America’s National Debt

America’s National DebtAn Overview of the

Challengeand the

Implications for Young People

Overview of Federal Budget Challenge 2

175,000 in DebtThat’s every baby’s burden – and unless we do something about growing debt now, it

will only get worse.


Important Concepts

• What’s the difference between deficits and debt?– Deficits: The annual imbalance between revenues and

spending– Debt: The accumulation of deficits over time

• Public debt: Federal government securities held by Americans and foreigners

• Intragovernmental debt: Held by government trust funds (e.g., Social Security) and other accounts

• What are “unfunded liabilities”?– Benefits (e.g., Social Security or Medicare) that have been

promised to be paid in the future, with no dedicated source of revenue to fund them


Projecting the Future?

• Projections of future deficits and debt are based on assumptions about the future

• Examples of assumptions that could affect projections– Changes to current spending and tax policies– Population trends– Workforce participation rates

• Projections can be wrong—too low or too high:– Spending and tax policies may or may not change– Health care breakthroughs could change birth or death

rates– Immigration policy changes could affect the age mix of the

population– People may decide to work longer and retire later


U.S. Budget Deficits or Surpluses, 1961-2008

Deficits rise from 0 in 1969 to $340 billion in 1992.

The budget attains an $86 billion surplus in 2000.

Deficits rise to $568 billion in 2004, and are projected to be about $500 billion in 2008.


Current Policy Trends Lead to Large Sustained DeficitsFiscal Years 2009-2018

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

CBO March 2008 Baseline

The Concord Coalition Plausible Baseline assumes that discretionary spending grows at the rate of nominal GDP, that war costs slow gradually, and that all expiring tax provisions are extended with AMT relief.

Source: Congressional Budget Office, March 2008 and Concord Coalition analysis.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Fiscal Year

Billi

ons o

f Dol

lars


National Debt, 1940-2007 (in non-inflation adjusted dollars)


Unless Changes are Made, the National Debt Will Grow Even Faster

$0

$50

$100

$150

$200

$250

$300

$350

$400

Trill

ions

of D

olla

rs

1962 ‘72 ‘82 ‘92 2002 ‘12 ‘22 ‘32 ‘42 ‘50Source: Heritage Foundation; CBO data


Public Debt Projected to Soar


Entitlement Spending is Consuming an Ever Larger Share of the Federal Budget

Sources: Office of Management and Budget and the Department of the Treasury.Note: Numbers may not add to 100 percent due to rounding.

20%10%

14%

29% 28%

1%

7% 15%

34% 43%

1966 1986 2006

Defense Social SecurityNet interest

Medicare & MedicaidAll other spending

2007

9%

32%

19%

21%

20%


Selected Federal Discretionary Spending(FY 2008 Projected)

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$ B

illio

ns

Education Transpor-tation

IncomeSecurity

NaturalResources

& Env.

Veterans Foreign Aid HomelandSecurity

Science,Space, &

TechnologySource: Congressional Budget Office, January 2008 *includes ground, air, and water


Composition of Actual FY 2007 Federal Government Revenues and Outlays (Deficit: $163 Billion)

581

561

309

549

493

238

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

1163

870

370

13826

Interest

Domestic*

Social Security

Medicare & Medicaid

Other Entitlements

Defense

Estate & Gift Taxes

Other Taxes

Corporate Taxes

Social Insurance Taxes

Individual Income Taxes

Outlays: $2.73 trillion Revenue: $2.57 trillion*Includes all appropriated domestic spending such as education, transportation,

homeland security, housing assistance, and foreign aid. Source: CBO 2008.

Billi

ons o

f Dol

lars


Current fiscal policy is on an unsustainable path

Social Security

MedicaidMedicare

All Other

Interest

Source: Government Accountability Office, March 2008

Average tax revenue


Social Security and Medicare Part A Cumulative Cash

Surpluses and Deficits in Constant 2008 Dollars, 2008 through 2085

-$3,000

-$2,500

-$2,000

-$1,500

-$1,000

-$500

$0

$500

In B

illio

ns o

f Con

stan

t 20

08

Dol

lars

2008 2010 2020 2030 2040 2050 2060 2070 2080

Calendar YearSource: Social Security Trustees’ Report—March 2008 (Intermediate Projections)

$496 Billion: Cumulative Social Security Cash Surplus -$27 Trillion: Cumulative

Social Security Cash Deficits

-$55 Trillion: Cumulative Medicare Part A Cash Deficits

-82.6 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits


Health Care Costs Rising Faster Than Economic Growth

Key Aspect of Rising Federal Spending and Debt


Medicare Obligations Will Explode as Health Care Costs Rise

0

5

10

15

2006 2010 2020 2030 2040 2050 2060 2070 2080Calendar Year

As a

Per

cent

age

of G

DP

General Revenues required to fund the programIncome from dedicated taxes, premiums, and state transfers

Source: Medicare Trustees’ Report, 2007


State and Local Government Deficits Add to Federal Fiscal Challenges

-20

-15

-10

-5

0

5

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050Fiscal year

Federal Surplus/Deficit

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.

Combined State, Local, and Federal

Surplus/Deficit

Percent of GDP


State Governments Face Growing Medicaid Costs, Squeezing Other Spending

Source: National Association of State Budget Officers, State Expenditure Report 2006


Consequences of Declining Personal Savings

We No Longer Owe National Debt to OurselvesWe Have Less to Supplement Social Security and Medicare

• Americans are saving at the lowest rate since the Great Depression, according to Commerce Dept.

• About 40% of Americans say they are saving nothing for retirement.

• One in four Americans told the Employee Benefit Research Institute that they have no savings at all.

• Debt payments consume 15% of the average U.S. family’s income, and 40% of low-income families’; 1 in 7 families is dealing with a debt collector


Percent of Debt Held by the Public Owned by Foreigners

(1980-2007)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1987 1990 1993 1996 1999 2002 2005Source: United States Treasury Department


Current Fiscal Policy Is Unsustainable

• The “Status Quo” is Not an Option– We face large and growing structural deficits largely due to

rising health care costs and demographic trends– GAO simulations show that balancing the budget in 2040 could

require actions as large as cutting total spending by 60 percent or raising federal taxes to double today's level.

• Faster Economic Growth Can Help, 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 of only 3.2 percent per year

• Tough choices will be required


The Sooner We Get Started, the Better

• Compound interest is currently working against us

• Less change would be needed, and there would be more time to make adjustments

• Demographic changes will make reform even more difficult over time


Framing the Discussion

– Which Federal programs and policies should be changed and how?

• Entitlement programs• Other spending• Tax policy

– How can budget processes and controls be reformed?– What should be the roles of government, business and

individuals in ensuring economic well-being in 21st-

century America?• Investing in the future (education, infrastructure, science,

environment, etc.)• Providing income security and good living standards • Providing health care for all Americans


Documents

America’s National Debt