Transcript Students_Face_Up pow..

America’s National Debt and
Long-Term Outlook
An Overview of
the Challenge
and the
Implications for
Young People
March 2009
$184,000 Burden
That’s every baby’s burden,
including current debt and
unfunded promises for
Medicare and Social Security.
Unless we do something
soon, it will only get worse.
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Debt vs. Deficits
Deficits: The annual imbalances between
revenues and spending
Debt: Accumulation of deficits over time
• Public debt: U.S. government securities held by
Americans and foreigners
• Debt held by the public net of financial assets: debt to
finance a loan to a private entity in which government
acquires a financial asset
• Intragovernmental debt: Held by government trust funds
(e.g., Social Security) and other accounts
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Unfunded Liabilities
Benefits (e.g., Social Security or Medicare)
promised to be paid in the future, with no
dedicated source of revenue to fund them
Total U.S. government debt, liabilities, and
unfunded promises: $56 trillion (Dec. 2008)
Equal to Americans’ total household net worth
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Projecting the Future?
Projections of future deficits and debt are
based on assumptions, such as:
– Economic growth or recessions
– Changes in spending and tax policies
– Population trends
– Workforce participation rates
History shows that assumptions and
projections are often wrong
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U.S. Budget Deficits/ Surpluses, 1929-2010
Deficits rose from 0 in 1969 to $340 billion
in 1992.
U.S. budget has $86 billion surplus in 2000.
Deficits rose to $568 billion in 2004 and
$1.8 trillion in 2009.
Years, 1961-2008
Deficits as percent of GDP; source: The Washington Post
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National Debt, 1940-2009
(in non-inflation adjusted dollars)
National Debt (March 2009): $11 trillion
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Unless Changes are Made, the
National Debt Will Grow Even Faster
$400
$350
Trillions of Dollars
$300
$250
$200
$150
$100
$50
$0
Source: Heritage Foundation;
CBO data
1962 ‘72
‘82
‘92
2002
‘12
‘22
‘32
‘42
‘50
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Overview of the Federal Budget Challenge
Public Debt Projected to Soar
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Current Policy Trends Lead to
Large Sustained Deficits
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Current fiscal policy is on an
unsustainable path
Interest
All Other
Average tax revenue
Medicaid
Medicare
Social Security
Source: Government Accountability
Office, March 2008
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Current Deficits are Huge, But LONGTERM Deficits are the Real Problem
• SHORT TERM--Current economic crisis is
causing rapidly rising deficits and debt
• LONG TERM--The real problem is the
enormous mismatch between rapidly rising
projected federal spending and insufficient
revenues during the next 20-50 years
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LONG-TERM Debt is an
Intergenerational Issue
• The burden of growing long-term debt will fall
on America’s younger generations as
• drastically higher taxes
• cut benefits
• lower living standards
• fewer choices for public spending
• ALL OF THE ABOVE
• This is about federal finances, U.S. economic
well-being, and intergenerational equity
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The Short Term: The 2008-2009 Economic
Crisis and Soaring Federal Deficits
Deficits up from $455 billion in 2008 to $1.8
trillion in 2009 due to federal spending
associated with the current economic crisis
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The Short Term: The Economic Crisis
and Trillions in Federal Spending
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Where the Money Goes:
President Obama’s FY 2010 Budget
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Entitlement Spending is Consuming an Ever
Larger Share of the Federal Budget
1966
1986
28%
29%
34%
43%
15%
20%
32%
21%
14%
7%
2009
2006
20%
9%
10%
19%
1%
Defense
Social Security
Net interest
All other spending
Medicare & Medicaid
Sources: Office of Management and Budget and the Department of the Treasury.
Note: Numbers may not add to 100 percent due to rounding.
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Entitlements: Social Security and Medicare
Part A Cumulative Cash Deficits
Surpluses and Deficits in Constant 2008 Dollars, 2008 through 2085
In Billions of Constant 2008 Dollars
$500
$496 Billion: Cumulative
Social Security Cash Surplus
$0
-$27 Trillion: Cumulative
Social Security Cash Deficits
-$500
-$55 Trillion: Cumulative
Medicare Part A Cash Deficits
-$1,000
-$1,500
-$2,000
-82.6 Trillion: Cumulative Social Security
and Medicare Part A Cash Deficits
-$2,500
-$3,000
2008 2010
2020
2030
2040
2050
2060
2070
2080
Calendar Year
Source: Social Security Trustees’
Report—March 2008 (Intermediate
Projections)
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Rising Health Care Costs = The No. 1
Factor in Rising Federal Spending and Debt
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Medicare Obligations Will Explode as
Health Care Costs Rise
Calendar Year
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State Governments Face Growing Deficits
Costs, Squeezing Other Spending
Sources: National Association of State Budget Officers, State
Expenditure Report 2006; and Center on Budget and Policy
Priorities, Feb. 2009
• AT LEAST 46 STATES PROJECT
DEFICITS IN 2009
• OVER 40 STATES PLAN 2009 CUTS
• $350 BILLION IN PROJECTED STATE
DEFICITS, Mar. 2009-Sept. 2011
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Declining Personal Savings and
Federal Debt: The Relationship
We No Longer Owe National Debt to Ourselves
We Have Less to Supplement Social Security and Medicare
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•
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Overview of the Federal Budget Challenge
Americans saving at
lowest rate since Great
Depression.
40% of Americans say
they save nothing for
retirement.
One in four Americans say
have no savings.
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
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Percent of Debt Held by the Public
Owned by Foreigners
Source: United States Treasury
Department
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Current Fiscal Policy Is Unsustainable
• The “Status Quo” is Not an Option
– Large and growing structural deficits largely due to rising
health care costs and demographic trends
– Balancing the budget in 2040 could require cutting spending by
60 percent or raising federal taxes to double today's level.
• Faster Economic Growth Cannot Solve the Problem
– Closing the current long-term fiscal gap would require 10%
average economic growth every year for the next 75 years
– From 2001 to 2007, U.S. economy grew by average of 2.2%
• Tough choices will be required
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Americans Worried About Increasing Deficits
Source: Peter G. Peterson Foundation, Feb. 2009
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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
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This is an Issue for all Americans
Confronting and finding solutions is in the
interests of all Americans
• Restoring fiscal responsibility will
strengthen America’s future
• Reducing debt and rethinking national
priorities can enhance bonds between
young and old
• This is not about one generation “winning”
or “losing,” but about all Americans working
for a common future
•
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Framing the Discussion
– Long-term vs. short-term debt
– 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 U.S. economy?
• Investing in the future (education, infrastructure, science,
environment, etc.)
• Providing income security and good living standards
• Providing health care for all Americans
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