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United States Government Accountability Office: 

Saving Our Future Requires Tough Choices Today: 

The Hubert H. Humphrey Institute of Public Affairs: 
University of Minnesota: 
Town Hall Forum: 
October 17, 2005: 

Composition of Federal Spending: 

[See PDF for image] - graphic text 

3 pie charts with 5 items each. 

1964: 
Defense: 46.0%; 
Social Security: 14.0%; 
Medicare & Medicaid: 0%; 
Net interest: 7.0%; 
All other spending: 33.0%. 

1984: 
Defense: 27.0%; 
Social Security: 21.0%; 
Medicare & Medicaid: 9.0%; 
Net interest: 13.0%; 
All other spending: 30.0%. 

2004: 
Defense: 20.0%; 
Social Security: 22.0%; 
Medicare & Medicaid: 19.0%; 
Net interest: 7.0%; 
All other spending: 32.0%. 

Source: Office of Management and Budget. 

[End of figure] 

Federal Spending for Mandatory and Discretionary Programs: 

[See PDF for image] - graphic text 

3 pie charts with 3 items each. 

1964: 
Discretionary: 67%; 
Mandatory: 26%; 
Net Interest: 7%. 

1984: 
Discretionary: 45%; 
Mandatory: 42%; 
Net Interest: 13%. 

2004: 
Discretionary: 39%; 
Mandatory: 54%; 
Net Interest: 7%. 

Source: Office of Management and Budget. 

[End of figure] 

Surplus or Deficit as a Share of GDP: Fiscal Years 1962-2004: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars. 

Fiscal year: 1962; 
On-budget: -1%; 
Off-budget: -0.2%; 
Unified: -1.3%. 

Fiscal year: 1963; 
On-budget: -0.7%; 
Off-budget: -0.1%; 
Unified: -0.8%. 

Fiscal year: 1964; 
On-budget: -1%; 
Off-budget: 0.1%; 
Unified: -0.9%. 

Fiscal year: 1965; 
On-budget: -0.2%; 
Off-budget: No data; 
Unified: -0.2%. 

Fiscal year: 1966; 
On-budget: -0.4%; 
Off-budget: -0.1%; 
Unified: -0.5%. 

Fiscal year: 1967; 
On-budget: -1.6%; 
Off-budget: 0.5%; 
Unified: -1.1%. 

Fiscal year: 1968; 
On-budget: -3.2%; 
Off-budget: 0.3%; 
Unified: -2.9%. 

Fiscal year: 1969; 
On-budget: -0.1%; 
Off-budget: 0.4%; 
Unified: 0.3%. 

Fiscal year: 1970; 
On-budget: -0.9%; 
Off-budget: 0.6%; 
Unified: -0.3%. 

Fiscal year: 1971; 
On-budget: -2.4%; 
Off-budget: 0.3%; 
Unified: -2.1%. 

Fiscal year: 1972; 
On-budget: -2.2%; 
Off-budget: 0.3%; 
Unified: -2%. 

Fiscal year: 1973; 
On-budget: -1.2%; 
Off-budget: No data; 
Unified: -1.1%. 

Fiscal year: 1974; 
On-budget: -0.6%; 
Off-budget: 0.1%; 
Unified: -0.4%. 

Fiscal year: 1975; 
On-budget: -3.5%; 
Off-budget: 0.1%; 
Unified: -3.4%. 

Fiscal year: 1976; 
On-budget: -4.1%; 
Off-budget: -0.2%; 
Unified: -4.2%. 

Fiscal year: 1977; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1978; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1979; 
On-budget: -1.5%; 
Off-budget: -0.1%; 
Unified: -1.6%. 

Fiscal year: 1980; 
On-budget: -2.7%; 
Off-budget: No data; 
Unified: -2.7%. 

Fiscal year: 1981; 
On-budget: -2.4%; 
Off-budget: -0.2%; 
Unified: -2.6%. 

Fiscal year: 1982; 
On-budget: -3.7%; 
Off-budget: -0.2%; 
Unified: -4%. 

Fiscal year: 1983; 
On-budget: -6%; 
Off-budget: No data; 
Unified: -6%. 

Fiscal year: 1984; 
On-budget: -4.8%; 
Off-budget: No data; 
Unified: -4.8%. 

Fiscal year: 1985; 
On-budget: -5.3%; 
Off-budget: 0.2%; 
Unified: -5.1%. 

Fiscal year: 1986; 
On-budget: -5.4%; 
Off-budget: 0.4%; 
Unified: -5%. 

Fiscal year: 1987; 
On-budget: -3.6%; 
Off-budget: 0.4%; 
Unified: -3.2%. 

Fiscal year: 1988; 
On-budget: -3.9%; 
Off-budget: 0.8%; 
Unified: -3.1%. 

Fiscal year: 1989; 
On-budget: -3.8%; 
Off-budget: 1%; 
Unified: -2.8%. 

Fiscal year: 1990; 
On-budget: -4.8%; 
Off-budget: 1%; 
Unified: -3.9%. 

Fiscal year: 1991; 
On-budget: -5.4%; 
Off-budget: 0.9%; 
Unified: -4.5%. 

Fiscal year: 1992; 
On-budget: -5.5%; 
Off-budget: 0.8%; 
Unified: -4.7%. 

Fiscal year: 1993; 
On-budget: -4.6%; 
Off-budget: 0.7%; 
Unified: -3.9%. 

Fiscal year: 1994; 
On-budget: -3.7%; 
Off-budget: 0.8%; 
Unified: -2.9%. 

Fiscal year: 1995; 
On-budget: -3.1%; 
Off-budget: 0.9%; 
Unified: -2.2%. 

Fiscal year: 1996; 
On-budget: -2.3%; 
Off-budget: 0.9%; 
Unified: -1.4%. 

Fiscal year: 1997; 
On-budget: -1.3%; 
Off-budget: 1%; 
Unified: -0.3%. 

Fiscal year: 1998; 
On-budget: -0.3%; 
Off-budget: 1.1%; 
Unified: 0.8%. 

Fiscal year: 1999; 
On-budget: No data; 
Off-budget: 1.4%; 
Unified: 1.4%. 

Fiscal year: 2000; 
On-budget: 0.9%; 
Off-budget: 1.5%; 
Unified: 2.4%. 

Fiscal year: 2001; 
On-budget: -0.3%; 
Off-budget: 1.6%; 
Unified: 1.3%. 

Fiscal year: 2002; 
On-budget: -3.1%; 
Off-budget: 1.5%; 
Unified: -1.5%. 

Fiscal year: 2003; 
On-budget: -4.9%; 
Off-budget: 1.5%; 
Unified: -3.5%. 

Fiscal year: 2004; 
On-budget: -4.9%; 
Off-budget: 1.3%; 
Unified: -3.6%. 

Source: Office of Management and Budget and Congressional Budget 
Office. 

[End of figure] 

Fiscal Year 2004 Deficit Numbers: 

On-Budget Deficit; 
-$567 Billion; 
-4.9% of GDP. 

Off-Budget Surplus; 
$155 Billion; 
1.3% of GDP. 

Unified Deficit; 
-$412 Billion; 
-3.6% of GDP. 

* Includes the $151 billion Social Security surplus and a $4 billion 
surplus for the Postal Service. 

March 2005. 

[End of table] 

The Importance of Looking Beyond the 1st Year: 

Terrorism Risk Insurance expansion to aircraft and aircraft engine 
manufacturers enacted in 2003: 

* Estimate for FY 2004: $3 million income; 
* Estimate for 10 years (2004-2013): $47 million cost. 

Health Care Benefit extension to older uniformed services retirees 
enacted in 2000: 

* Estimate for FY 2001: $223 million cost; 
* Estimate for 10 years (2001-2010): $40.4 billion cost; 
* Financial statement liability: $293 billion. 

Medicare Drug Benefit enacted 2003: 

* Estimate for CY 2006: $64.4 billion; 
* Estimate for 2006-14: $851 billion; 
* Estimate from program inception through 2079: $8.7 trillion in 
present value terms. 

Sources: Medicare estimates for net federal spending are drawn from the 
2005 Medicare Trustees' intermediate estimates. All others are CBO cost 
estimates in year of enactment and 2001 Consolidated Financial 
Statement. 

Estimated Fiscal Exposures (in $ trillions): 

Explicit liabilities (Publicly held debt, military & civilian pensions 
& retiree health, other); 
2000: $6.9; 
2002: $7.8; 
2004: $9.1. 

Commitments & Contingencies: e.g., PBGC, undelivered orders; 
2000: $0.5; 
2002: $0.8; 
2004: $0.9. 

Implicit exposures; 
2000: $13.0; 
2002: $17.8; 
2004: $33.3. 

Implicit exposures: Future Social Security benefits; 
2000: $3.8; 
2002: $4.6; 
2004: $5.2. 

Implicit exposures: Future Medicare Part A benefits; 
2000: $2.7; 
2002: $5.1; 
2004: $8.5. 

Implicit exposures: Medicare Part B benefits; 
2000: $6.5; 
2002: $8.1; 
2004: $11.4. 

Implicit exposures: Medicare Part D benefits; 
2004: $8.1. 

Total; 
2000: $20.4; 
2002: $26.4; 
2004: $43.3. 

Sources: Consolidated Financial Statements. 

Note: Estimates for Social Security and Medicare are PV as of January 1 
of each year as reported in the Consolidated Financial Statements and 
all other data are as of September 30. The 2005 Trustees Reports issued 
in March of this year show that the Social Security and Medicare 
exposures have increased as follows: Social Security increased to $5.7 
trillion, Medicare Part A increased to $8.8 trillion, Medicare Part B 
increased to $12.4 trillion and Part D increased to $8.7 trillion. 
Totals may not add due to rounding. 

How Big is Our Growing Fiscal Burden? 

Our total fiscal burden can be translated and compared as follows: 

Total fiscal exposures: $43.3 trillion; 
Total household net worth: $48.5 trillion: 
* Burden/Net worth ratio: 89 percent. 

Burden: 
Per person: $147,000; 
Per full-time worker: $350,000; 
Per household: $383,000. 

Income: 
Median household income: $44,389; 
Disposable personal income per capita: $29,475. 

Note: Net worth and income data are calendar year 2004 levels. 

Sources: Federal Reserve Board for household net worth; Census Bureau 
for median household income; and the Bureau of Economic Analysis for 
disposable personal income per capita. 

[End of table] 

Composition of Spending as a Share of GDP Under Baseline Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.4%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 1.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.3%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2030; 
Net interest: 2.8%; 
Social Security: 6.4%; 
Medicare & Medicaid: 8%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

2040; 
Net interest: 5.7%; 
Social Security: 6.9%; 
Medicare & Medicaid: 9.7%; 
All other spending: 8.1%; 
Revenue: 19.5%. 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2015 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2015, revenue as a share of GDP 
is held constant. 

Source: GAO’s August 2005 analysis. 

[End of figure] 

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP after 2005 and All Expiring Tax Provisions are 
Extended: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.4%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 2.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.3%; 
All other spending: 9.9%; 
Revenue: 17.4. 

2030; 
Net interest: 8%; 
Social Security: 6.7%; 
Medicare & Medicaid: 8%; 
All other spending: 9.9%; 
Revenue: 17.4%. 

2040; 
Net interest: 15.8%; 
Social Security: 7.7%; 
Medicare & Medicaid: 9.7%; 
All other spending: 9.9%; 
Revenue: 17.4%. 

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2015 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2015, revenue as a share 
of GDP is held constant. 

Source: GAO's August 2005 analysis. 

[End of figure] 

Growth in Spending for Social Security, Medicare, and Medicaid Expected 
to Outpace Economic Growth: 

[See PDF for image] – graphic text: 

Bar graph with four items. 

Growth in constant dollars 2005-2030. 

GDP: 72%; 
Social Security Spending: 147%; 
Medicaid Spending: 166%; 
Medicare Spending: 331%. 

Note: Social Security and Medicare projections based on the 
intermediate assumptions of the 2005 Trustees' Reports. Medicaid 
projections based on CBO's December 2003 long-term projections for 
federal spending on Medicaid under mid-range assumptions. 

Source: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration, Office of the Actuary, Centers 
for Medicare and Medicaid Services, and the Congressional Budget 
Office. 

[End of figure] 

Social Security, Medicare, and Medicaid Spending as a Percent of GDP: 

[See PDF for image] – graphic text: 

Area graph with 81 Groups and 3 items per Group. 

2000; 
Social Security: 4.23%; 
Medicaid: 1.23%; 
Medicare: 2.29%. 

2001; 
Social Security: 4.33%; 
Medicaid: 1.32%; 
Medicare: 2.44%. 

2002; 
Social Security: 4.4%; 
Medicaid: 1.44%; 
Medicare: 2.53%. 

2003; 
Social Security: 4.35%; 
Medicaid: 1.5%; 
Medicare: 2.57%. 

2004; 
Social Security: 4.27%; 
Medicaid: 1.52%; 
Medicare: 2.63%. 

2005; 
Social Security: 4.26%; 
Medicaid: 1.51%; 
Medicare: 2.69%. 

2006; 
Social Security: 4.21%; 
Medicaid: 1.5%; 
Medicare: 3.33%. 

2007; 
Social Security: 4.19%; 
Medicaid: 1.52%; 
Medicare: 3.36%. 

2008; 
Social Security: 4.2%; 
Medicaid: 1.57%; 
Medicare: 3.41%. 

2009; 
Social Security: 4.24%; 
Medicaid: 1.62%; 
Medicare: 3.45%. 

2010; 
Social Security: 4.28%; 
Medicaid: 1.68%; 
Medicare: 3.5%. 

2011; 
Social Security: 4.34%; 
Medicaid: 1.74%; 
Medicare: 3.56%. 

2012; 
Social Security: 4.42%; 
Medicaid: 1.8%; 
Medicare: 3.67%. 

2013; 
Social Security: 4.51%; 
Medicaid: 1.87%; 
Medicare: 3.81%. 

2014; 
Social Security: 4.61%; 
Medicaid: 1.93%; 
Medicare: 3.96%. 

2015; 
Social Security: 4.71%; 
Medicaid: 1.95%; 
Medicare: 4.12%. 

2016; 
Social Security: 4.81%; 
Medicaid: 1.95%; 
Medicare: 4.29%. 

2017; 
Social Security: 4.92%; 
Medicaid: 1.95%; 
Medicare: 4.44%. 

2018; 
Social Security: 5.02%; 
Medicaid: 1.95%; 
Medicare: 4.61%. 

2019; 
Social Security: 5.13%; 
Medicaid: 1.95%; 
Medicare: 4.78%. 

2020; 
Social Security: 5.24%; 
Medicaid: 1.95%; 
Medicare: 4.96%. 

2021; 
Social Security: 5.35%; 
Medicaid: 1.99%; 
Medicare: 5.14%. 

2022; 
Social Security: 5.45%; 
Medicaid: 2.02%; 
Medicare: 5.33%. 

2023; 
Social Security: 5.55%; 
Medicaid: 2.06%; 
Medicare: 5.51%. 

2024; 
Social Security: 5.65%; 
Medicaid: 2.09%; 
Medicare: 5.71%. 

2025; 
Social Security: 5.75%; 
Medicaid: 2.13%; 
Medicare: 5.9%. 

2026; 
Social Security: 5.85%; 
Medicaid: 2.17%; 
Medicare: 6.08%. 

2027; 
Social Security: 5.93%; 
Medicaid: 2.2%; 
Medicare: 6.26%. 

2028; 
Social Security: 6.01%; 
Medicaid: 2.23%; 
Medicare: 6.43%. 

2029; 
Social Security: 6.08%; 
Medicaid: 2.27%; 
Medicare: 6.6%. 

2030; 
Social Security: 6.14%; 
Medicaid: 2.31%; 
Medicare: 6.77%. 

2031; 
Social Security: 6.19%; 
Medicaid: 2.35%; 
Medicare: 6.93%. 

2032; 
Social Security: 6.24%; 
Medicaid: 2.4%; 
Medicare: 7.08%. 

2033; 
Social Security: 6.27%; 
Medicaid: 2.45%; 
Medicare: 7.22%. 

2034; 
Social Security: 6.29%; 
Medicaid: 2.5%; 
Medicare: 7.37%. 

2035; 
Social Security: 6.31%; 
Medicaid: 2.55%; 
Medicare: 7.52%. 

2036; 
Social Security: 6.32%; 
Medicaid: 2.6%; 
Medicare: 7.67%. 

2037; 
Social Security: 6.33%; 
Medicaid: 2.65%; 
Medicare: 7.8%. 

2038; 
Social Security: 6.32%; 
Medicaid: 2.7%; 
Medicare: 7.92%. 

2039; 
Social Security: 6.32%; 
Medicaid: 2.75%; 
Medicare: 8.03%. 

2040; 
Social Security: 6.31%; 
Medicaid: 2.8%; 
Medicare: 8.14%. 

2041; 
Social Security: 6.3%; 
Medicaid: 2.85%; 
Medicare: 8.25%. 

2042; 
Social Security: 6.29%; 
Medicaid: 2.9%; 
Medicare: 8.36%. 

2043; 
Social Security: 6.28%; 
Medicaid: 2.95%; 
Medicare: 8.46%. 

2044; 
Social Security: 6.27%; 
Medicaid: 3%; 
Medicare: 8.58%. 

2045; 
Social Security: 6.26%; 
Medicaid: 3.05%; 
Medicare: 8.7%. 

2046; 
Social Security: 6.26%; 
Medicaid: 3.1%; 
Medicare: 8.82%. 

2047; 
Social Security: 6.25%; 
Medicaid: 3.14%; 
Medicare: 8.93%. 

2048; 
Social Security: 6.25%; 
Medicaid: 3.19%; 
Medicare: 9.03%. 

2049; 
Social Security: 6.24%; 
Medicaid: 3.23%; 
Medicare: 9.14%. 

2050; 
Social Security: 6.24%; 
Medicaid: 3.27%; 
Medicare: 9.25%. 

2051; 
Social Security: 6.24%; 
Medicaid: 3.31%; 
Medicare: 9.36%. 

2052; 
Social Security: 6.24%; 
Medicaid: 3.35%; 
Medicare: 9.47%. 

2053; 
Social Security: 6.24%; 
Medicaid: 3.39%; 
Medicare: 9.59%. 

2054; 
Social Security: 6.25%; 
Medicaid: 3.44%; 
Medicare: 9.71%. 

2055; 
Social Security: 6.25%; 
Medicaid: 3.48%; 
Medicare: 9.84%. 

2056; 
Social Security: 6.26%; 
Medicaid: 3.52%; 
Medicare: 9.98%. 

2057; 
Social Security: 6.27%; 
Medicaid: 3.57%; 
Medicare: 10.12%. 

2058; 
Social Security: 6.27%; 
Medicaid: 3.61%; 
Medicare: 10.26%. 

2059; 
Social Security: 6.28%; 
Medicaid: 3.66%; 
Medicare: 10.4%. 

2060; 
Social Security: 6.29%; 
Medicaid: 3.7%; 
Medicare: 10.55%. 

2061; 
Social Security: 6.29%; 
Medicaid: 3.75%; 
Medicare: 10.7%. 

2062; 
Social Security: 6.3%; 
Medicaid: 3.8%; 
Medicare: 10.84%. 

2063; 
Social Security: 6.31%; 
Medicaid: 3.84%; 
Medicare: 10.99%. 

2064; 
Social Security: 6.32%; 
Medicaid: 3.89%; 
Medicare: 11.14%. 

2065; 
Social Security: 6.33%; 
Medicaid: 3.94%; 
Medicare: 11.3%. 

2066; 
Social Security: 6.34%; 
Medicaid: 3.99%; 
Medicare: 11.47%. 

2067; 
Social Security: 6.35%; 
Medicaid: 4.04%; 
Medicare: 11.64%. 

2068; 
Social Security: 6.35%; 
Medicaid: 4.09%; 
Medicare: 11.81%. 

2069; 
Social Security: 6.36%; 
Medicaid: 4.14%; 
Medicare: 11.96%. 

2070; 
Social Security: 6.36%; 
Medicaid: 4.19%; 
Medicare: 12.12%. 

2071; 
Social Security: 6.37%; 
Medicaid: 4.25%; 
Medicare: 12.28%. 

2072; 
Social Security: 6.37%; 
Medicaid: 4.3%; 
Medicare: 12.44%. 

2073; 
Social Security: 6.37%; 
Medicaid: 4.35%; 
Medicare: 12.6%. 

2074; 
Social Security: 6.38%; 
Medicaid: 4.41%; 
Medicare: 12.75%. 

2075; 
Social Security: 6.38%; 
Medicaid: 4.46%; 
Medicare: 12.92%. 

2076; 
Social Security: 6.38%; 
Medicaid: 4.52%; 
Medicare: 13.08%. 

2077; 
Social Security: 6.39%; 
Medicaid: 4.57%; 
Medicare: 13.25%. 

2078; 
Social Security: 6.39%; 
Medicaid: 4.63%; 
Medicare: 13.41%. 

2079; 
Social Security: 6.39%; 
Medicaid: 4.69%; 
Medicare: 13.58%. 

2080; 
Social Security: 6.39%; 
Medicaid: 4.75%; 
Medicare: 13.75%. 

Note: Social Security and Medicare projections based on the 
intermediate assumptions of the 2005 Trustees’ Reports. Medicaid 
projections based on CBO’s January 2004 short-term Medicaid estimates 
and CBO’s December 2003 long-term Medicaid projections under mid-range 
assumptions. 

Source: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration, Office of the Actuary, Centers 
for Medicare and Medicaid Services, and the Congressional Budget 
Office. 

[End of figure] 

Debt per Capita Could Exceed GDP per Capita by 2030 Assuming 
Discretionary Spending Grows with GDP after 2005 and All Expiring Tax 
Provisions are Extended: 

[See PDF for image] – graphic text: 

Bar graph with six items. 

2005; 
Debt per Capita: $15,348; 
GDP per Capita: $40,759. 

2030; 
Debt per Capita: $92,499; 
GDP per Capita: $55,383. 

2040; 
Debt per Capita: $179,283; 
GDP per Capita: $54,720. 

Source: GAO’s August 2005 analysis. 

[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 2.5 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: Three Pronged Approach: 

Re-impose Budget Controls: 

* Discretionary spending caps; 
* PAYGO rules on both sides of the ledger; 
* Mandatory spending triggers. 

Improve Accounting and Reporting and Metrics: 

* Enhanced financial statement presentation; 
* Automatic present value disclosures for legislative debate on major 
tax and spending bills; 
* Develop key national (outcome-based) indicators. 

Re-examine Policies and Programs: 

* Restructure existing entitlement programs; 
* Reexamine the base of discretionary; and 
* Review and revise existing tax policy, including tax preferences and 
enforcement programs. 

21st Century Challenges Report: 

* Provides background, framework, and questions to assist in 
reexamining the base. 

* Covers entitlements & other mandatory spending, discretionary 
spending, and tax policies and programs. 

* Based on GAO's work for the Congress. 

Measured on an Outlay Equivalent Basis, Tax Expenditures Exceeded 
Discretionary Spending for Most Years in the Last Decade: 

[See PDF for image] – graphic text: 

Line graph with three lines with 24 items each. 

Dollars in billions (in constant 2004 dollars) 

Fiscal year: 1981; 
Mandatory spending: $687.6; 
Discretionary spending: $571.7; 
Sum of tax expenditure outlay equivalent estimates: $501.2. 

Fiscal year: 1982; 
Mandatory spending: $729.5; 
Discretionary spending: $566.5; 
Sum of tax expenditure outlay equivalent estimates: $544.1. 

Fiscal year: 1983; 
Mandatory spending: $757.3; 
Discretionary spending: $588; 
Sum of tax expenditure outlay equivalent estimates: $598.8. 

Fiscal year: 1984; 
Mandatory spending: $758.3; 
Discretionary spending: $609; 
Sum of tax expenditure outlay equivalent estimates: $618.3. 

Fiscal year: 1985; 
Mandatory spending: $824.9; 
Discretionary spending: $646.4; 
Sum of tax expenditure outlay equivalent estimates: $676.7. 

Fiscal year: 1986; 
Mandatory spending: $838.5; 
Discretionary spending: $666.2; 
Sum of tax expenditure outlay equivalent estimates: $728.6. 

Fiscal year: 1987; 
Mandatory spending: $829; 
Discretionary spending: $657.7; 
Sum of tax expenditure outlay equivalent estimates: $702.7. 

Fiscal year: 1988; 
Mandatory spending: $861.3; 
Discretionary spending: $666.6; 
Sum of tax expenditure outlay equivalent estimates: $524.7. 

Fiscal year: 1989; 
Mandatory spending: $905.1; 
Discretionary spending: $675.4; 
Sum of tax expenditure outlay equivalent estimates: $549.2. 

Fiscal year: 1990; 
Mandatory spending: $1,002.60; 
Discretionary spending: $667; 
Sum of tax expenditure outlay equivalent estimates: $534.6. 

Fiscal year: 1991; 
Mandatory spending: $1,015.70; 
Discretionary spending: $684.8; 
Sum of tax expenditure outlay equivalent estimates: $532.8. 

Fiscal year: 1992; 
Mandatory spending: $1,062.00; 
Discretionary spending: $668.6; 
Sum of tax expenditure outlay equivalent estimates: $551.2. 

Fiscal year: 1993; 
Mandatory spending: $1,065.70; 
Discretionary spending: $660.7; 
Sum of tax expenditure outlay equivalent estimates: $561.7. 

Fiscal year: 1994; 
Mandatory spending: $1,103.60; 
Discretionary spending: $649.2; 
Sum of tax expenditure outlay equivalent estimates: $600.3. 

Fiscal year: 1995; 
Mandatory spending: $1,140.30; 
Discretionary spending: $639.9; 
Sum of tax expenditure outlay equivalent estimates: $622.3. 

Fiscal year: 1996; 
Mandatory spending: $1,184.20; 
Discretionary spending: $613.8; 
Sum of tax expenditure outlay equivalent estimates: $620. 

Fiscal year: 1997; 
Mandatory spending: $1,193.60; 
Discretionary spending: $619.7; 
Sum of tax expenditure outlay equivalent estimates: $650.2. 

Fiscal year: 1998; 
Mandatory spending: $1,231.30; 
Discretionary spending: $617.7; 
Sum of tax expenditure outlay equivalent estimates: $738.7. 

Fiscal year: 1999; 
Mandatory spending: $1,247.80; 
Discretionary spending: $631.7; 
Sum of tax expenditure outlay equivalent estimates: $785.5. 

Fiscal year: 2000; 
Mandatory spending: $1,271.10; 
Discretionary spending: $665.5; 
Sum of tax expenditure outlay equivalent estimates: $825. 

Fiscal year: 2001; 
Mandatory spending: $1,283.50; 
Discretionary spending: $686.7; 
Sum of tax expenditure outlay equivalent estimates: $908.1. 

Fiscal year: 2002; 
Mandatory spending: $1,325.50; 
Discretionary spending: $762.4; 
Sum of tax expenditure outlay equivalent estimates: $944.2. 

Fiscal year: 2003; 
Mandatory spending: $1,361.00; 
Discretionary spending: $841.8; 
Sum of tax expenditure outlay equivalent estimates: $883.5. 

Fiscal year: 2004; 
Mandatory spending: $1,396.80; 
Discretionary spending: $895.4; 
Sum of tax expenditure outlay equivalent estimates: $852.5.

Note: Outlay-equivalent estimates represent the amount of budget 
outlays that would be required if the government were to provide 
taxpayers with the same after-tax income they receive through the tax 
expenditure. Outlay-equivalent estimates are useful to compare tax 
expenditures and other parts of the federal budget. Summing tax 
expenditure estimates does not take into account interactions between 
individual provisions. 

Source: GAO Analysis of OMB’s Budget Reports on Tax Expenditures, 
Fiscal Years 1976-2006. 

[End of figure] 

Health Care Is the Nation’s Top Tax Expenditure in Fiscal Year 2004: 

[See PDF for image] – graphic text: 

Bar graph with five items. 

Estimated dollars in billions. 

Exclusion of employer contributions for insurance premiums and medical 
care: $102.3; 
Deductibility of mortgage interest on owner-occupied dwellings: $61.5; 
Exclusion of pension contributions and earnings: employer-sponsored 
401(K) plans: $47.7; 
Exclusion of pension contributions and earnings: employer-sponsored 
defined benefit plans: $47; 
Deductibility of nonbusiness state and local taxes (other than on owner-
occupied dwellings): $45.3. 

Note: "Tax expenditures" refers to the special tax provisions that are 
contained in the federal income taxes on individuals and corporations. 
OMB does not include forgone revenue from other federal taxes such as 
Social Security and Medicare payroll taxes. 

* If the payroll tax exclusion were also counted here, the total tax 
expenditure for employer contributions for health insurance premiums 
would be about 50 percent higher or $153.5 billion. 

Source: Office of Management and Budget (OMB), Analytical Perspectives, 
Budget of the United States Government, Fiscal Year 2006. 

[End of figure] 

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. 

[See PDF for image] - graphic text: 

Political cartoon with caption: "Officials in Washington continue to 
ignore warnings about this storm, which is projected to be a Category 
500 billion..."

Used with permission from the Milwaukee Journal Sentinel. 

[End of figure] 

[End of slide presentation]