This is the accessible text file for CG Presentation number GAO-08- 490CG entitled 'U.S. Financial Condition and Fiscal Future Briefing' which was released on February 7, 2008. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. 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. United States Government Accountability Office: GAO: U.S. Financial Condition and Fiscal Future Briefing: The Honorable David M. Walker: Comptroller General of the United States: University of Akron: Akron, Ohio: January 29, 2008: GAO-08-490CG: The Case for Change: The federal government is on a “burning platform,” and the status quo way of doing business is unacceptable for a variety of reasons, including: * Past fiscal trends and significant long-range challenges; * Selected trends and challenges having no boundaries; * Additional resource demands due to Iraq, Afghanistan, incremental homeland security needs, and recent natural disasters in the United States; * Numerous government performance/accountability and high risk challenges; * Outdated federal organizational structures, policies, and practices; * Rising public expectations for demonstrable results and enhanced responsiveness. Composition of Federal Spending: [See PDF for image] 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] What Does “All Other” Spending Include? Some examples of “all other” spending are: * The Departments of State, Homeland Security, Treasury, Justice, Transportation, and Education; * The Federal Bureau of Investigation; * The Internal Revenue Service; * The Park Service; * The Environmental Protection Agency; * Unemployment Compensation; * Veterans' Benefits; * Food and Nutrition Assistance. Federal Spending for Mandatory and Discretionary Programs: [See PDF for image] 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] A Different View: Federal Spending for Mandatory and Discretionary Programs: [See PDF for image] This image is a stacked line graph depicting federal spending for mandatory and discretionary programs as well as net interest. The vertical axis of the graph represents percent of total outlays from 0 to 100. The horizontal axis of the graph represents years from 1962 to 2017 (using CBO's August 2007 projections for amounts from 2007 to 2017). The total spending for each year represents 100 percent of total outlay. The following data is depicted (dollars in billions): Year: 1962; Mandatory: 27.9; Discretionary: 72.1; Net Interest: 6.9. Year: 1963; Mandatory: 28.3; Discretionary: 75.3; Net Interest: 7.7. Year: 1964; Mandatory: 31.2; Discretionary: 79.1; Net Interest: 8.2. Year: 1965; Mandatory: 31.8; Discretionary: 77.8; Net Interest: 8.6. Year: 1966; Mandatory: 35; Discretionary: 90.1; Net Interest: 9.4. Year: 1967; Mandatory: 40.7; Discretionary: 106.5; Net Interest: 10.3. Year: 1968; Mandatory: 49.1; Discretionary: 118; Net Interest: 11.1. Year: 1969; Mandatory: 53.6; Discretionary: 117.3; Net Interest: 12.7. Year: 1970; Mandatory: 61; Discretionary: 120.3; Net Interest: 14.4. Year: 1971; Mandatory: 72.8; Discretionary: 122.5; Net Interest: 14.8. Year: 1972; Mandatory: 86.7; Discretionary: 128.5; Net Interest: 15.5. Year: 1973; Mandatory: 98; Discretionary: 130.4; Net Interest: 17.3. Year: 1974; Mandatory: 109.7; Discretionary: 132.8; Net Interest: 21.4. Year: 1975; Mandatory: 151.1; Discretionary: 158; Net Interest: 23.2. Year: 1976; Mandatory: 169.5; Discretionary: 175.6; Net Interest: 26.7. Year: 1977; Mandatory: 182.2; Discretionary: 197.1; Net Interest: 29.9. Year: 1978; Mandatory: 204.6; Discretionary: 218.7; Net Interest: 35.5. Year: 1979; Mandatory: 221.4; Discretionary: 240; Net Interest: 42.6. Year: 1980; Mandatory: 262.1; Discretionary: 276.3; Net Interest: 52.5. Year: 1981; Mandatory: 301.6; Discretionary: 307.9; Net Interest: 68.8. Year: 1982; Mandatory: 334.8; Discretionary: 326; Net Interest: 85. Year: 1983; Mandatory: 365.2; Discretionary: 353.3; Net Interest: 89.8. Year: 1984; Mandatory: 361.3; Discretionary: 379.4; Net Interest: 111.1. Year: 1985; Mandatory: 401.1; Discretionary: 415.8; Net Interest: 129.5. Year: 1986; Mandatory: 415.9; Discretionary: 438.5; Net Interest: 136. Year: 1987; Mandatory: 421.3; Discretionary: 444.2; Net Interest: 138.6. Year: 1988; Mandatory: 448.2; Discretionary: 464.4; Net Interest: 151.8. Year: 1989; Mandatory: 486; Discretionary: 488.8; Net Interest: 169. Year: 1990; Mandatory: 568.2; Discretionary: 500.6; Net Interest: 184.3. Year: 1991; Mandatory: 596.6; Discretionary: 533.3; Net Interest: 194.4. Year: 1992; Mandatory: 648.5; Discretionary: 533.8; Net Interest: 199.3. Year: 1993; Mandatory: 671.4; Discretionary: 539.4; Net Interest: 198.7. Year: 1994; Mandatory: 717.6; Discretionary: 541.4; Net Interest: 202.9. Year: 1995; Mandatory: 738.9; Discretionary: 544.9; Net Interest: 232.1. Year: 1996; Mandatory: 786.8; Discretionary: 532.7; Net Interest: 241.1. Year: 1997; Mandatory: 810.1; Discretionary: 547.2; Net Interest: 244. Year: 1998; Mandatory: 859.5; Discretionary: 552.1; Net Interest: 241.1. Year: 1999; Mandatory: 900.3; Discretionary: 572; Net Interest: 229.8. Year: 2000; Mandatory: 951.4; Discretionary: 614.8; Net Interest: 222.9. Year: 2001; Mandatory: 1,007.70; Discretionary: 649.3; Net Interest: 206.2. Year: 2002; Mandatory: 1,105.90; Discretionary: 734.3; Net Interest: 170.9. Year: 2003; Mandatory: 1,181.60; Discretionary: 825.4; Net Interest: 153.1. Year: 2004; Mandatory: 1,237.30; Discretionary: 895.5; Net Interest: 160.2. Year: 2005; Mandatory: 1319.8; Discretionary: 968.5; Net Interest: 184. Year: 2006; Mandatory: 1413; Discretionary: 1016; Net Interest: 227. Year: 2007; Mandatory: 1457; Discretionary: 1042; Net Interest: 235. Year: 2008; Mandatory: 1553; Discretionary: 1120; Net Interest: 253. Year: 2009; Mandatory: 1639; Discretionary: 1165; Net Interest: 267. Year: 2010; Mandatory: 1729; Discretionary: 1195; Net Interest: 281. Year: 2011; Mandatory: 1846; Discretionary: 1223; Net Interest: 290. Year: 2012; Mandatory: 1883; Discretionary: 1239; Net Interest: 292. Year: 2013; Mandatory: 2022; Discretionary: 1271; Net Interest: 290. Year: 2014; Mandatory: 2145; Discretionary: 1300; Net Interest: 289. Year: 2015; Mandatory: 2280; Discretionary: 1330; Net Interest: 286. Year: 2016; Mandatory: 2465; Discretionary: 1366; Net Interest: 284. Year: 2017; Mandatory: 2598; Discretionary: 1392; Net Interest: 278. Sources: Office of Management and Budget and the Congressional Budget Office. [End of figure] Composition of Federal Receipts by Source: [See PDF for image] This figure contains three pie-charts that depict the following data: Year: 1966: Individual income: 42%; Corporate income: 23%; Social insurance and retirement: 20%; Other: 15%. Year: 1986: Individual income: 45%; Corporate income: 8%; Social insurance and retirement: 37%; Other: 1o%. Year: 2006: Individual income: 43%; Corporate income: 15%; Social insurance and retirement: 35%; Other: 7%. Note: Numbers do not add to 100 percent due to rounding. Source: GAO analysis of data from the Office of Management and Budget. [End of figure] Composition of Federal Receipts by Source: [See PDF for image] This figure contains three pie-charts that depict the following data: Year: 1966: Individual income: 42%; Corporate income: 23%; Social insurance and retirement: 20%; Other: 15%. Year: 1986: Individual income: 45%; Corporate income: 8%; Social insurance and retirement: 37%; Other: 1o%. Year: 2006: Individual income: 43%; Corporate income: 15%; Social insurance and retirement: 35%; Other: 7%. Note: Numbers do not add to 100 percent due to rounding. Source: GAO analysis of data from the Office of Management and Budget. [End of figure] Main Measures of the Budget Deficit: “On-Budget Deficit”: * The deficit minus the Social Security Trust Fund and Postal Service surpluses. Unified Budget Deficit: * The most commonly reported measure; * A comprehensive measure of cash flow, assessing how much we have to borrow today to meet current obligations; * The difference between revenues & outlays when the money actually leaves the Treasury. If the Unified Budget is Commonly Reported, Why is the On-Budget Deficit So Important? * Today, Social Security taxes exceed Social Security benefits—the Social Security surplus is invested in Treasuries and it offsets the deficit in the rest of government; * But that surplus shrinks in 2009 and disappears in 2017, so we need to know the deficit in the rest of the budget. Social Security and Medicare’s Hospital Insurance Trust Funds Face Cash Deficits: [See PDF for image] This is a bar graph with vertical bars representing the Medicare HI Cash Flow and Social Security Cash Flow for each fiscal year. The bars indicate a Medicare HI cash deficit beginning in 2007 and a Social Security cash deficit in 2017. The vertical axis of the graph depicts billions of 2007 dollars from -900 to +200. The horizontal axis depicts fiscal years from 2005 through 2040. The following data is depicted: 2005: Medicare HI cash flow: $0.42; Social Security cash flow: $81.68; Surplus: $82.1. 2006: Medicare HI cash flow: $3.26; Social Security cash flow: $88.75; Surplus: $90.01. 2007: Medicare HI cash flow: ($1.00); Social Security cash flow: $79.40; Surplus: $78.40. 2008: Medicare HI cash flow: ($4.88); Social Security cash flow: $90.10; Surplus: $85.22. 2009: Medicare HI cash flow: ($7.61); Social Security cash flow: $94.30; Surplus: $86.69. 2010: Medicare HI cash flow: ($11.11); Social Security cash flow: $89.80; Surplus: $78.69. 2011: Medicare HI cash flow: ($14.40); Social Security cash flow: $86.10; Surplus: $71.7. 2012: Medicare HI cash flow: ($19.27); Social Security cash flow: $76.30; Surplus: $57.03. 2013: Medicare HI cash flow: ($23.85); Social Security cash flow: $62.10; Surplus: $38.25. 2014: Medicare HI cash flow: ($29.83); Social Security cash flow: $45.90; Surplus: $16.07. 2015: Medicare HI cash flow: ($36.28); Social Security cash flow: $29.20; Deficit: $7.08. 2016: Medicare HI cash flow: ($43.13); Social Security cash flow: $11.50; Deficit: $31.63. 2017: Medicare HI cash flow: ($51.11); Social Security cash flow: ($6.70); Deficit: $57.81. 2018: Medicare HI cash flow: ($60.85); Social Security cash flow: ($26.30); Deficit: $87.15. 2019: Medicare HI cash flow: ($70.74); Social Security cash flow: ($46.80); Deficit: $117.54. 2020: Medicare HI cash flow: ($81.45); Social Security cash flow: ($67.80); Deficit: $149.25. 2021: Medicare HI cash flow: ($93.57); Social Security cash flow: ($88.40); Deficit: $181.97. 2022: Medicare HI cash flow: ($107.64); Social Security cash flow: ($109.00); Deficit: $216.64. 2023: Medicare HI cash flow: ($122.16); Social Security cash flow: ($129.70); Deficit: $251.86. 2024: Medicare HI cash flow: ($137.69); Social Security cash flow: ($150.30); Deficit: $287.99. 2025: Medicare HI cash flow: ($153.52); Social Security cash flow: ($170.90); Deficit: $324.42. 2026: Medicare HI cash flow: ($171.35); Social Security cash flow: ($191.30); Deficit: $362.65. 2027: Medicare HI cash flow: ($189.83); Social Security cash flow: ($211.30); Deficit: $401.13. 2028: Medicare HI cash flow: ($209.99); Social Security cash flow: ($231.30); Deficit: $441.29. 2029: Medicare HI cash flow: ($230.01); Social Security cash flow: ($249.50); Deficit: $479.51. 2030: Medicare HI cash flow: ($250.39); Social Security cash flow: ($266.50); Deficit: $516.89. 2031: Medicare HI cash flow: ($272.06); Social Security cash flow: ($282.50); Deficit: $554.56. 2032: Medicare HI cash flow: ($293.90); Social Security cash flow: ($297.30); Deficit: $591.2. 2033: Medicare HI cash flow: ($316.28); Social Security cash flow: ($310.30); Deficit: $626.58. 2034: Medicare HI cash flow: ($338.68); Social Security cash flow: ($321.40); Deficit: $660.08. 2035: Medicare HI cash flow: ($361.93); Social Security cash flow: ($330.90); Deficit: $692.83. 2036: Medicare HI cash flow: ($385.03); Social Security cash flow: ($339.60); Deficit: $724.63. 2037: Medicare HI cash flow: ($408.36); Social Security cash flow: ($347.30); Deficit: $762.06. 2038: Medicare HI cash flow: ($430.55); Social Security cash flow: ($353.70); Deficit: $784.25. 2039: Medicare HI cash flow: ($453.30); Social Security cash flow: ($358.80); Deficit: $812.1. 2040: Medicare HI cash flow: ($475.73); Social Security cash flow: ($363.40); Deficit: $839.13. Source: GAO analysis of data from the Office of the Chief Actuary, Social Security Administration and Office of the Actuary, Centers for Medicare and Medicaid Services. Note: Projections based on the intermediate assumptions of the 2007 Trustees’ Reports. The CPI is used to adjust from current to constant dollars. [End of graph] Still a Third Deficit Measure: Net Operating Cost: Net operating cost (or the “accrual deficit”): * Like the unified budget deficit, net operating cost accounts for all federal activities (i.e., both on-and off-budget). However, unlike the unified budget deficit, expenses in this measure are recorded on an accrual basis—when goods are used or services are performed rather than when the resulting cash payments are made. * In some cases, expenses are estimates of amounts that will be outlaid in the future and thus depend on assumptions regarding interest rates, inflation, and wage growth, among other things. * See GAO-07-117SP and GAO-07-341SP to understand cash & accrual deficits. Table: Fiscal Year 2006 and 2007 Deficits and Net Operating Costs: On-Budget Deficit, Fiscal Year 2006 ($ Billion): (434); On-Budget Deficit, Fiscal Year 2007 ($ Billion): (344); Unified Deficit[a], Fiscal Year 2006 ($ Billion): (248); Unified Deficit[a], Fiscal Year 2007 ($ Billion): (163); Net Operating Cost[b], Fiscal Year 2006 ($ Billion): (450); Net Operating Cost[b], Fiscal Year 2007 ($ Billion): (276); Sources: Office of Management and Budget and Department of the Treasury. [a] Includes $185 billion in Social Security surpluses for fiscal year 2006 and $186 billion for fiscal year 2007; $1 billion in Postal Service surpluses for fiscal year 2006 and $5 billion for fiscal year 2007. [End of table] Surplus or Deficit as a Share of GDP (1797-2007) [expressed in percent of GNP/GDP]: [See PDF for image] This figure is a graph illustrating the surplus or deficit as a share of GDP (1797-2007). The vertical axis of the graph represents percent of GNP/GDP from -35 to 10. The horizontal axis of the graph represents years from 1797 to 2007. The following data is depicted: Year: 1797; Percent of GNP/GDP: 0.8. Year: 1820; Percent of GNP/GDP: -0.1. Year: 1840; Percent of GNP/GDP: -0.6. Year: 1860; Percent of GNP/GDP: -0.2. Year: 1880; Percent of GNP/GDP: 0.6. Year: 1900; Percent of GNP/GDP: 0.2. Year: 1920; Percent of GNP/GDP: 0.3. Year: 1921; Percent of GNP/GDP: 0.7. Year: 1922; Percent of GNP/GDP: 1. Year: 1923; Percent of GNP/GDP: 0.8 Year: 1924; Percent of GNP/GDP: 1.1. Year: 1925; Percent of GNP/GDP: 0.8. Year: 1925; Percent of GNP/GDP: 0.9. Year: 1926; Percent of GNP/GDP: 1.2. Year: 1927; Percent of GNP/GDP: 1. Year: 1928; Percent of GNP/GDP: 0.7. Year: 1929; Percent of GNP/GDP: 0.8 Year: 1930; Percent of GNP/GDP: -0.6. Year: 1940; Percent of GNP/GDP: -3. Year: 1941; Percent of GNP/GDP: -4.3. Year: 1942; Percent of GNP/GDP: -14.2. Year: 1943; Percent of GNP/GDP: -30.3. Year: 1944; Percent of GNP/GDP: -22.7. Year: 1945; Percent of GNP/GDP: -21.5. Year: 1946; Percent of GNP/GDP: -7.2. Year: 1947; Percent of GNP/GDP: 1.7. Year: 1948; Percent of GNP/GDP: 4.6. Year: 1949; Percent of GNP/GDP: 0.2. Year: 1950; Percent of GNP/GDP: -1.1. Year: 1960; Percent of GNP/GDP: 0.1. Year: 1970; Percent of GNP/GDP: -0.3. Year: 1980; Percent of GNP/GDP: -2.7. Year: 1990; Percent of GNP/GDP: -3.9. Year: 1991; Percent of GNP/GDP: -4.5. Year: 1992; Percent of GNP/GDP: -4.7. Year: 1993; Percent of GNP/GDP: -3.9. Year: 1994; Percent of GNP/GDP: -2.9. Year: 1995: Percent of GNP/GDP: -2.2. Year: 1996; Percent of GNP/GDP: -1.4. Year: 1997; Percent of GNP/GDP: -0.3. Year: 1998; Percent of GNP/GDP: 0.8. Year: 1999; Percent of GNP/GDP: 1.4 Year: 2000; Percent of GNP/GDP: 2.4. Year: 2001; Percent of GNP/GDP: 1.3. Year: 2002; Percent of GNP/GDP: -1.5. Year: 2003; Percent of GNP/GDP: -3.5. Year: 2004; Percent of GNP/GDP: -3.6. Year: 2005; Percent of GNP/GDP: -2.6. Year: 2006; Percent of GNP/GDP: -1.9. Year: 2007; Percent of GNP/GDP: -1.2. Note: Data until 1929 are shown as a percent of gross national product (GNP); data from 1930 to present are shown as a percent of GDP. Source:Department of Commerce, Office of Management and Budget, and Congressional Budget Office. [End of figure] Debt Held by the Public as a Share of GDP (1797-2007)[Expressed as a percent of GNP/GDP]: [See PDF for image] This figure is a graph illustrating the debt held by the public as a share of GDP(1797-2007). The vertical axis of the graph represents percent of GNP/GDP from 0 to 120. The horizontal axis of the graph represents years from 1797 to 2007. The following data is depicted: Year: 1797; Percent of GNP/GDP: 24.1. Year: 1800; Percent of GNP/GDP: 22.2. Year: 1810; Percent of GNP/GDP: 10.2. Year: 1820; Percent of GNP/GDP: 12.3. Year: 1830; Percent of GNP/GDP: 4.3. Year: 1840; Percent of GNP/GDP: 0.4. Year: 1850; Percent of GNP/GDP: 3. Year: 1860; Percent of GNP/GDP: 2.2. Year: 1870; Percent of GNP/GDP: 32.2. Year: 1880; Percent of GNP/GDP: 18. Year: 1890; Percent of GNP/GDP: 8. Year: 1900; Percent of GNP/GDP: 6.6. Year: 1910; Percent of GNP/GDP: 3.5. Year: 1920; Percent of GNP/GDP: 27.1. Year: 1930; Percent of GNP/GDP: 17.6. Year: 1940; Percent of GNP/GDP: 44.2. Year: 1950; Percent of GNP/GDP: 80.2. Year: 1960; Percent of GNP/GDP: 45.7. Year: 1970; Percent of GNP/GDP: 28; Year: 1980; Percent of GNP/GDP: 26.1; Year: 1990: Percent of GNP/GDP: 42. Year: 1991; Percent of GNP/GDP: 45.3. Year: 1992; Percent of GNP/GDP: 48.1. Year: 1993; Percent of GNP/GDP: 49.4. Year: 1994; Percent of GNP/GDP: 49.3. Year: 1995; Percent of GNP/GDP: 49.2. Year: 1996; Percent of GNP/GDP: 48.5. Year: 1997; Percent of GNP/GDP: 46.1. Year: 1998; Percent of GNP/GDP: 43.1; Year: 1999; Percent of GNP/GDP: 39.8. Year: 2000; Percent of GNP/GDP: 35.1. Year: 2001; Percent of GNP/GDP: 33. Year: 2002; Percent of GNP/GDP: 34.1. Year: 2003; Percent of GNP/GDP: 36.2. Year: 2004; Percent of GNP/GDP: 37.3. Year: 2005; Percent of GNP/GDP: 37.4. Year: 2006; Percent of GNP/GDP: 37.0. Year: 2007; Percent of GNP/GDP: 36.8. Note: Data until 1929 are shown as a percent of gross national product (GNP); data from 1930 to present are shown as a percent of GDP. Source:GAO analysis of data from the Department of Commerce, Office of Management and Budget, and Congressional Budget Office. [End of figure] Short-term Fiscal Position versus Long-term Fiscal Exposures: [See PDF for image] This figure is a multiple line graph illustrating short-term fiscal position versus long-term fiscal exposures. The following data is depicted: Fiscal year: 2004; Long-term Fiscal Exposures: $43.4 trillion; Net Operating Cost: $615.6 billion; Operating Deficit: $568 billion; Unified Deficit: $412.7 billion. Fiscal year: 2005; Long-term Fiscal Exposures: $46.4 trillion; Net Operating Cost: $760.2 billion; Operating Deficit: $493.6 billion; Unified Deficit: $318.3 billion. Fiscal year: 2006; Long-term Fiscal Exposures: $50.5 trillion; Net Operating Cost: $449.5 billion; Operating Deficit: $434 billion; Unified Deficit: $247.6 billion. Fiscal year: 2007; Long-term Fiscal Exposures: $52.7 trillion; Net Operating Cost: $275.5 billion; Operating Deficit: $344.284 billion; Unified Deficit: $162.8 billion. Source: GAO analysis. Note: Data are from the Congressional Budget Office and the Department of Treasury. Estimates of the federal government’s long-term fiscal exposures are based on the Financial Report of the U.S. Government. These estimates include the present value of future social insurance obligations over a 75-year time horizon as of January 1st of the preceding year. These estimates have not been adjusted for inflation. [End of figure] Table: Major Fiscal Exposures ($ trillions): Explicit liabilities (Publicly held debt, Military & civilian pensions & retiree health, Other): 2000: $6.9; 2007: $10.8; Percent increase: 57. Commitments & contingencies (e.g., PBGC, undelivered orders): 2000: 0.5; 2007: 1.1; Percent increase: 97. Implicit exposures, 2000: 13.0; Implicit exposures, 2007: 40.8; Implicit exposures, Percent increase: 213; Future Social Security benefits, 2000: 3.8; Future Social Security benefits, 2007: 6.8; Future Medicare Part A benefits, 2000: 2.7; Future Medicare Part A benefits, 2007: 12.3; Future Medicare Part B benefits, 2000: 6.5; Future Medicare Part B benefits, 2007: 13.4; Future Medicare Part D benefits, 2000: [Empty]; Future Medicare Part D benefits, 2007: 8.4; Total, 2000: $20.4; Total, 2007: $52.7; Percent increase: 158. Source: 2000 and 2007 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: $52.7 trillion; Total household net worth[1]: $58.6 trillion; Burden/Net worth ratio: 90 percent. Burden[2]: Per person: $175,000; Per full-time worker: $410,000; Per household: $455,000. Income: Median household income[3]: $48,201; Disposable personal income per capita[4]: $33,253. Source: GAO analysis. Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100, 2007:Q3 (December 6, 2007); (2) Burdens are calculated using estimated total U.S. population as of 10/1/2007, from the U.S. Census Bureau; full-time workers reported by the Bureau of Economic Analysis, in NIPA table 6.5D (Aug. 1, 2007); and households reported by the U.S. Census Bureau, in Income, Poverty, and Health Insurance Coverage in the United States: 2006(Aug. 2007); (3) U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2006(Aug. 2007); and (4) Bureau of Economic Analysis, Personal Income and Outlays, table 2, (Nov. 29, 2007). [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] 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]. The following data is depicted: Fiscal year 2005: Net interest: 0.8%; Social Security: 4.3%; Medicare & Medicaid: 3.7%; All other spending: 7.994%; Revenue: 20.3%. Fiscal year 2015[A]: Net interest: 0%; Social Security: 5.1%; Medicare & Medicaid: 4.9%; All other spending: 5.574%; Revenue: 20.4%. Fiscal year 2030[A]: Net interest: 0%; Social Security: 6.6%; Medicare & Medicaid: 9.4%; All other spending: 3.991%; Revenue: 20.4%. Fiscal year 2040[A]: Net interest: 0%; Social Security: 6.7%; Medicare & Medicaid: 9%; All other spending: 4.361%; Revenue: 20.4%. 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] 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. The following data is depicted: Fiscal year 2006: Net interest: 1.7%; Social Security: 4.2%; Medicare & Medicaid: 3.9%; All other spending: 10.6%; Revenue: 18.4%. Fiscal year 2015: Net interest: 2.3%; Social Security: 4.8%; Medicare & Medicaid: 5.7%; All other spending: 9.6%; Revenue: 18%. Fiscal year 2030: Net interest: 5.8%; Social Security: 6.6%; Medicare & Medicaid: 8.8%; All other spending: 9.6%; Revenue: 18.6%. Fiscal year 2040: Net interest: 11.6%; Social Security: 7.2%; Medicare & Medicaid: 10.8%; All other spending: 9.6%; Revenue: 18.6%. 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] Growth in Spending for Social Security, Medicare, and Medicaid Expected to Outpace Economic Growth: [See PDF for image] This image is a bar graph depicting Growth in Spending for Social Security, Medicare, and Medicaid Expected to Outpace Economic Growth. The vertical axis of the graph represents growth in constant dollars, 2007-2032 in percentage from 0 to 150. The horizontal axis represents spending growth in the four areas. The following data is depicted: Growth in Constant dollars, 2007-2032: GDP: 71%; Social Security Spending: 127%; Medicaid Spending: 224%; Medicare Spending: 235%. 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. Notes: Social Security and Medicare projections based on the intermediate assumptions of the 2007 Trustees’ Reports. Medicaid projections based on CBO’s August 2007 short-term Medicaid estimates and CBO’s December 2005 long-term Medicaid projections under mid-range assumptions. [End of graph] Social Security, Medicare, and Medicaid Spending as a Percent of GDP: [See PDF for image] This is a line graph with three stacked lines (Social Security, Medicaid, and Medicare). The vertical axis represents Percent of GDP and the horizontal axis represents fiscal years 2000 through 2080. The following data is depicted: 2000: Social Security: 4.229; Medicaid: 1.23; Medicare: 2.277; Total: 7.736. 2001: Social Security: 4.334; Medicaid: 1.322; Medicare: 2.433; Total: 8.089. 2002: Social Security: 4.409; Medicaid: 1.44; Medicare: 2.523; Total: 8.372. 2003: Social Security: 4.371; Medicaid: 1.501; Medicare: 2.56; Total: 8.432. 2004: Social Security: 4.283; Medicaid: 1.516; Medicare: 2.629; Total: 8.428. 2005: Social Security: 4.254; Medicaid: 1.457; Medicare: 2.7; Total: 8.411. 2006: Social Security: 4.28; Medicaid: 1.383; Medicare: 3.072; Total: 8.735. 2007: Social Security: 4.29; Medicaid: 1.401; Medicare: 3.185; Total: 8.876. 2008: Social Security: 4.24; Medicaid: 1.449; Medicare: 3.255; Total: 8.944. 2009: Social Security: 4.26; Medicaid: 1.490; Medicare: 3.333; Total: 9.083. 2010: Social Security: 4.32; Medicaid: 1.531; Medicare: 3.414; Total: 9.265. 2011: Social Security: 4.36; Medicaid: 1.578; Medicare: 3.49; Total: 9.428. 2012: Social Security: 4.44; Medicaid: 1.630; Medicare: 3.588; Total: 9.658. 2013: Social Security: 4.54; Medicaid: 1.683; Medicare: 3.694; Total: 9.917. 2014: Social Security: 4.65; Medicaid: 1.739; Medicare: 3.806; Total: 10.195. 2015: Social Security: 4.76; Medicaid: 1.799; Medicare: 3.918; Total: 10.477. 2016: Social Security: 4.86; Medicaid: 1.864; Medicare: 4.044; Total: 10.768. 2017: Social Security: 4.976; Medicaid: 1.930 Medicare: 4.183; Total: 11.089. 2018: Social Security: 5.08; Medicaid: 2.2; Medicare: 4.331; Total: 11.611. 2019: Social Security: 5.2; Medicaid: 2.2; Medicare: 4.483; Total: 11.883. 2020: Social Security: 5.31; Medicaid: 2.3; Medicare: 4.642; Total: 12.252. 2021: Social Security: 5.41; Medicaid: 2.3; Medicare: 4.809; Total: 12.519. 2022: Social Security: 5.22; Medicaid: 2.4; Medicare: 4.988; Total: 12.608. 2023: Social Security: 5.61; Medicaid: 2.4; Medicare: 5.173; Total: 13.183. 2024: Social Security: 5.71; Medicaid: 2.5; Medicare: 5.359; Total: 13.569. 2025: Social Security: 5.8; Medicaid: 2.6; Medicare: 5.547; Total: 13.947. 2026: Social Security: 5.89; Medicaid: 2.6; Medicare: 5.739; Total: 14.229. 2027: Social Security: 5.97; Medicaid: 2.7; Medicare: 5.935; Total: 14.605. 2028: Social Security: 6.05; Medicaid: 2.7; Medicare: 6.131; Total: 14.881. 2029: Social Security: 6.12; Medicaid: 2.8; Medicare: 6.322; Total: 15.242. 2030: Social Security: 6.17; Medicaid: 2.8; Medicare: 6.505; Total: 15.475. 2031: Social Security: 6.22; Medicaid: 2.9; Medicare: 6.682; Total: 15.802. 2032: Social Security: 6.27; Medicaid: 2.9; Medicare: 6.851; Total: 16.021. 2033: Social Security: 6.3; Medicaid: 3; Medicare: 7.017; Total: 16.317. 2034: Social Security: 6.32; Medicaid: 3.1; Medicare: 7.279; Total: 16.669. 2035: Social Security: 6.33; Medicaid: 3.1; Medicare: 7.34; Total: 16.77. 2036: Social Security: 6.34; Medicaid: 3.2; Medicare: 7.498; Total: 17.038. 2037: Social Security: 6.34; Medicaid: 3.3; Medicare: 7.643; Total: 17.283. 2038: Social Security: 6.34; Medicaid: 3.3; Medicare: 7.774; Total: 17.414. 2039: Social Security: 6.33; Medicaid: 3.4; Medicare: 7.894; Total: 17.624. 2040: Social Security: 6.31; Medicaid: 3.4; Medicare: 8.01; Total: 17.72. 2041: Social Security: 6.3; Medicaid: 3.5; Medicare: 8.121; Total: 17.921. 2042: Social Security: 6.28; Medicaid: 3.6; Medicare: 8.229; Total: 18.109. 2043: Social Security: 6.27; Medicaid: 3.6; Medicare: 8.334; Total: 18.204. 2044: Social Security: 6.25; Medicaid: 3.7; Medicare: 8.437; Total: 18.387. 2045: Social Security: 6.24; Medicaid: 3.7; Medicare: 8.54; Total: 18.48. 2046: Social Security: 6.23; Medicaid: 3.8; Medicare: 8.64; Total: 18.67. 2047: Social Security: 6.22; Medicaid: 3.8; Medicare: 8.737; Total: 18.757. 2048: Social Security: 6.21; Medicaid: 3.9; Medicare: 8.829; Total: 18.939. 2049: Social Security: 6.2; Medicaid: 3.9; Medicare: 8.916; Total: 19.016. 2050: Social Security: 6.2; Medicaid: 4; Medicare: 9.002; Total: 19.202. 2051: Social Security: 6.19; Medicaid: 4.063; Medicare: 9.008; Total: 19.261. 2052: Social Security: 6.19; Medicaid: 4.127; Medicare: 9.172; Total: 19.489. 2053: Social Security: 6.19; Medicaid: 4.192; Medicare: 9.256; Total: 19.638. 2054: Social Security: 6.2; Medicaid: 4.258; Medicare: 9.344; Total: 19.802. 2055: Social Security: 6.2; Medicaid: 4.325; Medicare: 9.439; Total: 19.964. 2056: Social Security: 6.21; Medicaid: 4.393; Medicare: 9.538; Total: 20.141. 2057: Social Security: 6.21; Medicaid: 4.462; Medicare: 9.634; Total: 20.306. 2058: Social Security: 6.22; Medicaid: 4.533; Medicare: 9.728; Total: 20.481. 2059: Social Security: 6.23; Medicaid: 4.604; Medicare: 9.82; Total: 20.654. 2060: Social Security: 6.23; Medicaid: 4.676; Medicare: 9.91; Total: 20.816. 2061: Social Security: 6.24; Medicaid: 4.75; Medicare: 10; Total: 20.99. 2062: Social Security: 6.24; Medicaid: 4.825; Medicare: 10.087; Total: 21.152. 2063: Social Security: 6.24; Medicaid: 4.901; Medicare: 10.175; Total: 21.316. 2064: Social Security: 6.25; Medicaid: 4.978; Medicare: 10.262; Total: 21.49. 2065: Social Security: 6.25; Medicaid: 5.056; Medicare: 10.349; Total: 21.655. 2066: Social Security: 6.25; Medicaid: 5.136; Medicare: 10.429; Total: 21.815. 2067: Social Security: 6.25; Medicaid: 5.217; Medicare: 10.502; Total: 21.969. 2068: Social Security: 6.26; Medicaid: 5.299; Medicare: 10.574; Total: 22.133. 2069: Social Security: 6.26; Medicaid: 5.383; Medicare: 10.648; Total: 22.291. 2070: Social Security: 6.26; Medicaid: 5.467; Medicare: 10.718; Total: 22.445. 2071: Social Security: 6.27; Medicaid: 5.553; Medicare: 10.784; Total: 22.607. 2072: Social Security: 6.27; Medicaid: 5.641; Medicare: 10.845; Total: 22.756. 2073: Social Security: 6.27; Medicaid: 5.73; Medicare: 10.906; Total: 22.906. 2074: Social Security: 6.27; Medicaid: 5.82; Medicare: 10.964; Total: 23.054. 2075: Social Security: 6.27; Medicaid: 5.912; Medicare: 11.022; Total: 23.204. 2076: Social Security: 6.27; Medicaid: 6.005; Medicare: 11.079; Total: 23.354. 2077: Social Security: 6.27; Medicaid: 6.099; Medicare: 11.134; Total: 23.503. 2078: Social Security: 6.28; Medicaid: 6.195; Medicare: 11.187; Total: 23.662. 2079: Social Security: 6.28; Medicaid: 6.293; Medicare: 11.239; Total: 23.812. 2080: Social Security: 6.28; Medicaid: 6.392; Medicare: 11.29; Total: 23.962. 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. Note: Social Security and Medicare projections based on the intermediate assumptions of the 2007 Trustees’ Reports. Medicaid projections based on CBO’s August 2007 short-term Medicaid estimates and CBO’s December 2005 long-term Medicaid projections under mid-range assumptions. [End of graph] Debt per Capita Could Exceed GDP Per Capita Before 2030 Under GAO’s Alternative Simulation: [See PDF for image] This figure is a vertical bar graph depicting the following data (in per capita 2007 dollars): Year: 2007; Debt per Capita: $16,258; GDP per Capita: $44,676. Year: 2030; Debt per Capita: $74,815; GDP per Capita: $58,975. Year: 2040; Debt per Capita: $151,877; GDP per Capita: $60,477. Source: GAO’s August 2007 analysis. Note: Simulation assumes 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 figure] Federal Tax Expenditures Exceeded Discretionary Spending for Half of the Last Decade: [See PDF for image] This is a line graph with three lines (Mandatory spending; Sum of tax expenditure revenue loss estimates; and Discretionary spending). The vertical axis represents Dollars in billions (in real 2005 dollars) and the horizontal axis represents fiscal years 1982 through 2005. The following data is depicted: Fiscal year: 1982; Mandatory spending excluding net interest: 623.4; Sum of tax expenditure revenue loss estimates: 480; Discretionary Spending: 607. Fiscal year: 1983; Mandatory spending excluding net interest: 651.2; Sum of tax expenditure revenue loss estimates: 517.6; Discretionary Spending: 630. Fiscal year: 1984; Mandatory spending excluding net interest: 621.3; Sum of tax expenditure revenue loss estimates: 548.8; Discretionary Spending: 652.5. Fiscal year: 1985; Mandatory spending excluding net interest: 668.1; Sum of tax expenditure revenue loss estimates: 589.3; Discretionary Spending: 692.6. Fiscal year: 1986; Mandatory spending excluding net interest: 677; Sum of tax expenditure revenue loss estimates: 641.2; Discretionary Spending: 713.8. Fiscal year: 1987; Mandatory spending excluding net interest: 668.3; Sum of tax expenditure revenue loss estimates: 598; Discretionary Spending: 704.7. Fiscal year: 1988; Mandatory spending excluding net interest: 689.3; Sum of tax expenditure revenue loss estimates: 464.3; Discretionary Spending: 714.2. Fiscal year: 1989; Mandatory spending excluding net interest: 719.5; Sum of tax expenditure revenue loss estimates: 491.7; Discretionary Spending: 723.7. Fiscal year: 1990; Mandatory spending excluding net interest: 811.1; Sum of tax expenditure revenue loss estimates: 497.5; Discretionary Spending: 714.6. Fiscal year: 1991; Mandatory spending excluding net interest: 820.8; Sum of tax expenditure revenue loss estimates: 489.1; Discretionary Spending: 733.7. Fiscal year: 1992; Mandatory spending excluding net interest: 870.3; Sum of tax expenditure revenue loss estimates: 505.8; Discretionary Spending: 716.4. Fiscal year: 1993; Mandatory spending excluding net interest: 881.1; Sum of tax expenditure revenue loss estimates: 512.8; Discretionary Spending: 707.8. Fiscal year: 1994; Mandatory spending excluding net interest: 921.9; Sum of tax expenditure revenue loss estimates: 539; Discretionary Spending: 695.5. Fiscal year: 1995; Mandatory spending excluding net interest: 929.7; Sum of tax expenditure revenue loss estimates: 558.3; Discretionary Spending: 685.6. Fiscal year: 1996; Mandatory spending excluding net interest: 971.3; Sum of tax expenditure revenue loss estimates: 561.3; Discretionary Spending: 657.6. Fiscal year: 1997; Mandatory spending excluding net interest: 982.9; Sum of tax expenditure revenue loss estimates: 586.2; Discretionary Spending: 663.9. Fiscal year: 1998; Mandatory spending excluding net interest: 1030.3; Sum of tax expenditure revenue loss estimates: 663.2; Discretionary Spending: 661.8. Fiscal year: 1999; Mandatory spending excluding net interest: 1065.3; Sum of tax expenditure revenue loss estimates: 713.6; Discretionary Spending: 676.8. Fiscal year: 2000; Mandatory spending excluding net interest: 1103.4; Sum of tax expenditure revenue loss estimates: 746.2; Discretionary Spending: 713. Fiscal year: 2001; Mandatory spending excluding net interest: 1141.8; Sum of tax expenditure revenue loss estimates: 809.2; Discretionary Spending: 735.7. Fiscal year: 2002; Mandatory spending excluding net interest: 1229.5; Sum of tax expenditure revenue loss estimates: 838.1; Discretionary Spending: 816.4. Fiscal year: 2003; Mandatory spending excluding net interest: 1287.6; Sum of tax expenditure revenue loss estimates: 803.6; Discretionary Spending: 899.5. Fiscal year: 2004; Mandatory spending excluding net interest: 1314.4; Sum of tax expenditure revenue loss estimates: 773.5; Discretionary Spending: 951.3. Fiscal year: 2005; Mandatory spending excluding net interest: 1360.5; Sum of tax expenditure revenue loss estimates: 799.6; Discretionary Spending: 998.4. Fiscal year: 2006; Mandatory spending excluding net interest: 1412.1; Sum of tax expenditure revenue loss estimates: 846.7; Discretionary Spending: 1016.7. Source: GAO analysis of OMB budget reports on tax expenditures, fiscal years 1976-2008. Note: Summing tax expenditure estimates does not take into account interactions between individual provisions. Outlays associated with refundable tax credits are included in mandatory spending. [End of graph] Revenue Loss Estimates for the Largest Tax Expenditures Reported for Fiscal Year 2006: [See PDF for image] This is a bar graph with the vertical axis representing Revenue loss estimates (dollars in billions) and the horizontal axis depicting bars indicating the amount of expenditures in six categories. Revenue loss estimate, Exclusion of employer contributions for medical insurance premiums and medical care: 187.5 (Treasury estimated income tax revenue losses: 125; Approximate payroll tax revenue losses: 62.5[A]; Revenue loss estimate, Net exclusion of pension contributions and earnings: defined benefit plans: 89.8[A]; Revenue loss estimate, Deductability of mortgage interest on owner- occupied homes: 68.3; Revenue loss estimate, Capital gains except agriculture, timber, iron ore, and coal): 48.6; Revenue loss estimate, Deductability of nonbusiness states and local taxes other than on owner-occupied homes: 43.1. Source: GAO analysis of OMB, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2008. [A] The value of employer-provided health insurance is excluded from Medicare and Social Security payroll taxes. Some researchers have estimated that payroll tax revenue losses amounted to more than half of the income tax revenue losses in 2004, and we use this estimate for 2006. The research we are aware of dealt only with health care, therefore the 50 percent figure may not apply to other items that are excluded from otherwise applicable income and payroll taxes. [End of graph] State and Local Governments Face Increasing Fiscal Challenges: [See PDF for image] 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. The following data is depicted: 1980: Operating Surplus/Deficit Measure: 0.35873454; Net-lending/Net-borrowing: -0.236601541. 1981: Operating Surplus/Deficit Measure: 0.34624089; Net-lending/Net-borrowing: -0.169415676. 1982: Operating Surplus/Deficit Measure: 0.363124424; Net-lending/Net-borrowing: -0.387096774. 1983: Operating Surplus/Deficit Measure: 0.774990811; Net-lending/Net-borrowing: -0.138547233. 1984: Operating Surplus/Deficit Measure: 0.8152395; Net-lending/Net-borrowing: 0.223736398. 1985: Operating Surplus/Deficit Measure: 0.810172263; Net-lending/Net-borrowing: 0.035542497. 1986: Operating Surplus/Deficit Measure: 0.820186878; Net-lending/Net-borrowing: -0.103074303. 1987: Operating Surplus/Deficit Measure: 0.348462918; Net-lending/Net-borrowing: -0.346028062. 1988: Operating Surplus/Deficit Measure: 0.415329754; Net-lending/Net-borrowing: -0.289980015. 1989: Operating Surplus/Deficit Measure: 0.461047699; Net-lending/Net-borrowing: -0.302676683. 1990: Operating Surplus/Deficit Measure: 0.12076304; Net-lending/Net-borrowing: -0.649652772. 1991: Operating Surplus/Deficit Measure: -0.002324922; Net-lending/Net-borrowing: -0.823896329. 1992: Operating Surplus/Deficit Measure: 0.105991132; Net-lending/Net-borrowing: -0.675323856. 1993: Operating Surplus/Deficit Measure: 0.17518701; Net-lending/Net-borrowing: -0.573797579. 1994: Operating Surplus/Deficit Measure: 0.15154266; Net-lending/Net-borrowing: -0.429852097. 1995: Operating Surplus/Deficit Measure: 0.226784; Net-lending/Net-borrowing: -0.446084594. 1996: Operating Surplus/Deficit Measure: 0.382430375; Net-lending/Net-borrowing: -0.292955008. 1997: Operating Surplus/Deficit Measure: 0.540310442; Net-lending/Net-borrowing: -0.225184543. 1998: Operating Surplus/Deficit Measure: 0.711478221; Net-lending/Net-borrowing: -0.113181662. 1999: Operating Surplus/Deficit Measure: 0.528375987; Net-lending/Net-borrowing: -0.240602477. 2000: Operating Surplus/Deficit Measure: 0.51757156; Net-lending/Net-borrowing: -0.309666904. 2001: Operating Surplus/Deficit Measure: 0.213052923; Net-lending/Net-borrowing: -0.800750395. 2002: Operating Surplus/Deficit Measure: -0.212758845; Net-lending/Net-borrowing: -1.20443952. 2003: Operating Surplus/Deficit Measure: -0.034231078; Net-lending/Net-borrowing: -1.04098241. 2004: Operating Surplus/Deficit Measure: 0.03822412; Net-lending/Net-borrowing: -0.899039488. 2005: Operating Surplus/Deficit Measure: 0.262769152; Net-lending/Net-borrowing: -0.762696896. 2006: Operating Surplus/Deficit Measure: 0.21944499; Net-lending/Net-borrowing: -0.788126765. 2007: Operating Surplus/Deficit Measure: 0.412715768; Net-lending/Net-borrowing: -0.638191188. 2008: Operating Surplus/Deficit Measure: 0.345168264; Net-lending/Net-borrowing: -0.630180116. 2009: Operating Surplus/Deficit Measure: 0.333020741; Net-lending/Net-borrowing: -0.603351831. 2010: Operating Surplus/Deficit Measure: 0.302656141; Net-lending/Net-borrowing: -0.605141837. 2011: Operating Surplus/Deficit Measure: 0.257109542; Net-lending/Net-borrowing: -0.630946404. 2012: Operating Surplus/Deficit Measure: 0.206218592; Net-lending/Net-borrowing: -0.658720463. 2013: Operating Surplus/Deficit Measure: 0.16406332; Net-lending/Net-borrowing: -0.681176041. 2014: Operating Surplus/Deficit Measure: 0.119677687; Net-lending/Net-borrowing: -0.707576964. 2015: Operating Surplus/Deficit Measure: 0.076206951; Net-lending/Net-borrowing: -0.734940534. 2016: Operating Surplus/Deficit Measure: 0.026942361; Net-lending/Net-borrowing: -0.769406462. 2017: Operating Surplus/Deficit Measure: -0.032335263; Net-lending/Net-borrowing: -0.814653671. 2018: Operating Surplus/Deficit Measure: -0.109446599; Net-lending/Net-borrowing: -0.878965311. 2019: Operating Surplus/Deficit Measure: -0.19227354; Net-lending/Net-borrowing: -0.950160744. 2020: Operating Surplus/Deficit Measure: -0.28349272; Net-lending/Net-borrowing: -1.030954125. 2021: Operating Surplus/Deficit Measure: -0.386388384; Net-lending/Net-borrowing: -1.123450085. 2022: Operating Surplus/Deficit Measure: -0.483216203; Net-lending/Net-borrowing: -1.211277239. 2023: Operating Surplus/Deficit Measure: -0.557423995; Net-lending/Net-borrowing: -1.275859781. 2024: Operating Surplus/Deficit Measure: -0.667104614; Net-lending/Net-borrowing: -1.376919803. 2025: Operating Surplus/Deficit Measure: -0.781500085; Net-lending/Net-borrowing: -1.482014441. 2026: Operating Surplus/Deficit Measure: -0.866176187; Net-lending/Net-borrowing: -1.558258502. 2027: Operating Surplus/Deficit Measure: -0.971014018; Net-lending/Net-borrowing: -1.654401786. 2028: Operating Surplus/Deficit Measure: -1.059403133; Net-lending/Net-borrowing: -1.733838263. 2029: Operating Surplus/Deficit Measure: -1.167739726; Net-lending/Net-borrowing: -1.833479877. 2030: Operating Surplus/Deficit Measure: -1.259948277; Net-lending/Net-borrowing: -1.916759702. 2031: Operating Surplus/Deficit Measure: -1.372065386; Net-lending/Net-borrowing: -2.020169149. 2032: Operating Surplus/Deficit Measure: -1.467520327; Net-lending/Net-borrowing: -2.107108096. 2033: Operating Surplus/Deficit Measure: -1.596865114. Net-lending/Net-borrowing: -2.227702996. 2034: Operating Surplus/Deficit Measure: -1.728257684; Net-lending/Net-borrowing: -2.350527637. 2035: Operating Surplus/Deficit Measure: -1.829728717; Net-lending/Net-borrowing: -2.443203659. 2036: Operating Surplus/Deficit Measure: -1.964429157. Net-lending/Net-borrowing: -2.569286091. 2037: Operating Surplus/Deficit Measure: -2.100986709; Net-lending/Net-borrowing: -2.697381312. 2038: Operating Surplus/Deficit Measure: -2.205225568; Net-lending/Net-borrowing: -2.7928813. 2039: Operating Surplus/Deficit Measure: -2.325201615; Net-lending/Net-borrowing: -2.904115765. 2040: Operating Surplus/Deficit Measure: -2.430489372; Net-lending/Net-borrowing: -3.00097328. 2041: Operating Surplus/Deficit Measure: -2.569712106; Net-lending/Net-borrowing: -3.131648373. 2042: Operating Surplus/Deficit Measure: -2.709424661; Net-lending/Net-borrowing: -3.262966376. 2043: Operating Surplus/Deficit Measure: -2.818508477; Net-lending/Net-borrowing: -3.363795891. 2044: Operating Surplus/Deficit Measure: -2.947568546; Net-lending/Net-borrowing: -3.484450067. 2045: Operating Surplus/Deficit Measure: -3.058317306; Net-lending/Net-borrowing: -3.58693672. 2046: Operating Surplus/Deficit Measure: -3.188512473; Net-lending/Net-borrowing: -3.709010629. 2047: Operating Surplus/Deficit Measure: -3.300350183; Net-lending/Net-borrowing: -3.812861884. 2048: Operating Surplus/Deficit Measure: -3.432143889; Net-lending/Net-borrowing: -3.936539309. 2049: Operating Surplus/Deficit Measure: -3.545556545; Net-lending/Net-borrowing: -4.041974237. 2050: Operating Surplus/Deficit Measure: -3.686995315; Net-lending/Net-borrowing: -4.175627129. 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] 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. The following data is depicted: Fiscal year: 2000: Federal Surplus/Deficit: 2.4; Combined Surplus/Deficit: 2.141. Fiscal year: 2001: Federal Surplus/Deficit: 1.3; Combined Surplus/Deficit: 0.596. Fiscal year: 2002: Federal Surplus/Deficit: -1.5; Combined Surplus/Deficit: -2.624. Fiscal year: 2003: Federal Surplus/Deficit: -3.5; Combined Surplus/Deficit: -4.577. Fiscal year: 2004: Federal Surplus/Deficit: -3.6; Combined Surplus/Deficit: -4.516. Fiscal year: 2005: Federal Surplus/Deficit: -2.6; Combined Surplus/Deficit: -3.389. Fiscal year: 2006: Federal Surplus/Deficit: -1.9; Combined Surplus/Deficit: - 2.677. Fiscal year: 2007: Federal Surplus/Deficit: -1.2; Combined Surplus/Deficit: -1.8. Fiscal year: 2008: Federal Surplus/Deficit: -1.6; Combined Surplus/Deficit: -2.2. Fiscal year: 2009: Federal Surplus/Deficit: -2; Combined Surplus/Deficit: -2.6. Fiscal year: 2010: Federal Surplus/Deficit: -2.6; Combined Surplus/Deficit: -3.2. Fiscal year: 2011: Federal Surplus/Deficit: -2.9; Combined Surplus/Deficit: -3.5. Fiscal year: 2012: Federal Surplus/Deficit: -2.8 Combined Surplus/Deficit: -3.5. Fiscal year: 2013: Federal Surplus/Deficit: -3.3; Combined Surplus/Deficit: -4. Fiscal year: 2014: Federal Surplus/Deficit: -3.6; Combined Surplus/Deficit: -4.3. Fiscal year: 2015: Federal Surplus/Deficit: -3.8; Combined Surplus/Deficit: -4.5. Fiscal year: 2016: Federal Surplus/Deficit: -4.2; Combined Surplus/Deficit: -4.9. Fiscal year: 2017: Federal Surplus/Deficit: -4.4; Combined Surplus/Deficit: -5.2. Fiscal year: 2018: Federal Surplus/Deficit: -4.8; Combined Surplus/Deficit: -5.7. Fiscal year: 2019: Federal Surplus/Deficit: -5.2; Combined Surplus/Deficit: -6.1. Fiscal year: 2020: Federal Surplus/Deficit: -5.6; Combined Surplus/Deficit: -6.6. Fiscal year: 2021: Federal Surplus/Deficit: -6.1; Combined Surplus/Deficit: -7.2. Fiscal year: 2022: Federal Surplus/Deficit: -6.7; Combined Surplus/Deficit: -7.8. Fiscal year: 2023: Federal Surplus/Deficit: -7.2; Combined Surplus/Deficit: -8.4. Fiscal year: 2024: Federal Surplus/Deficit: -7.8; Combined Surplus/Deficit: -9.2. Fiscal year: 2025: Federal Surplus/Deficit: -8.5; Combined Surplus/Deficit: -9.9. Fiscal year: 2026: Federal Surplus/Deficit: -9; Combined Surplus/Deficit: -10.6. Fiscal year: 2027: Federal Surplus/Deficit: -9.7; Combined Surplus/Deficit: -11.3. Fiscal year: 2028: Federal Surplus/Deficit: -10.3; Combined Surplus/Deficit: -12. Fiscal year: 2029: Federal Surplus/Deficit: -10.9; Combined Surplus/Deficit: -12.7. Fiscal year: 2030: Federal Surplus/Deficit: -11.5; Combined Surplus/Deficit: -13.4. Fiscal year: 2031: Federal Surplus/Deficit: -12.2; Combined Surplus/Deficit: -14.2. Fiscal year: 2032: Federal Surplus/Deficit: -12.8; Combined Surplus/Deficit: -14.9. Fiscal year: 2033: Federal Surplus/Deficit: -13.5; Combined Surplus/Deficit:-15.7. Fiscal year: 2034: Federal Surplus/Deficit: -14.2; Combined Surplus/Deficit: -16.6. Fiscal year: 2035: Federal Surplus/Deficit: -14.8; Combined Surplus/Deficit: -17.3. Fiscal year: 2036: Federal Surplus/Deficit: -15.5; Combined Surplus/Deficit: -18.1. Fiscal year: 2037: Federal Surplus/Deficit: -16.3; Combined Surplus/Deficit: -18.9. Fiscal year: 2038: Federal Surplus/Deficit: -16.9; Combined Surplus/Deficit: -19.7. Fiscal year: 2039: Federal Surplus/Deficit: -17.6; Combined Surplus/Deficit: -20.5. Fiscal year: 2040: Federal Surplus/Deficit: -18.3; Combined Surplus/Deficit: -21.3. Fiscal year: 2041: Federal Surplus/Deficit: -19; Combined Surplus/Deficit: -22.1. Fiscal year: 2042: Federal Surplus/Deficit: -19.8; Combined Surplus/Deficit: -23. Fiscal year: 2043: Federal Surplus/Deficit: -20.4; Combined Surplus/Deficit: -23.8. Fiscal year: 2044: Federal Surplus/Deficit: -21.2; Combined Surplus/Deficit: -24.6. Fiscal year: 2045: Federal Surplus/Deficit: -21.9; Combined Surplus/Deficit: -25.5. Fiscal year: 2046: Federal Surplus/Deficit: -22.7; Combined Surplus/Deficit: -26.4. Fiscal year: 2047: Federal Surplus/Deficit: -23.4; Combined Surplus/Deficit: -27.2. Fiscal year: 2048: Federal Surplus/Deficit: -24.2; Combined Surplus/Deficit: -28.1. Fiscal year: 2049: Federal Surplus/Deficit: -24.9; Combined Surplus/Deficit:- 29. Fiscal year: 2050: Federal Surplus/Deficit: -25.8; Combined Surplus/Deficit: -29.9. 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 Twenty-first 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); Jacksonville (Florida); Boston (Massachusetts). 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: Key players working through a consortium within a nonprofit organization receiving technical assistance from the National Academies domestically and OECD and others providing assistance internationally on related efforts. 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. Source: 2006 OECD Factbook. Key Sustainability Challenges: * Fiscal deficits and public debt burdens; * Social insurance commitments; * Health care quality, access, and costs; * K-12 education system; * Energy, environment, and resource protection; * Tax gaps and policies; * Immigration policies; * Infrastructure needs; * Governance, political reforms, and citizen engagement; * Security strategies, including defense and homeland issues, as well as Iraq; * Foreign policy strategies; * Federal workforce and related policies and practices. Growth in Health Care Spending Health Care Spending as a Percentage of GDP: [See PDF for image] This figure is a bar graph depicting Growth in Health Care Spending Health Care Spending as a Percentage of GDP for five specific years. The vertical axis of the graph represents percent from 0 to 25. The horizontal axis of the graph represents years 1975, 1985, 1995, 2005, and 2015. The following data is depicted: Year: 1975; National health expenditures as a percent of GDP: 8.1%. Year: 1985; National health expenditures as a percent of GDP: 10.4%. Year: 1995; National health expenditures as a percent of GDP: 13.7%. Year: 2005; National health expenditures as a percent of GDP: 16.0%. Year: 2015; National health expenditures as a percent of GDP: 19.2%. Source: The Centers for Medicare & Medicaid Services, Office of the Actuary. Notes: The figure for 2015 is projected. [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] 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: [Empty]. Reform Approach: Consider additional flexibility for states to serve as models for possible health care reforms; Short-term action: [check]; Long-term action: [Empty]. Reform Approach: Consider limiting direct advertising and allowing limited importation of prescription drugs; Short-term action: [check]; Long-term action: [Empty]. Reform Approach: Foster more transparency in connection with health care costs and outcomes; Short-term action: [check]; Long-term action: [Empty]. 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: [Empty]. Reform Approach: Foster the use of information technology to increase consistency, transparency, and accountability in health care; Short-term action: [check]; Long-term action: [Empty]. 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: [Empty]. 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: [Empty]; 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: [Empty]; 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: [Empty]; Long-term action: [check]. Reform Approach: Pursue multinational approaches to investing in health care R&D; Short-term action: [Empty]; Long-term action: [check]. [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). 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. Three Key Illnesses: * Myopia; * Tunnel Vision; * Self-Centeredness. Four National Deficits: * Budget; * Balance of Payments; * Savings; * Leadership. Key Leadership Attributes Needed for These Challenging and Changing Times: * Courage; * Integrity; * Creativity; * Stewardship; * Partnership. Three Key Groups That Need to Increase Their Influence and Involvement: * The Business and Professional Community; * Young Americans; * The Media. [End of presentation] On the Web: Web site: [hyperlink, http://www.gao.gov/cghome.htm]: Contact: Chuck Young, Managing Director, Public Affairs: YoungC1@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.