Transcript Slide 1

A Look at Our National Debt and How It’s
Affecting Fiscal Policy and Our Economy
presented by
presented by
Robert L. Bixby,
Executive Director
Robert N. Campbell III
Vice Chairman
U.S. State Government Leader
Deloitte LLP
THE CONCORD COALITION
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Discussion Topics
• Introductory Comments (Bob Campbell)
• The Concord Coalition Perspective (Bob Bixby)
– Where to start?
– What’s new?
• A Business Perspective (Bob Campbell)
– Perspective on the U.S. and global government debt issue
– Recommendations of the U.S. Bipartisan Policy Center Task Force on the federal debt
– The potential impact on U.S. businesses
• Questions & Answers
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U.S. Fiscal Policy:
If it’s always darkest before the dawn,
The sun should be coming up any minute.
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Composition of FY 2011 Federal Government
Revenues and Outlays
(Deficit: $1.3 Trillion)
Interest
Domestic*
Defense
Other
Entitlements
$221
$650
Estate & Gift Taxes
($20 billion)
$703
$197
$192
$547
$816
Medicare
& Medicaid
Social
Security
$750
$1,089
$726
Outlays: $3.6 trillion
Other Taxes
Corporate Taxes
Social
Insurance
Taxes
Individual
Income
Taxes
Revenue: $2.3 trillion
*Includes all appropriated domestic spending such as education, transportation, homeland security, housing
assistance, and foreign aid.
Source: Congressional Budget Office, August 2011.
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Current Policy Trends Lead to Large Sustained Deficits
Fiscal Years 2012-2021
$500
-$3.5 Trillion Deficit
Billions of Dollars
$0
-$500
-$1,000
-$10.4 Trillion Deficit
-$1,500
-$2,000
-$2,500
Fiscal Year
CBO August 2011 Baseline
The Concord Coalition Plausible Baseline assumes that the $1.2 trillion “Super Committee” trigger does
not go into effect, that discretionary spending grows at the rate of inflation, that war costs slow gradually,
that Medicare physician payment cuts are postponed, and that all expiring tax provisions are extended with
AMT relief, and that the payroll tax cuts and unemployment benefits are extended for 2012.
Source: Congressional Budget Office, August 2011 and Concord Coalition analysis.
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Concord Coalition Plausible Baseline
Total Deficit Projected in CBO Baseline
2012-2021 (in billions)
-3,487
Effect of Permanently Extending Tax Cuts
-2,904
Effect of Permanently Fixing AMT*
-1,743
Effect of Permanently Extending all Expiring Tax
Provisions
-920
Payroll Tax Cut
-160
Subtotal-Total Revenues Changes
-5,727
Disc. Spending Grows at Nom. GDP (no trigger)
2,118
War Costs Slow Gradually
-1,371
Medicare Physician Payment Cuts are Postponed &
Unemployment Benefits Extended
Subtotal-Total Outlay Changes
430
1,177
Total Impact on CBO Baseline
-6,904
Projected 2012-2021 Budget Deficit
-10,391
Memorandum:
Interest Costs, CBO Baseline in 2021: $663 billion
Interest Costs, Concord Plausible Baseline in 2021: $945 billion
All the figures above include the impact on debt service as a result of change in policy.
*Includes larger revenue loss as a result of interaction and debt service that would otherwise result from yearly “patches.”
Source: Congressional Budget Office and Concord Coalition analysis, August 2011.
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Federal Spending vs. Revenues as a
Percent of GDP (FY 1980-2021)
CBO Baseline Compared to the Concord Coalition Plausible Baseline
Actual
Projected
Percentage of GDP
Average outlays: 21.0%
Average revenues: 18.3%
 CBO August 2011 Baseline

Concord Coalition Plausible Baseline
Source: Congressional Budget Office, August 2011 and Concord Coalition Analysis.
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Debt Held by the Public as a Percent of GDP
1940-2040
As a Percentage of GDP
Actual
World War II
109%
Source: GAO Analysis, Feb 2011 and OMB Historical Tables 2011.
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Projected
2011
69%
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Interest Costs Go Through The Roof
$1,000
$900
Billions of Dollars
$800
$700
$600
$500
$400
$300
$200
$100
$0
2011
2012
2013
2014
2015
CBO August 2011 Baseline
Source: Congressional Budget Office, August 2011.
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2016
2017
2018
2019
2020
2021
Concord Plausible Baseline
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Percent of Debt Held by the Public
Owned by Foreigners
(1987-2011)
Percentage of Ownership of Publicly-Held Debt
60%
50%
40%
30%
20%
10%
0%
1987
1989
1991
1993
1995
1997
1999
2001
Source: United States Treasury Department, Treasury Bulletin, Table OFS-2, March 2011.
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2003
2005
2007
2009
2011
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Mandatory spending is consuming a
growing share of the budget
1971
35%
1991
2011*
40%
58%
28%
45%
7%
Mandatory
*Projected
Source: Congressional Budget Office, January 2011.
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2021*
37%
57%
58%
14%
15%
6%
Net Interest
Discretionary
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Non-Defense Discretionary Spending as a
Percentage of GDP
6
Projected
As a Percentage of GDP
5
4
3
2
Source: Congressional Budget Office, August 2011.
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Defense Discretionary Spending as a
Percentage of GDP
As a Percentage of GDP
Projected
Source: Congressional Budget Office, August 2011.
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Social Security, Medicare, & Medicaid as a
Percentage of the Federal Budget
All other Federal
Spending
Social Security,
Medicare and Medicaid
$2.12 Trillion
$1.48 Trillion
59%
41%
Source: Congressional Budget Office, August 2011.
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Social Security, Medicare, Medicaid and Interest
Consume All Federal Revenues in Less Than 15 Years
125%
Percentage of Revenues
100%
75%
50%
25%
0%
2015
2020
Year
Social Security, Medicare and Medicaid
Source: Government Accountability Office, Feb., 2011.
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2025
Interest
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We’re Not Getting Any Younger-America’s Aging Population
Percentage of Population Aged 65 and Over
Age 65 and Over
25%
20%
15%
10%
2011
2020
2030
2040
Year
Source: Social Security and Medicare Trustees’ Report, 2011.
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Health Care Costs are Rising Faster
Than the Economy
Percentage of GDP
Historic Level of
Federal Spending
Historic Level of
Federal Revenues
Assumes that health care cost growth will not exceed GDP growth.
Assumes that health care cost growth continues at the average rate for the past 40 years (2.5
percentage points greater than GDP growth.)
Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth—
consistent with the assumption used by the Medicare Trustees.
Source: Congressional Budget Office, June 2009.
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As a Percentage of GDP
Factors Explaining Future Federal Spending on Medicare,
Medicaid, and Social Security
Effect of Health Care Cost Growth
Effect of Aging
Spending Without Aging and
Health Care Cost Growth
Percent of Growth Attributed to:
2035
2080
Health Care Cost Growth
36%
56%
Aging
64%
44%
Source: Congressional Budget Office, June 2010 & 2011.
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As a Percentage of GDP
Sources of Growth in the Federal Budget
Over the Next Two Decades
Individual Income Taxes = 6.6%
Current Defense Spending = 4.7%
Source: Congressional Budget Office. June 2011.
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Current Fiscal Policy is on an Unsustainable Path
Federal Outlays as a Percentage of GDP
Interest
All Other
Medicaid
Historical tax revenue
Medicare
Social Security
Source: Government Accountability Office, Feb. 2011.
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What’s New?
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Overview of the Budget Control Act of 2011
•
•
•
•
Increased the debt ceiling
Ten year discretionary spending caps
Guaranteed vote on Balanced Budget Amendment
Creation of Joint Select Committee on Deficit Reduction—the Super
Committee
• Potential to reduce deficit by $2.4 trillion through 2021— $900 billion
from caps and $1.5 from Super Committee
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Budget Control Act of 2011
•
•
•
•
10 years of caps to save $750 billion ($920 billion with interest)
55% of savings from non-security
Enforced by sequestration
Balanced Budget Amendment vote by Dec. 31
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Super Committee
• 12 members tasked with identifying an additional $1.5 trillion in deficit
reduction.
• Must report by November 23rd. Fast-tracked amendment free vote in
both chambers by December 23rd.
• Failure to report comes with across the board spending cuts beginning
on January 1, 2013.
• Cuts split equally between defense and non-defense and would exempt
Social Security and low-income programs and limit Medicare cuts to
2%.
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The Scope of the Problem
In our travels around the country with experts from diverse perspectives, we
have found agreement on the following key points:
• Current fiscal policy is unsustainable
• There are no easy solutions, such as cutting waste fraud and abuse or
growing our way out of the problem.
• Finding solutions will require bipartisan cooperation and a willingness
to discuss all options.
• Public engagement and understanding is vital in finding solutions.
• This is not about numbers. It is a moral issue.
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A Business Perspective
• Perspective on the U.S. and global government debt issue
• Recommendations of the U.S. Bipartisan Policy Center Task Force on the
federal debt
• The potential impact on U.S. businesses
www.concordcoalition.org
26 www.deloitte.com
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The U.S. is on an unsustainable path
400
350
Percentage of GDP
300
250
200
200% of GDP in 2038
150
Debt reaches WWII historical high at 109% of GDP
100
100% of GDP in 2022
50
0
1970
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1980
1990
2000
2010
2020
2030
2040
2050
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U.S. debt drivers
Cyclical
• Economic Crisis
lost revenue and increased spending from
automatic stabilizers
• Economic Response
stimulus spending, tax breaks, financial crisis
policies
• Tax Cuts
2001, 2003 and 2010
• War Spending
Structural
• Growing Healthcare Cost
causing Medicare and Medicaid costs to rise
• Population Aging
causing Social Security and Medicare costs to rise
and revenue to fall
• Growing Interest Cost
debt accumulation
• Insufficient Revenue
to fund current government expenditures
Iraq and Afghanistan
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States are also struggling …
• FY12 $103B shortfall drivers:
– Decreased revenues
– Rising costs
– End of ARRA funding
• Potential long-term effects of the
2012 budget cuts:
– Increased unemployment
– Weaker schools
– Reduced access to medical care
– Decline in states’ economic competitiveness
• Potential federal debt impact:
– Likely funding reductions for states in Medicaid and education programs
– Potential shifts in other costs from federal to the states
– Potential for states’ credit rating to be downgraded making it difficult for states to raise
money through bond issuance, etc.
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The U.S. is approaching a debt burden of other
countries which have had significant visible recent issues
Total government debt in the U.S. is higher than some of the most financially troubled
countries in Europe
Note: Both 2010 and 2015 figures are estimates. Total government debt (also referred to as general government gross debt) measures all liabilities that require payment or
payments of interest and/or principal by the debtor to the creditor at a date in the future. This includes central, state and local government debt.
Source: Peter G. Peterson Foundation; International Monetary Fund
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Growing global government debt is an increasing concern
G20
Debt
Rank
Public Debt
($Billions)
Per Capita Per Capita Debt
Rank
($Thousands)
Japan
1
12.2
1
96.2
United States
2
8.6
6
27.5
Germany
3
2.6
4
32.0
Italy
4
2.4
2
39.4
France
5
2.1
3
32.7
United Kingdom
6
1.7
5
27.6
Brazil
7
1.2
9
6.0
China
8
1.0
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.75
Total deficit amounts for remaining G20 countries is equal to $3.29
Source: US Central Intelligence Agency World Factbook. (2010);
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html
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Public sector debt will further intensify the demand for
future capital and generate volatility in capital markets
• Between 2011 and 2015,
the net government debt of the
G7 is expected to reach 100%
of GDP
• Sovereign debt in the
broader G20 is also expected to
continue to grow, creating
tremendous public sector
demand for capital
Source: Deloitte CFO Program, A Tale of Two Capital Markets, March 2011; IMF Long-Term Trends in Public Finances in the G-7 Economies, Sept. 2010 Report
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Refinancing of short term corporate debt exacerbates the
situation and global competition for capital will intensify
• Multi-national corporate concerns
have gone short term to take
advantage of recent low interest
rates
• Deloitte CFO Services estimates
that $11.5 trillion in short term
corporate debt will need to be
financed over the next five years,
with much of it concentrated in
the financial services industry
The Americas account for most of the maturing debt, $5.7 trillion out of $11.5
trillion globally. Within the Americas, the financial services industry accounts
for $2.8 trillion.
Source: Deloitte CFO Program, A Tale of Two Capital Markets, March 2011; IMF Long-Term Trends in Public Finances in the G-7 Economies, Sept. 2010 Report
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Failure to address federal debt has significant potential
negative implications for U.S. businesses
• Higher inflation as governments
become more challenged in
issuing debt
• Higher interest rates
• Corporate investment
uncertainty
• Excessive cost of doing business
in countries with compromised
national competitiveness
• Explosion of job exportation
• Potential debtor death spiral
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Briefing on the work of the U.S. Bipartisan Policy Center
Task Force on the federal debt
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The Bipartisan Policy Center Commission
•
The Bipartisan Policy Center is a non-profit
established in 2007 by former Senate Majority
Leaders from both sides of the aisle: Bob Dole,
Howard Baker, Tom Daschle and George Mitchell
•
Commissioned the Debt Reduction Task Force
•
Membership: 19 government and business leaders
including 1 former senator, 2 former governors, 2
former cabinet secretaries, 2 big city mayors
•
Mission: Set aside politics, look for solutions, and
develop a plan that the federal government could act
on
•
A bi-partisan group with diverse backgrounds
coming together to do what many thought wouldn’t
be possible during these polarizing times
Report Released November 17th, 2010
Our Goal: Develop a plan to stabilize the debt at 60% of GDP by 2020.
* This was one of two national debt commissions working during 2010; the other being the White House Commission chaired by Senator
Alan Simpson and Erskine Bowles
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Our mission: Set aside politics, look for solutions, and
develop a plan that the Federal Government could act on
Senator Pete V. Domenici
Henry Cisneros
Edward McElroy, Jr.
Senior Fellow and Co-Chair, Debt Reduction Task Force;
Former U.S. Senator from New Mexico; Former Chairman
State Budget Committee
Executive Chairman, CityView; Former Secretary of Housing
and Urban Development; Former Mayor, San Antonio
CEO, Union Labor Life Insurance Company; Former
President, American Federation of Teachers; Former Vice
President, AFL-CIO
Dr. Alice Rivlin
Carlos M. Gutierrez
Joe Minarik
Co-Chair, Debt Reduction Task Force; Senior Fellow Brooking
Institution; Former Director Office of Management and
Budget; Founding Director Congressional Budget Office;
Former Vide Chair Federal Reserve Board
Scholar, University of Miami Institute for Cuban and Cuban
American Studies; Former Secretary of Commerce; Former
President and CEO, Kellogg USA
Senior VP and Director of Research, Committee for Economic
Development; Former Associate Director for Economic Policy,
Office of Management and Budget; Former Chief Economist,
House Budget Committee
Robert L. Bixby
Executive Director, Concord Coalition
G. William Hoagland
Marc H. Morial
Vice President of Public Policy, CIGNA; Former Staff Director,
Senate Budget Committee; Former Director of Budget and
Appropriations, Office of Senate Majority Leader Bill Frist
President and CEO, National Urban League; Former Mayor,
New Orleans
James Blanchard
Frank Keating
William D. Novelli
Partner, DLA Piper; Former U.S. Ambassador to Canada;
Former Governor of Michigan; Former U.S. Representative
from Michigan
President and CEO, American Council of Life Insurers;
Former Governor of Oklahoma
Professor, McDonough School of Business at Georgetown
University; Former CEO, AARP
Shelia Burke
Karen Kerrigan
Anthony A. (Tony) Williams
Adjunct Lecturer in Public Policy at the Kennedy School
Government at Harvard University
President and CEO, Small Business and Entrepreneurship
Council; Founder, Women Entrepreneurs Inc.
Executive Director of the Government Practice, Corporate
Executive Board; Director of State and Municipal Practice,
Arent Fox PLLC; Former Mayor, District of Columbia; Former
President, National League of Cities
Dr. Leonard E. Burman
Maya Macguineas
Daniel Patrick Moynihan Professor of Public Affairs, Maxwell
School of Syracuse University; Former Treasury Deputy
Assistant Secretary for Tax Analysis; Former Director, UrbanBrookings Tax Policy Center; Former Senior Analyst,
Congressional Budget Office
President, Committee for a Responsible Federal Budget
Robert N. Campbell III
Donald Marron
Vice Chairman, Deloitte LLP
Director, Urban-Brookings Tax Policy Center; Visiting
Professor, Georgetown Public Policy Institute; Former
Member, Council of Economic Advisors; Former Acting
Director, Congressional Budget Office
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A bi-partisan group with diverse
backgrounds coming together to do
what many thought wouldn’t be
possible during these polarizing
times
The BPC Task Force Plan: A Summary of
Recommendations
• Freeze domestic discretionary spending
–
Freeze non-defense discretionary spending for 4 years and cap at GDP thereafter; freeze defense
discretionary spending for 5 years and cap at GDP thereafter
• Restrain rising healthcare costs
–
Transform Medicare and Medicaid, implement malpractice reforms and implement an anti-obesity tax on
sweetened beverages
• Strengthen Social Security
– Gradually raise taxable wage to 90% of all wages over 38 years; change COLA to reflect
inflation; slightly reduce benefits
• Cut spending in other programs
–
Reduce farm program spending and reform the civilian and
military retirement program
• Revive the economy and create jobs
–
Implement an employer payroll tax holiday
• Create a simple pro-growth tax system
–
Reduce corporate and income tax rates
• Enforce the budget reform process
–
Enforce the freeze on discretionary; require policy makers to
off-set new tax cuts or program expansions
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Examples of cumulative savings based on BPC
recommendations
Freeze domestic discretionary spending
$16,000
$14,000
Restrain rising healthcare costs
$25,000
$13,575
$21,244
$20,000
In $Billions
In $Billions
$12,000
$10,000
$8,000
$6,794
$4,169
$4,000
$5,000
$2,136
$2,000
$0
$10,000
$6,676
$6,000
$2,788
$514
2015
$0
2020
2025
2030
2040
Strengthen Social Security
$3,000
$756
2020
2025
2030
2040
Cut spending in other programs
$900
$2,500
$898
$800
$700
In $Billions
$2,000
In $Billions
$174
2015
$1,000
$2,768
$1,500
$1,000
$748
2020
$400
$0
2025
$352
$194
$100
$73
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$500
$200
$305
$6
2015
$600
$300
$500
$0
$15,000
2030
2040
$89
$23
2015
2020
2025
2030
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2040
The BPC plan, if implemented, will dramatically bend
the debt curve
$ impact ≈ $28.8 trillion
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Implications for multinational corporations across
industries if the BPC plan is adopted
Communications
Construction /
Real Estate
Financial
Services
Manufacturing
High Tech
Natural
Resources
Health Care
•
Reduction of corporate tax burden to attract more companies and maintain
domestic presence (offset by the phase-out of employer health care benefits)
•
Increase in the number of employed Americans thereby expanding demand for
goods
•
Hiring incentives through payroll tax reductions
•
Increased consumer confidence and stability in the stock market
•
Decreasing reliance on foreign lenders
•
Positive investment environment for companies to drive innovation and growth
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Questions & Answers
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