Increasing Fiscal Challenges:
[See PDF for image] - graphic text.
This is a line graph with two lines (Operating Surplus/Deficit Measure and Net-lending/Net-borrowing). The vertical axis represents Percent of GDP from -6 to +2 and the horizontal axis represents fiscal years 1980 through 2050.
Sources: Historical data from National Income and Product Accounts. Historical data from 1980–2006, GAO projections from 2007–2050 using many CBO projections and assumptions, particularly for next 10 years.
[End of graph]
State and Local Fiscal Challenges Add to the Federal Government’s Fiscal Challenge:
[See PDF for image] - graphic text.
This is a line graph with two lines (Federal Surplus/Deficit and Combined Surplus/Deficit). The vertical axis represents Percent of GDP from -20 to +5 and the horizontal axis represents fiscal years 2000 through 2050.
Source: Historical data from National Income and Product Accounts, GAO Analysis.
Note: Historical data from 2000–2006, projections from 2007–2050; state and local balance measure is similar to the federal unified budget measure. Federal Simulation Assumptions: Discretionary spending grows with GDP after 2007. 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 returns to its historical level of 18.3 percent of GDP plus expected revenues from deferred taxes, i.e. taxes on withdrawals from retirement accounts. Medicare spending is based on the Trustees’ April 2007 projections adjusted for the Centers for Medicare and Medicaid Services’ alternative assumption that physician payments are not reduced as specified under current law.
[End of graph]
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 2 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. Fundamentally Reexamine & Transform 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 out of 28.
OECD Categories for Key Indicators (2006 OECD Factbook):
* Population/Migration;
* Energy;
* Environment;
* Labor Market;
* Education;
* Public Finance;
* Science & Tech.;
* Quality of Life;
* Macroeconomic Trends;
* Economic Globalization
* Prices.
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.
{End of presentation]
On the Web:
Web site: [hyperlink, http://www.gao.gov/cghome.htm]:
Contact:
Susan Becker, Acting Manager, Public Affairs:
BeckerS@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. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, 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.
Demographic Trends Pose Challenges for Employers and Workers:
* The increasing ratio of the elderly to younger workers will place added pressure on public benefits such as Social Security and Medicare, both of which face long-term financial problems.
* The combination of increasing life expectancy and declining birth rates is expected to reduce the number of workers per retiree, a trend that will strain the finances of national pension and health programs and may affect productivity and economic growth.
* The impending retirement of the baby boom generation and slower labor force growth will result in the loss of many experienced workers and possible skill gaps in certain occupations.
* Many workers will face the possibility of less secure retirements. While longer life spans have increased the number of years individuals spend in retirement, pension plans have increasingly shifted financial and longevity risk to individuals and health care costs have risen rapidly. Individuals will need to assume more responsibility for their own retirement security in the future.
Aged Population as a Share of Total U.S. Population Will Continue to Increase:
[See PDF for image] - graphic text.
This is a line graph with one line (population aged 65 and over) with the vertical axis representing percent of total population from 0 to 25 percent and the horizontal axis representing years 1950 through 2075.
Source: Office of the Chief Actuary, Social Security Administration.
Note: Projections based on the intermediate assumptions of the 2007 Trustees’ Reports.
[End of graph].
U.S. Labor Force Growth Will Continue to Decline:
[See PDF for image] - graphic text.
This is a line graph with one line (decline of labor force growth) with the vertical axis representing percentage change (five-year average) from 0 to 3 percent, and the horizontal axis representing years 1970 through 2080.
Source: GAO analysis of data from the Office of the Chief Actuary, Social Security Administration.
Note: Percentage change is calculated as a centered 5-yr moving average of projections based on the intermediate assumptions of the 2007 Trustees Reports.
[End of graph]
Personal Savings Rate Became Negative in 2006:
[See PDF for image] - graphic text.
This is a line graph with one line (personal savings rate) with the vertical axis representing percent of disposable income (from -2.0 to 12.0), and the horizontal axis representing years 1960 through 2005.
Source: Bureau of Economic Analysis, Department of Commerce.
[End of graph]
Key Dates Highlight Long Term Challenges of the Social Security System:
OASI:
Date: 2009;
Event: Cash surplus begins to decline;
Date: 2018;
Event: Annual benefit costs exceed cash revenue from taxes;
Date: 2028;
Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits;
Date: 2042;
Event: Trust fund exhausted.
DI:
Date: 2005;
Event: Annual benefit costs exceed cash revenue from taxes;
Date: 2013;
Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits;
Date: 2026;
Event: Trust fund exhausted.
OASDI:
Date: 2009;
Event: Cash surplus begins to decline;
Date: 2017;
Event: Annual benefit costs exceed cash revenue from taxes;
Date: 2027;
Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits;
Date: 2041;
Event: Trust fund exhausted.
Source: Social Security Administration, The 2007 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds(Washington, DC: April 2007).
[End of table]
Possible Way Forward on Social Security Reform:
Make little or no changes to those who are near retirement or already retired and make a number of adjustments that would affect younger workers:
* Phase-in an increase in the normal retirement age and index it to life expectancy;
* Consider phasing-in an increase in the early retirement age and index it to life expectancy with a modified disability access provision;
* Modify income replacement and/or indexing formulas for middle and upper income earners;
* Strengthen the minimum benefit;
* Consider a modest adjustment to the COLA formula;
* Increase the taxable wage base, if necessary;
* Consider supplemental individual accounts and mandatory individual savings on a payroll deduction basis (e.g., a minimum 2 percent payroll contribution and a program designed much like the Federal Thrift Savings Plan with a real trust fund and real investments).
Number of Non-elderly Uninsured Americans, 1999-2006:
[See PDF for image] - graphic text.
This is a bar graph of the number of non-elderly uninsured Americans with the vertical axis representing population in millions from 0 to 50 and the horizontal axis representing years 1999 through 2006.
Year: 1999;
Non-elderly Uninsured Americans: 38.8.
Year: 2000;
Non-elderly Uninsured Americans: 38.4.
Year: 2001;
Non-elderly Uninsured Americans: 39.8.
Year: 2002;
Non-elderly Uninsured Americans: 42.0.
Year: 2003;
Non-elderly Uninsured Americans: 43.4.
Year: 2004;
Non-elderly Uninsured Americans: 43.5.
Year: 2005;
Non-elderly Uninsured Americans: 44.8.
Year: 2006;
Non-elderly Uninsured Americans: 47.0.
Source: U.S. Census Bureau, Current Population Survey, 2000-2007 Annual Social and Economic Supplements.
Notes: Estimates for 1999-2005 were revised to reflect the results of a change to the survey process that assigns insurance coverage to dependents.
[End of graph]
Growth in Health Care Spending: Health Care Spending as a Percentage of GDP:
[See PDF for image] - graphic text.
This is a bar graph of the percent of health care spending as a percentage of GDP with the vertical axis representing percent from 0 to 25 and the horizontal axis representing years 1975, 1985, 1995, 2005, and 2015.
Year: 1975;
Health care spending: 8.1.
Year: 1985;
Health care spending: 10.4.
Year: 1995;
Health care spending: 13.7.
Year: 2005;
Health care spending: 16.0.
Year: 2015;
Health care spending: 19.2.
Source: The Centers for Medicare & Medicaid Services, Office of the Actuary.
Note: The figure for 2015 is projected.
[End of graph]
Growth in Health Care Spending: Health Care Spending as a Percentage of GDP:
[See PDF for image] - graphic text.
This is a line graph with two lines (Real health care spending per capita and Real GDP per capita) with the vertical axis representing percentage from 0 to 800 and the horizontal axis representing years 1960 through 2005. The Real health care spending per capita line indicates an average annual growth rate of 4.9%, and the Real GDP per capita line indicates an annual growth rate of 2.3%.
Source: GAO analysis of data from the Centers for Medicare & Medicaid Services, Office of the Actuary, and the Bureau of Economic Analysis.
Note: The most current data available on health care spending per capita are for 2005.
[End of graph]
Where the United States Ranks on Selected Health Outcome Indicators:
Outcome: Life expectancy at birth (U.S. = 77.8 years in 2004);
Rank: 23 out of 30 in 2004.
Outcome: Infant Mortality (U.S. = 6.8 deaths in 2004);
Rank: 26 out of 30 in 2004.
Outcome: Potential Years of Life Lost( U.S. = 5,066 in 2002);
Rank: 23 out of 26 in 2002.
Source: OECD Health Data 2006 and 2007.
Notes: Data are the most recent available for all countries. Life expectancy at birth for the total population is estimated by the OECD Secretariat for all countries, as the unweighted average of the life expectancy of men and women. Infant mortality is measured as the number of deaths per 1,000 live births. Potential years of life lost (PYLL) is the sum of the years of life lost prior to age 70, given current age-specific death rates (e.g., a death at 5 years of age is counted as 65 years of PYLL).
[End of table]
Key Dates Highlight Long Term Challenges of the Medicare Program:
Date: 2007;
Event: Medicare Part A outlays exceed cash income.
Date: 2007;
Event: Estimated trigger date for “Medicare funding warning.”
Date: 2013;
Event: Projected date that annual “general revenue funding” for Part B will exceed 45 percent of total Medicare outlays.
Date: 2019;
Part A trust fund exhausted, annual income sufficient to pay about 80% of promised Part A benefits.
Source: 2007 Annual Report of The Boards of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds(Washington, DC, April 2007).
[End of table]
Issues to Consider in Examining Our Health Care System:
* The public needs to be educated about the differences between wants, needs, affordability, and sustainability at both the individual and aggregate level.
* Ideally, health care reform proposals will:
- Align Incentives for providers and consumers to make prudent decisions about the use of medical services;
- Foster Transparency with respect to the value and costs of care, and;
- Ensure Accountability from insurers and providers to meet standards for appropriate use and quality;
* Ultimately, we need to address four key dimensions: access, cost, quality,and personal responsibility.
Selected Potential Health Care Reform Approaches:
Reform Approach: Revise the government’s payment systems and leverage its purchasing authority to foster value-based purchasing for health care products and services;
Short-term action: [check];
Long-term action:
Reform Approach: Consider additional flexibility for states to serve as models for possible health care reforms;
Short-term action: [check];
Long-term action:
Reform Approach: Consider limiting direct advertising and allowing limited importation of prescription drugs;
Short-term action: [check];
Long-term action:
Reform Approach: Foster more transparency in connection with health care costs and outcomes;
Short-term action: [check];
Long-term action:
Reform Approach: Create incentives that encourage physicians to utilize prescription drugs and other health care products and services economically and efficiently.
Short-term action: [check];
Long-term action:
Reform Approach: Foster the use of information technology to increase consistency, transparency, and accountability in health care;
Short-term action: [check];
Long-term action:
Reform Approach: Encourage case management approaches for people with chronic and expensive conditions to improve the quality and efficiency of care delivered and avoid inappropriate care.
Short-term action: [check];
Long-term action:
Reform Approach: Reexamine the design and operational structure of the nation’s health care entitlement programs—Medicare and Medicaid, including exploring more income-related approaches;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Revise certain federal tax preferences for health care to encourage more efficient use of health care products and services;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Foster more preventative care and wellness services and capabilities, including fighting obesity and encouraging better nutrition;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Promote more personal responsibility in connection with health care;
Short-term action: [check];
Long-term action: [check].
Reform Approach: Limit spending growth for government-sponsored health care programs (e.g., percentage of the budget and/or economy);
Short-term action:
Long-term action: [check].
Reform Approach: Develop a core set of basic and essential services. Create insurance pools for alternative levels of coverage, as necessary;
Short-term action:
Long-term action: [check].
Reform Approach: Develop a set of evidence-based national practice standards to help avoid unnecessary care, improve outcomes, and reduce litigation;
Short-term action:
Long-term action: [check].
Reform Approach: Pursue multinational approaches to investing in health care R&D;
Short-term action:
Long-term action: [check].
[End of table]
Why Improving Financial Literacy is Important:
Financial literacy is important for three key reasons:
* The number and complexity of financial products have grown tremendously, and consumers face an increasing array of options for managing their personal finances;
*Technological advances have increased the capacity for targeted marketing to consumers, which may increase some consumers’ vulnerability to fraudulent financial products;
* Workers today are increasingly responsible for managing their own retirement savings—yet at the same time, the nation’s personal saving rate has fallen dramatically in recent decades, and household debt hovers at record high levels.
Ensuring that Americans have the knowledge and skills to manage their money wisely is a key element in improving the economic health of our nation in current and future generations.
Three Key Illnesses:
* Myopia;
* Tunnel Vision;
* Self-Centeredness.
Four National Deficits:
* Budget;
* Balance of Payments;
* Savings;
* Leadership.
Five Leadership Attributes Needed for These Challenging and Changing Times:
* Courage;
* Integrity;
* Creativity:
* Stewardship:
* Partnership.
On the Web:
Web site: [hyperlink, http://www.gao.gov/cghome.htm]:
Contact:
Susan Becker, Acting Manager, Public Affairs:
BeckerS@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. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, 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.