This is the accessible text file for CG Presentation number GAO-08- 524CG entitled 'Addressing Fiscal Sustainability and Fixing the Social Security System:Two Challenges Facing the Nation' which was released on February 21, 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: Addressing Fiscal Sustainability and Fixing the Social Security System:Two Challenges Facing the Nation: The Honorable David M. Walker: Comptroller General of the United States: AARP Board of Directors: Annual Public Policy Meeting: Washington, DC: February 14, 2008: GAO-08-524CG: 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natural disasters in the United States; * Numerous government performance/accountability and high risk challenges; * Outdated federal organizational structures, policies, and practices; * Rising public expectations for demonstrable results and enhanced responsiveness.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] 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] 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] Foreign Ownership Share of Federal Debt Held by the Public Has Increased: [See PDF for image] - graphic text. There are two pie charts, containing the following compositions of federal debt by category: 1996: Total Debt held by the public: $3.73 trillion: Domestic investors and state and local governments: 62%; Foreign and international investors: 28%; Federal Reserve: 10%. 2006: Total Debt held by the public: $4.87 trillion: Domestic investors and state and local governments: 40%; Foreign and international investors: 44%; Federal Reserve: 16%. Source: Department of the Treasury. [End of graph] Table: Major Fiscal Exposures ($ 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; (Future Social Security benefits: 3.8; Future Medicare Part A benefits: 2.7; Future Medicare Part B benefits: 6.5; Future Medicare Part D benefits: 0). 2007: 40.8; (Future Social Security benefits: 6.8; Future Medicare Part A benefits: 12.3; Future Medicare Part B benefits: 13.4; Future Medicare Part D benefits: 8.4). Percent increase: 197. Total, 2000: $20.4; Total, 2006: $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] 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. Illustrative 21st Century Questions: Retirement and Disability Policy: * How should Social Security be reformed to provide for long-term program solvency and sustainability while also ensuring adequate benefits (for example, increase the retirement age, restructure benefits, increase taxes, and/or create individual accounts)? * What changes should be made to enhance the retirement income security of workers while protecting the fiscal integrity of the PBGC insurance program (for example, increasing transparency in connection with underfunded plans, modifying PBGC’s premium structure and insurance guarantees, reforming plan funding rules, or restricting benefit increases and the distribution of lump sum benefits in connection with certain underfunded plans)? * How can existing policies be reformed to encourage income preservation strategies so that retirement income lasts an individual’s entire life (for example, benefit annuitization)? * How can existing policies and programs be reformed to encourage older workers to work longer and to facilitate phased retirement approaches to employment (for example, more flexible work schedules or receiving partial pensions while continuing to work)? Key Elements for Economic Security in Retirement: * Adequate retirement income: - Savings; - Social Security; - Pensions; - Earnings from continued employment (e.g., part-time). * Affordable health care: - Medicare; - Retiree health care. * Long-term care (a hybrid): * Major Players: - Employers; - Government; - Individuals; - Family; - Community. Personal Savings Rate Has Decline: [See PDF for image] - graphic text. This is a line graph with one line (personal savings rate) with the vertical axis representing percent of disposable income (from -2.0 to 12.0), and the horizontal axis representing years 1960 through 2006. Percentage of disposable income: 1960: 7.3; 1961: 8.4; 1962: 8.3; 1963: 7.8; 1964: 8.8; 1965: 8.6; 1966: 8.3; 1967: 9.5; 1968: 8.4; 1969: 7.8; 1970: 9.4; 1971: 10.1; 1972: 8.9; 1973: 10.5; 1974: 10.6; 1975: 10.6; 1976: 9.4; 1977: 8.7; 1978: 8.9; 1979: 8.9; 1980: 10; 1981: 10.9; 1982: 11.2; 1983: 9; 1984: 10.8; 1985: 9; 1986: 8.2; 1987: 7; 1988: 7.3; 1989: 7.1; 1990: 7; 1991: 7.3; 1992: 7.7; 1993: 5.8; 1994: 4.8; 1995: 4.6; 1996: 4; 1997: 3.6; 1998: 4.3; 1999: 2.4; 2000: 2.3; 2001: 1.8; 2002: 2.4; 2003: 2.1; 2004: 2.1; 2005: 0.5; 2006: 0.4. Source: Bureau of Economic Analysis. Note: 2007 data available in April. [End of graph] Aged Population as a Share of Total U.S. Population Will Continue to Increase: Population aged 65 and over: 1950: 8.001; 1951: 8.111; 1952: 8.246; 1953: 8.385; 1954: 8.522; 1955: 8.637; 1956: 8.708; 1957: 8.786; 1958: 8.894; 1959: 9; 1960: 9.085; 1961: 9.153; 1962: 9.211; 1963: 9.256; 1964: 9.301; 1965: 9.358; 1966: 9.415; 1967: 9.484; 1968: 9.56; 1969: 9.644; 1970: 9.742; 1971: 9.847; 1972: 9.958; 1973: 10.082; 1974: 10.221; 1975: 10.376; 1976: 10.539; 1977: 10.702; 1978: 10.86; 1979: 11.013; 1980: 11.154; 1981: 11.282; 1982: 11.422; 1983: 11.553; 1984: 11.668; 1985: 11.793; 1986: 11.932; 1987: 12.054; 1988: 12.144; 1989: 12.221; 1990: 12.297; 1991: 12.373; 1992: 12.439; 1993: 12.475; 1994: 12.486; 1995: 12.49; 1996: 12.475; 1997: 12.438; 1998: 12.381; 1999: 12.32; 2000: 12.288; 2001: 12.271; 2002: 12.262; 2003: 12.271; 2004: 12.278; 2005: 12.276; 2006: 12.291; 2007: 12.361; 2008: 12.479; 2009: 12.598; 2010: 12.698; 2011: 12.86; 2012: 13.144; 2013: 13.46; 2014: 13.755; 2015: 14.053; 2016: 14.365; 2017: 14.7; 2018: 15.053; 2019: 15.425; 2020: 15.808; 2021: 16.201; 2022: 16.605; 2023: 17.007; 2024: 17.401; 2025: 17.788; 2026: 18.162; 2027: 18.517; 2028: 18.851; 2029: 19.154; 2030: 19.406; 2031: 19.605; 2032: 19.764; 2033: 19.905; 2034: 20.048; 2035: 20.2; 2036: 20.339; 2037: 20.429; 2038: 20.465; 2039: 20.474; 2040: 20.475; 2041: 20.472; 2042: 20.477; 2043: 20.493; 2044: 20.524; 2045: 20.571; 2046: 20.625; 2047: 20.679; 2048: 20.725; 2049: 20.762; 2050: 20.799; 2051: 20.84; 2052: 20.884; 2053: 20.939; 2054: 21.019; 2055: 21.122; 2056: 21.235; 2057: 21.341; 2058: 21.434; 2059: 21.516; 2060: 21.589; 2061: 21.652; 2062: 21.713; 2063: 21.775; 2064: 21.841; 2065: 21.91; 2066: 21.974; 2067: 22.029; 2068: 22.086; 2069: 22.148; 2070: 22.2; 2071: 22.242; 2072: 22.284; 2073: 22.326; 2074: 22.37; 2075: 22.416; 2076: 22.463; 2077: 22.512; 2078: 22.563; 2079: 22.614; 2080: 22.668; 2081: 22.72224348; 2082: 22.77789213; 2083: 22.83470741; 2084: 22.89239741; 2085: 22.95044379. Source: Office of the Chief Actuary, Social Security Administration. Note: Projections based on the intermediate assumptions of the 2007 Trustees’ Reports. [End of table] U.S. Labor Force Growth Will Continue to Decline: [See PDF for image] - graphic text. This is a line graph with one line (decline of labor force growth) with the vertical axis representing percentage change (five-year average) from 0 to 3 percent, and the horizontal axis representing years 1970 through 2080. Percentage change (five-year moving average): 1970: 2.38; 1971: 2.56; 1972: 2.64; 1973: 2.52; 1974: 2.64; 1975: 2.6; 1976: 2.72; 1977: 2.68; 1978: 2.66; 1979: 2.48; 1980: 2.18; 1981: 1.76; 1982: 1.58; 1983: 1.54; 1984: 1.64; 1985: 1.7; 1986: 1.76; 1987: 1.76; 1988: 1.74; 1989: 1.4; 1990: 1.34; 1991: 1.2; 1992: 1.12; 1993: 1; 1994: 1.16; 1995: 1.24; 1996: 1.28; 1997: 1.24; 1998: 1.5; 1999: 1.42; 2000: 1.22; 2001: 1.24; 2002: 1.12; 2003: 0.92; 2004: 1.02; 2005: 1.08; 2006: 1.06; 2007: 1.12; 2008: 1.04; 2009: 0.96; 2010: 0.88; 2011: 0.8; 2012: 0.72; 2013: 0.64; 2014: 0.56; 2015: 0.52; 2016: 0.48; 2017: 0.46; 2018: 0.44; 2019: 0.42; 2020: 0.38; 2021: 0.36; 2022: 0.34; 2023: 0.32; 2024: 0.3; 2025: 0.3; 2026: 0.3; 2027: 0.3; 2028: 0.3; 2029: 0.3; 2030: 0.3; 2031: 0.3; 2032: 0.32; 2033: 0.32; 2034: 0.32; 2035: 0.32; 2036: 0.34; 2037: 0.34; 2038: 0.36; 2039: 0.36; 2040: 0.36; 2041: 0.34; 2042: 0.32; 2043: 0.3; 2044: 0.3; 2045: 0.3; 2046: 0.3; 2047: 0.3; 2048: 0.3; 2049: 0.3; 2050: 0.3; 2051: 0.3; 2052: 0.3; 2053: 0.3; 2054: 0.3; 2055: 0.3; 2056: 0.3; 2057: 0.3; 2058: 0.3; 2059: 0.3; 2060: 0.3; 2061: 0.3; 2062: 0.3; 2063: 0.3; 2064: 0.3; 2065: 0.3; 2066: 0.3; 2067: 0.3; 2068: 0.3; 2069: 0.3; 2070: 0.3; 2071: 0.3; 2072: 0.3; 2073: 0.3; 2074: 0.3; 2075: 0.3; 2076: 0.3; 2077: 0.3; 2078: 0.3; 2079: 0.3; 2080: 0.28. Source: GAO analysis of data from the Office of the Chief Actuary, Social Security Administration. Note: Percentage change is calculated as a centered 5-year moving average of projections based on the intermediate assumptions of the 2007 Trustees Reports. [End of graph] Social Security Workers Per Beneficiary Will Continue to Decline: 1960: Covered workers per OASDI beneficiary: 5.1. 1965: Covered workers per OASDI beneficiary: 4. 1970: Covered workers per OASDI beneficiary: 3.7. 1975: Covered workers per OASDI beneficiary: 3.2. 1980: Covered workers per OASDI beneficiary: 3.2. 1985: Covered workers per OASDI beneficiary: 3.3. 1990: Covered workers per OASDI beneficiary: 3.4. 1995: Covered workers per OASDI beneficiary: 3.3. 2000: Covered workers per OASDI beneficiary: 3.4. 2005: Covered workers per OASDI beneficiary: 3.3. 2010: Covered workers per OASDI beneficiary: 3.2. 2015: Covered workers per OASDI beneficiary: 2.9. 2020: Covered workers per OASDI beneficiary: 2.6. 2025: Covered workers per OASDI beneficiary: 2.3. 2030: Covered workers per OASDI beneficiary: 2.2. 2035: Covered workers per OASDI beneficiary: 2.1. 2040: Covered workers per OASDI beneficiary: 2.1. 2045: Covered workers per OASDI beneficiary: 2.1. 2050: Covered workers per OASDI beneficiary: 2. 2055: Covered workers per OASDI beneficiary: 2. 2060: Covered workers per OASDI beneficiary: 2. 2065: Covered workers per OASDI beneficiary: 2. 2070: Covered workers per OASDI beneficiary: 1.9. 2075: Covered workers per OASDI beneficiary: 1.9. 2080: Covered workers per OASDI beneficiary: 1.9. Source: Office of the Chief Actuary, Social Security Administration. Note: Projections based on the intermediate assumptions of the 2007 Trustees’ Reports. [End of table] Working Longer May Help Address the Challenges of an Aging Population: * Impact on the Economy: - Larger labor force; - Additional economic growth. * Impact on the Federal Budget: - Additional tax revenue; - Reduced expenditures: Social Security & Medicare. * Impact on Individuals: - Enhanced retirement security and quality of life. Why Older Americans Don’t Work Longer: * Cultural Expectation to Retire in Mid-60s: - Social Security early retirement age is 62; - Many private pensions have similar or lower eligibility ages. * Older Americans Perceive Few Opportunities: - Few older workers felt they had opportunities for partial retirement; - Most older workers and retirees saw low wage, low skilled jobs as their primary employment opportunities. * Most Employers Do Not Make a Special Effort to Hire and Retain Older Workers; - Many employers say they are willing to implement policies to recruit and retain older workers, but few have actually done so; - Employers cite barriers, such as federal pension regulations, to flexible employment options for older workers. Key Dates Highlight Long Term Challenges of the Social Security System: Event: Cash surplus begins to decline; Date: 2009, OASI, OASDI. Event: Annual benefit costs exceed cash revenue from taxes; Date: 2018, OASI; Date: 2005, DI; Date: 2017, OASDI. Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits; Date: 2028, OASI; Date: 2013, DI; Date: 2027, OASADI. Event: Trust fund exhausted; Date: 2042, OASI; Date: 2026: DI; Date: 2041, OASDI. Source: Social Security Administration, The 2007 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds(Washington, DC: April 2007). [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). Disability Concepts Have Become Outmoded: * SSA and VA currently equate presence of medical conditions with an incapacity to work. * At the same time, difficult measurement and conceptual issues complicate the use of medical condition as basis for decisions on work incapacity. Advancements Have Mitigated the Effects of Medical Conditions on Work Capacity: * Medical advancements. * Assistive technologies. * Labor market shift from manufacturing to service-and knowledge-based industries. * Americans with Disabilities Act. Agencies Have Difficulty Managing Disability Programs: * Lengthy claims processing times. * Appealed claims further lengthen processing timeframes. * Limited assurance of accuracy and consistency of disability decisions. * Disability criteria have not been fully updated to reflect scientific advances and labor market changes. Growth in Size of Larger Disability Programs Elevates Need to Modernize: Number of VA, SSI, and SSDI Beneficiaries 1996 and 2006: 1996: VA Compensation and Pension: 3.3 million; SSI (blind and disabled): 5.1 million; SSDI: 6.1 million. Total: 14.5 million; 2006: VA Compensation and Pension: 3.5 million; SSI (blind and disabled): 5.9 million; SSDI: 8.6 million; Total: 18.1 million. Growth in Costs of Larger Disability Programs Elevates Need to Modernize: VA, SSI, and SSDI Total Cash Benefits 1996 and 2006: 1996: VA Compensation and Pension: $18.5 billion; SSI (blind and disabled): 20.5 billion; SSDI: $44.2 billion; Total: $83.2 billion. 2006: 34.4 31.2 92.4 VA Compensation and Pension: $34,4 billion; SSI (blind and disabled): 31.2 billion; SSDI: $92.4 billion; Total: $158 billion. Longer-Lasting Impairment Types: * Proportion of SSA beneficiaries with longer-lasting impairments (such as mental impairments) has grown over past two decades. * For example, since 1999, number of veterans receiving disability compensation for PTSD has more than doubled. Several Factors Could Impact Program Size in Future: SSA: * Growth in general population; * Baby Boom generation entering prime disability years; * Historically low termination rates due to medical improvement and earnings (about 2 percent or less) may continue. VA: * Global War on Terrorism. Key Factors to Consider in Transforming Disability Programs for the 21st Century: * Program Design: eligibility criteria (including definition of disability); effective work supports; timing issues; coordination; flexibility. * Fiscal Implications: short and long-term costs; financial benefits; fiscal impact on states and localities. * Feasibility of Transformation: standards applied accurately and consistently; capable personnel; timely determinations; program integrity controls; strategic information systems. 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. [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.