This is the accessible text file for CG Presentations number GAO-07- 544CG entitled 'Fiscal, Retirement, and Health Care Challenges' which was released on March 1, 2007. 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. Government Accountability Office: Fiscal, Retirement & Health Care Challenges: The Honorable David M. Walker: Comptroller General of the United States: 2007 Savings and Retirement Symposium: Securities Industry & Financial Markets Association: March 1, 2007: GAO revised this document on March 13, 2007, to clarify that the 2006 figures are final and no preliminary (slide 3) and that note "a" relates to the unified deficit and not to the on-budget deficit (slide 5). 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: Rising public expectations for demonstrable results and enhanced responsiveness: 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recent natural disasters in the United States: Numerous government performance/accountability and high risk challenges: Outdated federal organizational structures, policies, and practices: Composition of Federal Spending: [See PDF for image] - graphic text 3 pie charts with 5 items each. 1966: Defense: 43.0%; Social Security: 15.0%; Medicare & Medicaid: 1.0%; Net interest: 7.0%; All other spending: 34.0%. 1986: Defense: 28.0%; Social Security: 20.0%; Medicare & Medicaid: 10.0%; Net interest: 14.0%; All other spending: 29.0%. 2006: Defense: 20.0%; Social Security: 21.0%; Medicare & Medicaid: 19.0%; Net interest: 9.0%; All other spending: 32.0%. 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] Surplus or Deficit as a Share of GDP Fiscal Years 1962-2006: [See PDF for image] - graphic text: Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars. Fiscal year: 1962; On-budget: -1%; Off-budget: -0.2%; Unified: -1.3%. Fiscal year: 1963; On-budget: -0.7%; Off-budget: -0.1%; Unified: -0.8%. Fiscal year: 1964; On-budget: -1%; Off-budget: 0.1%; Unified: -0.9%. Fiscal year: 1965; On-budget: -0.2%; Off-budget: No data; Unified: -0.2%. Fiscal year: 1966; On-budget: -0.4%; Off-budget: -0.1%; Unified: -0.5%. Fiscal year: 1967; On-budget: -1.6%; Off-budget: 0.5%; Unified: -1.1%. Fiscal year: 1968; On-budget: -3.2%; Off-budget: 0.3%; Unified: -2.9%. Fiscal year: 1969; On-budget: -0.1%; Off-budget: 0.4%; Unified: 0.3%. Fiscal year: 1970; On-budget: -0.9%; Off-budget: 0.6%; Unified: -0.3%. Fiscal year: 1971; On-budget: -2.4%; Off-budget: 0.3%; Unified: -2.1%. Fiscal year: 1972; On-budget: -2.2%; Off-budget: 0.3%; Unified: -2%. Fiscal year: 1973; On-budget: -1.2%; Off-budget: No data; Unified: -1.1%. Fiscal year: 1974; On-budget: -0.6%; Off-budget: 0.1%; Unified: -0.4%. Fiscal year: 1975; On-budget: -3.5%; Off-budget: 0.1%; Unified: -3.4%. Fiscal year: 1976; On-budget: -4.1%; Off-budget: -0.2%; Unified: -4.2%. Fiscal year: 1977; On-budget: -2.5%; Off-budget: -0.2%; Unified: -2.7%. Fiscal year: 1978; On-budget: -2.5%; Off-budget: -0.2%; Unified: -2.7%. Fiscal year: 1979; On-budget: -1.5%; Off-budget: -0.1%; Unified: -1.6%. Fiscal year: 1980; On-budget: -2.7%; Off-budget: No data; Unified: -2.7%. Fiscal year: 1981; On-budget: -2.4%; Off-budget: -0.2%; Unified: -2.6%. Fiscal year: 1982; On-budget: -3.7%; Off-budget: -0.2%; Unified: -4%. Fiscal year: 1983; On-budget: -6%; Off-budget: No data; Unified: -6%. Fiscal year: 1984; On-budget: -4.8%; Off-budget: No data; Unified: -4.8%. Fiscal year: 1985; On-budget: -5.3%; Off-budget: 0.2%; Unified: -5.1%. Fiscal year: 1986; On-budget: -5.4%; Off-budget: 0.4%; Unified: -5%. Fiscal year: 1987; On-budget: -3.6%; Off-budget: 0.4%; Unified: -3.2%. Fiscal year: 1988; On-budget: -3.9%; Off-budget: 0.8%; Unified: -3.1%. Fiscal year: 1989; On-budget: -3.8%; Off-budget: 1%; Unified: -2.8%. Fiscal year: 1990; On-budget: -4.8%; Off-budget: 1%; Unified: -3.9%. Fiscal year: 1991; On-budget: -5.4%; Off-budget: 0.9%; Unified: -4.5%. Fiscal year: 1992; On-budget: -5.5%; Off-budget: 0.8%; Unified: -4.7%. Fiscal year: 1993; On-budget: -4.6%; Off-budget: 0.7%; Unified: -3.9%. Fiscal year: 1994; On-budget: -3.7%; Off-budget: 0.8%; Unified: -2.9%. Fiscal year: 1995; On-budget: -3.1%; Off-budget: 0.9%; Unified: -2.2%. Fiscal year: 1996; On-budget: -2.3%; Off-budget: 0.9%; Unified: -1.4%. Fiscal year: 1997; On-budget: -1.3%; Off-budget: 1%; Unified: -0.3%. Fiscal year: 1998; On-budget: -0.3%; Off-budget: 1.1%; Unified: 0.8%. Fiscal year: 1999; On-budget: No data; Off-budget: 1.4%; Unified: 1.4%. Fiscal year: 2000; On-budget: 0.9%; Off-budget: 1.5%; Unified: 2.4%. Fiscal year: 2001; On-budget: -0.3%; Off-budget: 1.6%; Unified: 1.3%. Fiscal year: 2002; On-budget: -3.1%; Off-budget: 1.5%; Unified: -1.5%. Fiscal year: 2003; On-budget: -4.9%; Off-budget: 1.5%; Unified: -3.5%. Fiscal year: 2004; On-budget: -4.9%; Off-budget: 1.3%; Unified: -3.6%. Fiscal year: 2005; On-budget: -4%; Off-budget: 1.4%; Unified: -2.6%. Fiscal year: 2006; On-Budget: -3.3; Off-budget: 1.4; Unified: -1.9. Source: Office of Management and Budget, Department of the Treasury and the Congressional Budget Office. [End of figure] Fiscal Year 2005 and 2006 Deficits and Net Operating Costs: Dollars in billions. On-Budget Deficit[A]; Fiscal Year 2005: ($494); Fiscal Year 2006: ($434). Unified Deficit; Fiscal Year 2005: ($318); Fiscal Year 2006: ($248). Net Operating Cost[B]; Fiscal Year 2005: ($760); Fiscal Year 2006: ($450). Sources: The Office of Management and Budget and the Department of the Treasury. [A] Includes $173 billion in Social Security surpluses for fiscal year 2005 and $185 billion for fiscal year 2006; $2 billion in Postal Service surpluses for fiscal year 2005 and $1 billion for fiscal year 2006. [B] Fiscal year 2005 and 2006 net operating cost figures reflect significant but opposite changes in certain actuarial costs. For example, changes in interest rates and other assumptions used to estimate future veterans' compensation benefits increased net operating cost by $228 billion in 2005 and reduced net operating cost by $167 billion in 2006. Therefore, the net operating costs for fiscal 2005 and 2006, exclusive of one-time actuarial gains, were ($532) billion and ($617) billion, respectively. [End of table] Major Fiscal Exposures ($ trillions): Explicit liabilities (Publicly held debt, military & civilian pensions & retiree health, other); 2000: $6.9; 2006: $10.4; Percent Increase: 52%. Commitments & Contingencies: e.g., PBGC, undelivered orders; 2000: $0.5; 2006: $1.3; Percent Increase: 140%. Implicit exposures; 2000: $13.0; 2006: $38.8; Percent Increase: 197%. Implicit exposures: Future Social Security benefits; 2000: $3.8; 2006: $6.4; Percent Increase: [Empty]. Implicit exposures: Future Medicare Part A benefits; 2000: $2.7; 2006: $11.3; Percent Increase: [Empty]. Implicit exposures: Medicare Part B benefits; 2000: $6.5; 2006: $13.1; Percent Increase: [Empty]. Implicit exposures: Medicare Part D benefits; 2006: $7.9; Percent Increase: [Empty]. Total; 2000: $20.4; 2006: $50.5; Percent Increase: 147%. Source: 2000 and 2006 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] How Big is Our Growing Fiscal Burden? This fiscal burden can be translated and compared as follows: Total-major fiscal exposures: $50.5 trillion; Total household net worth[1]: $53.3 trillion: * Burden/Net worth ratio: 95 percent. Burden[2]: Per person: $170,000; Per full-time worker: $400,000; Per household: $440,000. Income: Median household income[3]: $46,326; Disposable personal income per capita[4]: $31,519. Source: GAO analysis. Notes: (1) Federal Reserve Board, Flow of Funds Accounts, Table B.100, 2006:Q2 (Sept. 19, 2006); (2) Burdens are calculated using estimated total U.S. population as of 9/30/06, from the U.S. Census Bureau; full- time workers reported by the Bureau of Economic Analysis, in NIPA table 6.5D (Aug. 2, 2006); and households reported by the U.S. Census Bureau, in Income, Poverty, and Health Insurance Coverage in the United States: 2005 (Aug. 2006); (3) U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2005 (Aug. 2006); and (4) Bureau of Economic Analysis, Personal Income and Outlays: October 2006, table 2, (Nov. 30, 2006). [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] - graphic text: Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars per group. 2005; Net interest: 0.8%; Social Security: 4.3%; Medicare & Medicaid: 3.7%; All other spending: 8.0%; Revenue: 20.3%. 2015[A]; Net interest: 0%; Social Security: 5.1%; Medicare & Medicaid: 4.9%; All other spending: 5.6%; Revenue: 20.4%. 2030[A]; Net interest: 0%; Social Security: 6.6%; Medicare & Medicaid: 9.4%; All other spending: 4.0%; Revenue: 20.4%. 2040[A]; Net interest: 0%; Social Security: 6.7%; Medicare & Medicaid: 9.0%; All other spending: 4.4%; Revenue: 20.4%. [A] All other spending is net of offsetting interest receipts. Source: GAO's January 2001 analysis. Notes: Revenue as a share of GDP increases through 2011 due to (1) real bracket creep, (2) more taxpayers becoming subject to the AMT, and (3) increased revenue from tax-deferred retirement accounts. After 2011, revenue as a share of GDP is held constant-implicitly assuming action to offset the increased revenue from real bracket creep, the AMT, and tax-deferred retirement accounts. [End of figure] Potential Fiscal Outcomes: Alternative Simulation-Discretionary Spending Grows with GDP and Expiring Tax Provisions Extended (January 2007) Revenues and Composition of Spending as a Share of GDP: [See PDF for image] - graphic text: Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars per group. 2006; Net interest: 1.7%; Social Security: 4.2%; Medicare & Medicaid: 3.9%; All other spending: 10.5%; Revenue: 18.4%. 2015; Net interest: 2.1%; Social Security: 4.6%; Medicare & Medicaid: 4.9%; All other spending: 9.6%; Revenue: 17.6%. 2030; Net interest: 5.9%; Social Security: 6.8%; Medicare & Medicaid: 8.3%; All other spending: 9.5%; Revenue: 17.8%. 2040; Net interest: 12.1%; Social Security: 7.6%; Medicare & Medicaid: 10.3%; All other spending: 9.5%; Revenue: 17.8%. Source: GAO's January 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 is held constant-implicitly assuming that action is taken to offset increased revenue from real bracket creep, the AMT, and tax- deferred retirement accounts. [End of figure] Growth in Spending for Social Security, Medicare, and Medicaid Expected to Outpace Economic Growth: [See PDF for image] – graphic text: Bar graph with four items. Growth in constant dollars 2006-2030. GDP: 69%; Social Security Spending: 122%; Medicaid Spending: 211%; Medicare Spending: 215%. 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 2006 Trustees' Reports. Medicaid projections based on CBO's August 2006 short-term Medicaid estimates and CBO's December 2005 long-term Medicaid projections under mid-range assumptions. [End of figure] Social Security, Medicare, and Medicaid Spending as a Percent of GDP: [See PDF for image] - graphic text: Area graph with 81 Groups and 3 items per Group. Percent of GDP: Year: 2000; Social Security: 4.23%; Medicaid: 1.20%; Medicare: 2.27%. Year: 2001; Social Security: 4.33%; Medicaid: 1.30%; Medicare: 2.44%. Year: 2002; Social Security: 4.41%; Medicaid: 1.40%; Medicare: 2.52%. Year: 2003; Social Security: 4.37%; Medicaid: 1.50%; Medicare: 2.57%. Year: 2004; Social Security: 4.27%; Medicaid: 1.50%; Medicare: 2.67%. Year: 2005; Social Security: 4.24%; Medicaid: 1.5%; Medicare: 2.73%. Year: 2006; Social Security: 4.28%; Medicaid: 1.4%; Medicare: 3.21%. Year: 2007; Social Security: 4.26%; Medicaid: 1.4%; Medicare: 3.29%. Year: 2008; Social Security: 4.24%; Medicaid: 1.5%; Medicare: 3.39%. Year: 2009; Social Security: 4.27%; Medicaid: 1.5%; Medicare: 3.45%. Year: 2010; Social Security: 4.32%; Medicaid: 1.6%; Medicare: 3.53%. Year: 2011; Social Security: 4.36%; Medicaid: 1.6%; Medicare: 3.60%. Year: 2012; Social Security: 4.44%; Medicaid: 1.7%; Medicare: 3.69%. Year: 2013; Social Security: 4.54%; Medicaid: 1.7%; Medicare: 3.80%. Year: 2014; Social Security: 4.64%; Medicaid: 1.8%; Medicare: 3.90%. Year: 2015; Social Security: 4.74%; Medicaid: 1.8%; Medicare: 4.00%. Year: 2016; Social Security: 4.84%; Medicaid: 2.00%; Medicare: 4.13%. Year: 2017; Social Security: 4.95%; Medicaid: 2.10%; Medicare: 4.25%. Year: 2018; Social Security: 5.06%; Medicaid: 2.20%; Medicare: 4.38%. Year: 2019; Social Security: 5.16%; Medicaid: 2.20%; Medicare: 4.52%. Year: 2020; Social Security: 5.27%; Medicaid: 2.30%; Medicare: 4.67%. Year: 2021; Social Security: 5.38%; Medicaid: 2.30%; Medicare: 4.83%. Year: 2022; Social Security: 5.48%; Medicaid: 2.40%; Medicare: 5.00%. Year: 2023; Social Security: 5.58%; Medicaid: 2.40%; Medicare: 5.17%. Year: 2024; Social Security: 5.68%; Medicaid: 2.50%; Medicare: 5.35%. Year: 2025; Social Security: 5.78%; Medicaid: 2.60%; Medicare: 5.54%. Year: 2026; Social Security: 5.88%; Medicaid: 2.60%; Medicare: 5.73%. Year: 2027; Social Security: 5.97%; Medicaid: 2.70%; Medicare: 5.92%. Year: 2028; Social Security: 6.05%; Medicaid: 2.70%; Medicare: 6.11%. Year: 2029; Social Security: 6.12%; Medicaid: 2.80%; Medicare: 6.29%. Year: 2030; Social Security: 6.18%; Medicaid: 2.80%; Medicare: 6.48%. Year: 2031; Social Security: 6.24%; Medicaid: 2.90%; Medicare: 6.66%. Year: 2032; Social Security: 6.28%; Medicaid: 2.90%; Medicare: 6.83%. Year: 2033; Social Security: 6.32%; Medicaid: 3.00%; Medicare: 6.99%. Year: 2034; Social Security: 6.35%; Medicaid: 3.10%; Medicare: 7.15%. Year: 2035; Social Security: 6.36%; Medicaid: 3.10%; Medicare: 7.32%. Year: 2036; Social Security: 6.37%; Medicaid: 3.20%; Medicare: 7.48%. Year: 2037; Social Security: 6.38%; Medicaid: 3.30%; Medicare: 7.62%. Year: 2038; Social Security: 6.38%; Medicaid: 3.30%; Medicare: 7.75%. Year: 2039; Social Security: 6.37%; Medicaid: 3.40%; Medicare: 7.86%. Year: 2040; Social Security: 6.36%; Medicaid: 3.40%; Medicare: 7.98%. Year: 2041; Social Security: 6.35%; Medicaid: 3.50%; Medicare: 8.09%. Year: 2042; Social Security: 6.34%; Medicaid: 3.60%; Medicare: 8.19%. Year: 2043; Social Security: 6.33%; Medicaid: 3.60%; Medicare: 8.29%. Year: 2044; Social Security: 6.32%; Medicaid: 3.70%; Medicare: 8.40%. Year: 2045; Social Security: 6.3%; Medicaid: 3.70%; Medicare: 8.50%. Year: 2046; Social Security: 6.29%; Medicaid: 3.80%; Medicare: 8.61%. Year: 2047; Social Security: 6.29%; Medicaid: 3.80%; Medicare: 8.71%. Year: 2048; Social Security: 6.28%; Medicaid: 3.90%; Medicare: 8.79%. Year: 2049; Social Security: 6.27%; Medicaid: 3.90%; Medicare: 8.87%. Year: 2050; Social Security: 6.26%; Medicaid: 4.00%; Medicare: 8.95%. Year: 2051; Social Security: 6.26%; Medicaid: 4.06%; Medicare: 9.04%. Year: 2052; Social Security: 6.26%; Medicaid: 4.13%; Medicare: 9.11%. Year: 2053; Social Security: 6.25%; Medicaid: 4.19%; Medicare: 9.19%. Year: 2054; Social Security: 6.25%; Medicaid: 4.26%; Medicare: 9.26%. Year: 2055; Social Security: 6.25%; Medicaid: 4.33%; Medicare: 9.35%. Year: 2056; Social Security: 6.25%; Medicaid: 4.39%; Medicare: 9.44%. Year: 2057; Social Security: 6.26%; Medicaid: 4.46%; Medicare: 9.52%. Year: 2058; Social Security: 6.26%; Medicaid: 4.53%; Medicare: 9.60%. Year: 2059; Social Security: 6.26%; Medicaid: 4.60%; Medicare: 9.68%. Year: 2060; Social Security: 6.26%; Medicaid: 4.68%; Medicare: 9.76%. Year: 2061; Social Security: 6.26%; Medicaid: 4.75%; Medicare: 9.83%. Year: 2062; Social Security: 6.26%; Medicaid: 4.83%; Medicare: 9.91%. Year: 2063; Social Security: 6.27%; Medicaid: 4.90%; Medicare: 9.98%. Year: 2064; Social Security: 6.27%; Medicaid: 4.98%; Medicare: 10.05%. Year: 2065; Social Security: 6.28%; Medicaid: 5.06%; Medicare: 10.12%. Year: 2066; Social Security: 6.29%; Medicaid: 5.14%; Medicare: 10.20%. Year: 2067; Social Security: 6.29%; Medicaid: 5.22%; Medicare: 10.28%. Year: 2068; Social Security: 6.30%; Medicaid: 5.30%; Medicare: 10.35%. Year: 2069; Social Security: 6.30%; Medicaid: 5.38%; Medicare: 10.42%. Year: 2070; Social Security: 6.31%; Medicaid: 5.47%; Medicare: 10.48%. Year: 2071; Social Security: 6.31%; Medicaid: 5.55%; Medicare: 10.54%. Year: 2072; Social Security: 6.31%; Medicaid: 5.64%; Medicare: 10.59%. Year: 2073; Social Security: 6.32%; Medicaid: 5.73%; Medicare: 10.65%. Year: 2074; Social Security: 6.32%; Medicaid: 5.82%; Medicare: 10.70%. Year: 2075; Social Security: 6.32%; Medicaid: 5.91%; Medicare: 10.74%. Year: 2076; Social Security: 6.32%; Medicaid: 6.01%; Medicare: 10.79%. Year: 2077; Social Security: 6.32%; Medicaid: 6.10%; Medicare: 10.84%. Year: 2078; Social Security: 6.32%; Medicaid: 6.20%; Medicare: 10.88%. Year: 2079; Social Security: 6.32%; Medicaid: 6.29%; Medicare: 10.93%. Year: 2080; Social Security: 6.32%; Medicaid: 6.39%; Medicare: 10.98%. 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 2006 Trustees' Reports. Medicaid projections based on CBO's August 2006 short-term Medicaid estimates and CBO's December 2005 long-term Medicaid projections under mid-range assumptions. [End of figure] Federal Tax Expenditures Exceeded Discretionary Spending for Half of the Last Decade: Dollars in billions (in real 2005 dollars): [See PDF for Image] - graphic text: Fiscal year: 1982; Mandatory spending: $601.60; Sum of tax expenditure revenue loss estimates: $463.30; Discretionary spending: $585.80. Fiscal year: 1983; Mandatory spending: $628.50; Sum of tax expenditure revenue loss estimates: $499.60; Discretionary spending: $608.00. Fiscal year: 1984; Mandatory spending: $599.60; Sum of tax expenditure revenue loss estimates: $529.70; Discretionary spending: $629.70. Fiscal year: 1985; Mandatory spending: $644.80; Sum of tax expenditure revenue loss estimates: $568.70; Discretionary spending: $688.40. Fiscal year: 1986; Mandatory spending: $653.40; Sum of tax expenditure revenue loss estimates: $618.80; Discretionary spending: $688.90. Fiscal year: 1987; Mandatory spending: $645.00; Sum of tax expenditure revenue loss estimates: $577.10; Discretionary spending: $680.10. Fiscal year: 1988; Mandatory spending: $665.30; Sum of tax expenditure revenue loss estimates: $448.10; Discretionary spending: $689.30. Fiscal year: 1989; Mandatory spending: $694.40; Sum of tax expenditure revenue loss estimates: $474.50; Discretionary spending: $698.40. Fiscal year: 1990; Mandatory spending: $782.80; Sum of tax expenditure revenue loss estimates: $480.10; Discretionary spending: $689.60. Fiscal year: 1991; Mandatory spending: $792.10; Sum of tax expenditure revenue loss estimates: $472.00; Discretionary spending: $708.10. Fiscal year: 1992; Mandatory spending: $839.90; Sum of tax expenditure revenue loss estimates: $488.20; Discretionary spending: $691.40. Fiscal year: 1993; Mandatory spending: $850.30; Sum of tax expenditure revenue loss estimates: $494.80; Discretionary spending: $683.10. Fiscal year: 1994; Mandatory spending: $889.70; Sum of tax expenditure revenue loss estimates: $520.20; Discretionary spending: $671.20. Fiscal year: 1995; Mandatory spending: $897.20; Sum of tax expenditure revenue loss estimates: $538.80; Discretionary spending: $661.60. Fiscal year: 1996; Mandatory spending: $937.40; Sum of tax expenditure revenue loss estimates: $541.70; Discretionary spending: $634.60. Fiscal year: 1997; Mandatory spending: $948.60; Sum of tax expenditure revenue loss estimates: $565.70; Discretionary spending: $640.70. Fiscal year: 1998; Mandatory spending: $994.40; Sum of tax expenditure revenue loss estimates: $640.10; Discretionary spending: $638.70. Fiscal year: 1999; Mandatory spending: $1028.10; Sum of tax expenditure revenue loss estimates: $688.60; Discretionary spending: $653.20. Fiscal year: 2000; Mandatory spending: $1064.90; Sum of tax expenditure revenue loss estimates: $720.10; Discretionary spending: $688.10. Fiscal year: 2001; Mandatory spending: $1101.90; Sum of tax expenditure revenue loss estimates: $780.90; Discretionary spending: $710.00. Fiscal year: 2002; Mandatory spending: $1186.60; Sum of tax expenditure revenue loss estimates: $808.80; Discretionary spending: $787.90. Fiscal year: 2003; Mandatory spending: $1243.20; Sum of tax expenditure revenue loss estimates: $775.90; Discretionary spending: $868.50. Fiscal year: 2004; Mandatory spending: $1271.40; Sum of tax expenditure revenue loss estimates: $748.20; Discretionary spending: $920.20. Fiscal year: 2005; Mandatory spending: $1319.80; Sum of tax expenditure revenue loss estimates: $775.70; Discretionary spending: $968.50. Source: GAO analysis of OMB budget reports on tax expenditures, fiscal years 1976-2007. 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 figure] 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. Fundamental Reexamination & Transformation for the 21St Century (i.e., entitlement programs, other spending, and tax policy): Solutions Require Active Involvement from both the Executive and Legislative Branches: The Way Forward: Improve Financial Reporting, Public Education, and Performance Metrics: Improve transparency & completeness of President's budget proposal: * Return to 10-year estimates in budget both for current policies and programs and for policy proposals: * Include in the budget estimates of long-term cost of policy proposals & impact on total fiscal exposures. * Improve transparency of tax expenditures: Consider requiring President's budget to specify & explain a fiscal goal and a path to that goal within 10-year window--or justify an alternative deadline: Require annual OMB report on existing fiscal exposures [liabilities, obligations, explicit & implied commitments] Require enhanced financial statement presentation and preparation of summary annual report that is both useful and used: Increase information on long-range fiscal sustainability issues in Congressional Budget Resolution & Budget Process. Develop key national (outcome-based) indicators (e.g. economic, security, social, environmental) to chart the nation's posture, progress, and position relative to the other major industrial countries: The Way Forward: Strengthen Budget and Legislative Processes and Controls: Restore discretionary spending caps & PAYGO rules on both spending and tax sides of the ledger: Develop mandatory spending triggers [with specific defaults], and other action-forcing provisions (e.g., sunsets) for both direct spending programs and tax preferences: Develop, impose & enforce modified rules for selected items (e.g., earmarks, emergency designations, and use of supplementals): Require long-term cost estimates (e.g. present value) for any legislative debate on all major tax and spending bills, including entitlement programs. Cost estimates should usually assume no sunset: Extend accrual budgeting to insurance & federal employee pensions; develop techniques for extending to retiree health & environmental liabilities: Consider biennial budgeting: Consider expedited line item rescissions from the President that would only require a majority vote to override the proposed rescission(s): The Way Forward: Fundamental Reexamination & Transformation: Restructure existing entitlement programs: Reexamine and restructure the base of all other spending: Review & revise existing tax policy, including tax preferences and enforcement programs: Expand scrutiny of all proposed new programs, policies, or activities: Reengineer internal agency structures and processes, including more emphasis on long-term planning, integrating federal activities, and partnering with others both domestically and internationally: Strengthen and systematize Congressional oversight processes: Increase transparency associated with government contracts and other selected items: Consider a capable, credible, bi-partisan entitlement and tax reform commission along the lines proposed by Sen. Voinovich and Cong. Wolf: 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) and Boston). 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: Consortium of key players housed by the National Academies domestically and related efforts by the OECD and others internationally. 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 0ut Of 28: OECD Categories for Key Indicators (2006 OECD Factbook): * Population/Migration; * Energy; * Environment; * Quality of Life; * Macroeconomic Trends; * Labor Market; * Education; * Economic Globalization; * Prices; * Science & Tech; * Public Finance. Source: 2006 OECD Factbook. [End of table] 21st Century Challenges Report: Provides background, framework, and questions to assist in reexamining the base: Covers entitlements & other mandatory spending, discretionary spending, and tax policies and programs: Based on GAO's work for the Congress: Source: GAO. Twelve Reexamination Areas: Mission Areas: * Defense; * International Affairs: * Education & Employment; * Natural Resources, Energy & Environment: * Financial Regulation & Housing; * Retirement & Disability: * Health Care; * Science & Technology: * Homeland Security; * Transportation: Crosscutting Areas: * Improving Governance; * Reexamining the Tax System: 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)? 22: Illustrative 21St Century questions: Health Care: How can we make our current Medicare and Medicaid programs sustainable? For example, should the eligibility requirements (e.g., age, income requirements) for these programs be modified? How can we perform a systematic reexamination of our current health care system? For example, could public and private entities work jointly to establish formal reexamination processes that would (1) define and update as needed a minimum core of essential health care services, (2) ensure that all Americans have access to the defined minimum core services, (3) allocate responsibility for financing these services among such entities as government, employers, and individuals, and (4) provide the opportunity for individuals to obtain additional services at their discretion and cost? 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 Saving Rate Has Declined: [See PDF for image] --graphic text: Line graph with 45 items. Percent of disposable personal income: Year: 1960; Personal saving rate: 7.3%. Year: 1961; Personal saving rate: 8.4%. Year: 1962; Personal saving rate: 8.3%. Year: 1963; Personal saving rate: 7.8%. Year: 1964; Personal saving rate: 8.8%. Year: 1965; Personal saving rate: 8.6%. Year: 1966; Personal saving rate: 8.3%. Year: 1967; Personal saving rate: 9.5%. Year: 1968; Personal saving rate: 8.4%. Year: 1969; Personal saving rate: 7.8%. Year: 1970; Personal saving rate: 9.4%. Year: 1971; Personal saving rate: 10.1%. Year: 1972; Personal saving rate: 8.9%. Year: 1973; Personal saving rate: 10.5%. Year: 1974; Personal saving rate: 10.6%. Year: 1975; Personal saving rate: 10.6%. Year: 1976; Personal saving rate: 9.4%. Year: 1977; Personal saving rate: 8.7%. Year: 1978; Personal saving rate: 8.9%. Year: 1979; Personal saving rate: 8.9%. Year: 1980; Personal saving rate: 10%. Year: 1981; Personal saving rate: 10.9%. Year: 1982; Personal saving rate: 11.2%. Year: 1983; Personal saving rate: 9%. Year: 1984; Personal saving rate: 10.8%. Year: 1985; Personal saving rate: 9%. Year: 1986; Personal saving rate: 8.2%. Year: 1987; Personal saving rate: 7%. Year: 1988; Personal saving rate: 7.3%. Year: 1989; Personal saving rate: 7.1%. Year: 1990; Personal saving rate: 7%. Year: 1991; Personal saving rate: 7.3%. Year: 1992; Personal saving rate: 7.7%. Year: 1993; Personal saving rate: 5.8%. Year: 1994; Personal saving rate: 4.8%. Year: 1995; Personal saving rate: 4.6%. Year: 1996; Personal saving rate: 4%. Year: 1997; Personal saving rate: 3.6%. Year: 1998; Personal saving rate: 4.3%. Year: 1999; Personal saving rate: 2.4%. Year: 2000; Personal saving rate: 2.3%. Year: 2001; Personal saving rate: 1.8%. Year: 2002; Personal saving rate: 2%. Year: 2003; Personal saving rate: 1.4%. Year: 2004; Personal saving rate: 1.2%. Year: 2005; Personal Saving rate: -0.5%. Source: Bureau of Economic Analysis, Department of Commerce. [End of figure] Aged Population as a Share of Total U.S. Population: [See PDF for image] –graphic text: Line chart with one line and 131 items. Year: 1950; The aged as share of total population: 8.001%. Year: 1951; The aged as share of total population: 8.111%. Year: 1952; The aged as share of total population: 8.246%. Year: 1953; The aged as share of total population: 8.385%. Year: 1954; The aged as share of total population: 8.522%. Year: 1955; The aged as share of total population: 8.637%. Year: 1956; The aged as share of total population: 8.708%. Year: 1957; The aged as share of total population: 8.786%. Year: 1958; The aged as share of total population: 8.894%. Year: 1959; The aged as share of total population: 9%. Year: 1960; The aged as share of total population: 9.085%. Year: 1961; The aged as share of total population: 9.153%. Year: 1962; The aged as share of total population: 9.211%. Year: 1963; The aged as share of total population: 9.256%. Year: 1964; The aged as share of total population: 9.301%. Year: 1965; The aged as share of total population: 9.358%. Year: 1966; The aged as share of total population: 9.415%. Year: 1967; The aged as share of total population: 9.484%. Year: 1968; The aged as share of total population: 9.56%. Year: 1969; The aged as share of total population: 9.644%. Year: 1970; The aged as share of total population: 9.742%. Year: 1971; The aged as share of total population: 9.847%. Year: 1972; The aged as share of total population: 9.958%. Year: 1973; The aged as share of total population: 10.082%. Year: 1974; The aged as share of total population: 10.221%. Year: 1975; The aged as share of total population: 10.376%. Year: 1976; The aged as share of total population: 10.539%. Year: 1977; The aged as share of total population: 10.702%. Year: 1978; The aged as share of total population: 10.86%. Year: 1979; The aged as share of total population: 11.013%. Year: 1980; The aged as share of total population: 11.153%. Year: 1981; The aged as share of total population: 11.28%. Year: 1982; The aged as share of total population: 11.422%. Year: 1983; The aged as share of total population: 11.554%. Year: 1984; The aged as share of total population: 11.673%. Year: 1985; The aged as share of total population: 11.802%. Year: 1986; The aged as share of total population: 11.951%. Year: 1987; The aged as share of total population: 12.085%. Year: 1988; The aged as share of total population: 12.187%. Year: 1989; The aged as share of total population: 12.281%. Year: 1990; The aged as share of total population: 12.36%. Year: 1991; The aged as share of total population: 12.419%. Year: 1992; The aged as share of total population: 12.477%. Year: 1993; The aged as share of total population: 12.511%. Year: 1994; The aged as share of total population: 12.518%. Year: 1995; The aged as share of total population: 12.517%. Year: 1996; The aged as share of total population: 12.496%. Year: 1997; The aged as share of total population: 12.451%. Year: 1998; The aged as share of total population: 12.387%. Year: 1999; The aged as share of total population: 12.323%. Year: 2000; The aged as share of total population: 12.288%. Year: 2001; The aged as share of total population: 12.258%. Year: 2002; The aged as share of total population: 12.212%. Year: 2003; The aged as share of total population: 12.179%. Year: 2004; The aged as share of total population: 12.166%. Year: 2005; The aged as share of total population: 12.168%. Year: 2006; The aged as share of total population: 12.198%. Year: 2007; The aged as share of total population: 12.275%. Year: 2008; The aged as share of total population: 12.388%. Year: 2009; The aged as share of total population: 12.511%. Year: 2010; The aged as share of total population: 12.648%. Year: 2011; The aged as share of total population: 12.841%. Year: 2012; The aged as share of total population: 13.11%. Year: 2013; The aged as share of total population: 13.417%. Year: 2014; The aged as share of total population: 13.731%. Year: 2015; The aged as share of total population: 14.045%. Year: 2016; The aged as share of total population: 14.357%. Year: 2017; The aged as share of total population: 14.684%. Year: 2018; The aged as share of total population: 15.04%. Year: 2019; The aged as share of total population: 15.423%. Year: 2020; The aged as share of total population: 15.819%. Year: 2021; The aged as share of total population: 16.215%. Year: 2022; The aged as share of total population: 16.615%. Year: 2023; The aged as share of total population: 17.023%. Year: 2024; The aged as share of total population: 17.432%. Year: 2025; The aged as share of total population: 17.837%. Year: 2026; The aged as share of total population: 18.216%. Year: 2027; The aged as share of total population: 18.566%. Year: 2028; The aged as share of total population: 18.902%. Year: 2029; The aged as share of total population: 19.221%. Year: 2030; The aged as share of total population: 19.494%. Year: 2031; The aged as share of total population: 19.697%. Year: 2032; The aged as share of total population: 19.854%. Year: 2033; The aged as share of total population: 20.003%. Year: 2034; The aged as share of total population: 20.167%. Year: 2035; The aged as share of total population: 20.338%. Year: 2036; The aged as share of total population: 20.477%. Year: 2037; The aged as share of total population: 20.564%. Year: 2038; The aged as share of total population: 20.609%. Year: 2039; The aged as share of total population: 20.629%. Year: 2040; The aged as share of total population: 20.638%. Year: 2041; The aged as share of total population: 20.637%. Year: 2042; The aged as share of total population: 20.638%. Year: 2043; The aged as share of total population: 20.657%. Year: 2044; The aged as share of total population: 20.702%. Year: 2045; The aged as share of total population: 20.766%. Year: 2046; The aged as share of total population: 20.827%. Year: 2047; The aged as share of total population: 20.873%. Year: 2048; The aged as share of total population: 20.913%. Year: 2049; The aged as share of total population: 20.953%. Year: 2050; The aged as share of total population: 20.996%. Year: 2051; The aged as share of total population: 21.043%. Year: 2052; The aged as share of total population: 21.095%. Year: 2053; The aged as share of total population: 21.164%. Year: 2054; The aged as share of total population: 21.255%. Year: 2055; The aged as share of total population: 21.367%. Year: 2056; The aged as share of total population: 21.483%. Year: 2057; The aged as share of total population: 21.593%. Year: 2058; The aged as share of total population: 21.695%. Year: 2059; The aged as share of total population: 21.786%. Year: 2060; The aged as share of total population: 21.868%. Year: 2061; The aged as share of total population: 21.938%. Year: 2062; The aged as share of total population: 21.999%. Year: 2063; The aged as share of total population: 22.063%. Year: 2064; The aged as share of total population: 22.138%. Year: 2065; The aged as share of total population: 22.233%. Year: 2066; The aged as share of total population: 22.351%. Year: 2067; The aged as share of total population: 22.439%. Year: 2068; The aged as share of total population: 22.491%. Year: 2069; The aged as share of total population: 22.544%. Year: 2070; The aged as share of total population: 22.595%. Year: 2071; The aged as share of total population: 22.645%. Year: 2072; The aged as share of total population: 22.694%. Year: 2073; The aged as share of total population: 22.744%. Year: 2074; The aged as share of total population: 22.796%. Year: 2075; The aged as share of total population: 22.849%. Year: 2076; The aged as share of total population: 22.903%. Year: 2077; The aged as share of total population: 22.959%. Year: 2078; The aged as share of total population: 23.015%. Year: 2079; The aged as share of total population: 23.073%. Year: 2080; The aged as share of total population: 22.633%. Source: Office of the Chief Actuary, Social Security Administration. Note: Projections based on the intermediate assumptions of the 2006 Trustees' Reports. [End of figure] U.S. Labor Force Growth Will Continue to Decline: [See PDF for image] –graphic text: Line chart with one line and 111 items. Year: 1970; Percentage change (5-year moving average): 2.38%. Year: 1971; Percentage change (5-year moving average): 2.56%. Year: 1972; Percentage change (5-year moving average): 2.64%. Year: 1973; Percentage change (5-year moving average): 2.52%. Year: 1974; Percentage change (5-year moving average): 2.64%. Year: 1975; Percentage change (5-year moving average): 2.6%. Year: 1976; Percentage change (5-year moving average): 2.72%. Year: 1977; Percentage change (5-year moving average): 2.68%. Year: 1978; Percentage change (5-year moving average): 2.66%. Year: 1979; Percentage change (5-year moving average): 2.48%. Year: 1980; Percentage change (5-year moving average): 2.18%. Year: 1981; Percentage change (5-year moving average): 1.76%. Year: 1982; Percentage change (5-year moving average): 1.58%. Year: 1983; Percentage change (5-year moving average): 1.54%. Year: 1984; Percentage change (5-year moving average): 1.64%. Year: 1985; Percentage change (5-year moving average): 1.7%. Year: 1986; Percentage change (5-year moving average): 1.76%. Year: 1987; Percentage change (5-year moving average): 1.76%. Year: 1988; Percentage change (5-year moving average): 1.74%. Year: 1989; Percentage change (5-year moving average): 1.4%. Year: 1990; Percentage change (5-year moving average): 1.34%. Year: 1991; Percentage change (5-year moving average): 1.2%. Year: 1992; Percentage change (5-year moving average): 1.12%. Year: 1993; Percentage change (5-year moving average): 1%. Year: 1994; Percentage change (5-year moving average): 1.16%. Year: 1995; Percentage change (5-year moving average): 1.24%. Year: 1996; Percentage change (5-year moving average): 1.28%. Year: 1997; Percentage change (5-year moving average): 1.24%. Year: 1998; Percentage change (5-year moving average): 1.5%. Year: 1999; Percentage change (5-year moving average): 1.42%. Year: 2000; Percentage change (5-year moving average): 1.22%. Year: 2001; Percentage change (5-year moving average): 1.26%. Year: 2002; Percentage change (5-year moving average): 1.28%. Year: 2003; Percentage change (5-year moving average): 1.14%. Year: 2004; Percentage change (5-year moving average): 1.24%. Year: 2005; Percentage change (5-year moving average): 1.3%. Year: 2006; Percentage change (5-year moving average): 1.26%. Year: 2007; Percentage change (5-year moving average): 1.18%. Year: 2008; Percentage change (5-year moving average): 1.02%. Year: 2009; Percentage change (5-year moving average): 0.92%. Year: 2010; Percentage change (5-year moving average): 0.82%. Year: 2011; Percentage change (5-year moving average): 0.74%. Year: 2012; Percentage change (5-year moving average): 0.66%. Year: 2013; Percentage change (5-year moving average): 0.6%. Year: 2014; Percentage change (5-year moving average): 0.52%. Year: 2015; Percentage change (5-year moving average): 0.48%. Year: 2016; Percentage change (5-year moving average): 0.44%. Year: 2017; Percentage change (5-year moving average): 0.42%. Year: 2018; Percentage change (5-year moving average): 0.38%. Year: 2019; Percentage change (5-year moving average): 0.36%. Year: 2020; Percentage change (5-year moving average): 0.34%. Year: 2021; Percentage change (5-year moving average): 0.3%. Year: 2022; Percentage change (5-year moving average): 0.26%. Year: 2023; Percentage change (5-year moving average): 0.24%. Year: 2024; Percentage change (5-year moving average): 0.22%. Year: 2025; Percentage change (5-year moving average): 0.2%. Year: 2026; Percentage change (5-year moving average): 0.2%. Year: 2027; Percentage change (5-year moving average): 0.2%. Year: 2028; Percentage change (5-year moving average): 0.2%. Year: 2029; Percentage change (5-year moving average): 0.22%. Year: 2030; Percentage change (5-year moving average): 0.24%. Year: 2031; Percentage change (5-year moving average): 0.26%. Year: 2032; Percentage change (5-year moving average): 0.28%. Year: 2033; Percentage change (5-year moving average): 0.3%. Year: 2034; Percentage change (5-year moving average): 0.3%. Year: 2035; Percentage change (5-year moving average): 0.3%. Year: 2036; Percentage change (5-year moving average): 0.3%. Year: 2037; Percentage change (5-year moving average): 0.3%. Year: 2038; Percentage change (5-year moving average): 0.3%. Year: 2039; Percentage change (5-year moving average): 0.3%. Year: 2040; Percentage change (5-year moving average): 0.3%. Year: 2041; Percentage change (5-year moving average): 0.3%. Year: 2042; Percentage change (5-year moving average): 0.3%. Year: 2043; Percentage change (5-year moving average): 0.3%. Year: 2044; Percentage change (5-year moving average): 0.3%. Year: 2045; Percentage change (5-year moving average): 0.3%. Year: 2046; Percentage change (5-year moving average): 0.28%. Year: 2047; Percentage change (5-year moving average): 0.26%. Year: 2048; Percentage change (5-year moving average): 0.24%. Year: 2049; Percentage change (5-year moving average): 0.22%. Year: 2050; Percentage change (5-year moving average): 0.2%. Year: 2051; Percentage change (5-year moving average): 0.2%. Year: 2052; Percentage change (5-year moving average): 0.2%. Year: 2053; Percentage change (5-year moving average): 0.2%. Year: 2054; Percentage change (5-year moving average): 0.2%. Year: 2055; Percentage change (5-year moving average): 0.2%. Year: 2056; Percentage change (5-year moving average): 0.2%. Year: 2057; Percentage change (5-year moving average): 0.2%. Year: 2058; Percentage change (5-year moving average): 0.2%. Year: 2059; Percentage change (5-year moving average): 0.2%. Year: 2060; Percentage change (5-year moving average): 0.2%. Year: 2061; Percentage change (5-year moving average): 0.2%. Year: 2062; Percentage change (5-year moving average): 0.2%. Year: 2063; Percentage change (5-year moving average): 0.2%. Year: 2064; Percentage change (5-year moving average): 0.2%. Year: 2065; Percentage change (5-year moving average): 0.2%. Year: 2066; Percentage change (5-year moving average): 0.2%. Year: 2067; Percentage change (5-year moving average): 0.2%. Year: 2068; Percentage change (5-year moving average): 0.2%. Year: 2069; Percentage change (5-year moving average): 0.2%. Year: 2070; Percentage change (5-year moving average): 0.2%. Year: 2071; Percentage change (5-year moving average): 0.2%. Year: 2072; Percentage change (5-year moving average): 0.2%. Year: 2073; Percentage change (5-year moving average): 0.2%. Year: 2074; Percentage change (5-year moving average): 0.2%. Year: 2075; Percentage change (5-year moving average): 0.2%. Year: 2076; Percentage change (5-year moving average): 0.2%. Year: 2077; Percentage change (5-year moving average): 0.2%. Year: 2078; Percentage change (5-year moving average): 0.2%. Year: 2079; Percentage change (5-year moving average): 0.2%. Year: 2080; Percentage change (5-year moving average): 0.2%. Source: GAO analysis of data from the Office of the Chief Actuary, Social Security Administration. Note: Percentage change is calculated as a centered 5-yr moving average of projections based on the intermediate assumptions of the 2006 Trustees Reports. [End of figure] Social Security Workers Per Beneficiary: [See PDF for image] –graphic text: Line graph with 25 items. Year: 1960; Covered workers per OASDI beneficiary: 5.1. Year: 1965; Covered workers per OASDI beneficiary: 4. Year: 1970; Covered workers per OASDI beneficiary: 3.7. Year: 1975; Covered workers per OASDI beneficiary: 3.2. Year: 1980; Covered workers per OASDI beneficiary: 3.2. Year: 1985; Covered workers per OASDI beneficiary: 3.3. Year: 1990; Covered workers per OASDI beneficiary: 3.4. Year: 1995; Covered workers per OASDI beneficiary: 3.3. Year: 2000; Covered workers per OASDI beneficiary: 3.4. Year: 2005; Covered workers per OASDI beneficiary: 3.3. Year: 2010; Covered workers per OASDI beneficiary: 3.2. Year: 2015; Covered workers per OASDI beneficiary: 2.9. Year: 2020; Covered workers per OASDI beneficiary: 2.6. Year: 2025; Covered workers per OASDI beneficiary: 2.3. Year: 2030; Covered workers per OASDI beneficiary: 2.2. Year: 2035; Covered workers per OASDI beneficiary: 2.1. Year: 2040; Covered workers per OASDI beneficiary: 2. Year: 2045; Covered workers per OASDI beneficiary: 2. Year: 2050; Covered workers per OASDI beneficiary: 2. Year: 2055; Covered workers per OASDI beneficiary: 2. Year: 2060; Covered workers per OASDI beneficiary: 2. Year: 2065; Covered workers per OASDI beneficiary: 1.9. Year: 2070; Covered workers per OASDI beneficiary: 1.9. Year: 2075; Covered workers per OASDI beneficiary: 1.9. Year: 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 2006 Trustees' Reports. [End of figure] 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: Social Security and Medicare's Hospital Insurance Trust Funds Face Cash Deficits: [See PDF for image] –graphic text: Stacked Bar chart with 41 items. Billions of 2006 dollars. Year: 2005; Medicare HI cash flow: $0.412; Social Security cash flow: $79.82. Year: 2006(Medicare HI cash deficit); Medicare HI cash flow: -$3.00; Social Security cash flow: $76.00. Year: 2007; Medicare HI cash flow: -$6.00; Social Security cash flow: $78.00. Year: 2008; Medicare HI cash flow: -$7.00; Social Security cash flow: $89.00. Year: 2009; Medicare HI cash flow: -$11.00; Social Security cash flow: $85.00. Year: 2010; Medicare HI cash flow: -$14.00; Social Security cash flow: $82.00. Year: 2011; Medicare HI cash flow: -$17.00; Social Security cash flow: $80.00. Year: 2012; Medicare HI cash flow: -$21.00; Social Security cash flow: $70.00. Year: 2013; Medicare HI cash flow: -$27.00; Social Security cash flow: $56.00. Year: 2014; Medicare HI cash flow: -$33.00; Social Security cash flow: $41.00. Year: 2015; Medicare HI cash flow: -$40.00; Social Security cash flow: $25.00. Year: 2016; Medicare HI cash flow: -$47.00; Social Security cash flow: $9.00. Year: 2017(Social Security cash deficit); Medicare HI cash flow: -$55.00; Social Security cash flow: -$8.0. Year: 2018; Medicare HI cash flow: -$64.00; Social Security cash flow: -$27.00. Year: 2019; Medicare HI cash flow: -$74.00; Social Security cash flow: -$46.00. Year: 2020; Medicare HI cash flow: -$84.00; Social Security cash flow: -$65.00. Year: 2021; Medicare HI cash flow: -$96.00; Social Security cash flow: -$85.00. Year: 2022; Medicare HI cash flow: -$109.00; Social Security cash flow: -$106.00. Year: 2023; Medicare HI cash flow: -$123.00; Social Security cash flow: -$127.00. Year: 2024; Medicare HI cash flow: -$138.00; Social Security cash flow: -$148.00. Year: 2025; Medicare HI cash flow: -$155.00; Social Security cash flow: -$169.00. Year: 2026; Medicare HI cash flow: -$172.00; Social Security cash flow: -$191.00. Year: 2027; Medicare HI cash flow: -$191.00; Social Security cash flow: -$211.00. Year: 2028; Medicare HI cash flow: -$209.00; Social Security cash flow: -$231.00. Year: 2029; Medicare HI cash flow: -$229.00; Social Security cash flow: -$250.00. Year: 2030; Medicare HI cash flow: -$249.00; Social Security cash flow: -$267.00. Year: 2031; Medicare HI cash flow: -$271.00; Social Security cash flow: -$283.00. Year: 2032; Medicare HI cash flow: -$292.00; Social Security cash flow: -$299.00. Year: 2033; Medicare HI cash flow: -$313.00; Social Security cash flow: -$312.00. Year: 2034; Medicare HI cash flow: -$336.00; Social Security cash flow: -$324.00. Year: 2035; Medicare HI cash flow: -$358.00; Social Security cash flow: -$334.00. Year: 2036; Medicare HI cash flow: -$381.00; Social Security cash flow: -$344.00. Year: 2037; Medicare HI cash flow: -$403.00; Social Security cash flow: -$352.00. Year: 2038; Medicare HI cash flow: -$424.00; Social Security cash flow: -$359.00. Year: 2039; Medicare HI cash flow: -$446.00; Social Security cash flow: -$365.00. Year: 2040; Medicare HI cash flow: -$469.00; Social Security cash flow: -$370.00. Source: GAO analysis based on 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 2006 Trustees' Reports. The CPI is used to adjust from current to constant dollars. [End of figure] Key Dates Highlight Long Term Challenges of the Social Security System: Date: OASI: 2009; Date: DI: --; Date: AOSDI: 2009; Event: Cash Surplus begins to decline; Date: OASI: 2018; Date: DI: 2005; Date: AOSDI: 2017; Event: Annual Benefit costs exceed cash revenue from taxes; Date: OASI: 2028; Date: DI: 2013; Date: AOSDI: 2027; Event: Trust fund ceases to grow because even taxes plus interest fall short of benefits; Date: OASI: 2042; Date: DI: 2025; Date: AOSDI: 2040; Event: Trust fund exhausted. Sources: Social Security Administration, The 2006 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (Washington, DC: May 2006). [End of table] GAO Criteria for Evaluating Social Security Reform Proposals: Reform proposals should be evaluated as packages that strike a balance among individual reform elements and important interactive effects. Comprehensive proposals can be evaluated against three basic criteria: Financing sustainable solvency: Balancing adequacy and equity in the benefits structure: Implementing and administering reforms: Possible Way Forward on Social Security Reform: Hold harmless 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 retirement age and index it to life expectancy: Modify income replacement and/or indexing formulas for middle and upper income earners: Strengthen the minimum benefit: 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): Pension System Faces Variety of Challenges: Significant coverage gaps and pre-retirement leakage: Long term decline in the number of DB plans and active participants and change in the nature of DB plans: Recent DB freezes and retiree health plan limitations are likely to accelerate due to prospective changes in current accounting for pension and post-employment benefits: Recent and prospective large plan terminations by bankrupt sponsors have placed Pension Benefit Guaranty Corporation (PBGC), the federal agency insuring benefits, in financial jeopardy: * Stock market, interest rate declines earlier this decade worsened overall plan funding: * Demographics, global competition (steel, auto), industry deregulation restructuring (airlines) have contributed to both plan and corporate weakness: Plan funding rules and PBGC premiums have proven to be inadequate: PBGC's Net Accumulated Deficit for Single-Employer Plans Was Over $18 Billion in 2006: [See PDF for image] –graphic text: Line graph with two lines with 26 items each. Dollars in billions: Year: 1980; Accumulated surplus/deficit: -$0.10; Annual net gain/loss: -$0.09. Year: 1981; Accumulated surplus/deficit: -$0.19; Annual net gain/loss: -$0.14. Year: 1982; Accumulated surplus/deficit: -$0.33; Annual net gain/loss: -$0.19. Year: 1983; Accumulated surplus/deficit: -$0.52; Annual net gain/loss: -$0.06. Year: 1984; Accumulated surplus/deficit: -$0.46; Annual net gain/loss: -$0.86. Year: 1985; Accumulated surplus/deficit: -$1.33; Annual net gain/loss: -$0.70. Year: 1986; Accumulated surplus/deficit: -$2.03; Annual net gain/loss: $0.48. Year: 1987; Accumulated surplus/deficit: -$1.55; Annual net gain/loss: $0.48. Year: 1988; Accumulated surplus/deficit: -$1.54; Annual net gain/loss: $0.01. Year: 1989; Accumulated surplus/deficit: -$1.12; Annual net gain/loss: $0.42. Year: 1990; Accumulated surplus/deficit: -$1.91; Annual net gain/loss: -$0.79. Year: 1991; Accumulated surplus/deficit: -$2.50; Annual net gain/loss: -$0.59. Year: 1992; Accumulated surplus/deficit: -$2.74; Annual net gain/loss: -$0.23. Year: 1993; Accumulated surplus/deficit: -$2.90; Annual net gain/loss: -$0.16. Year: 1994; Accumulated surplus/deficit: -$1.24; Annual net gain/loss: $1.66. Year: 1995; Accumulated surplus/deficit: -$0.32; Annual net gain/loss: $0.93. Year: 1996; Accumulated surplus/deficit: $0.87; Annual net gain/loss: $1.18. Year: 1997; Accumulated surplus/deficit: $3.48; Annual net gain/loss: $2.61. Year: 1998; Accumulated surplus/deficit: $5.01; Annual net gain/loss: $1.53. Year: 1999; Accumulated surplus/deficit: $7.04; Annual net gain/loss: $2.03. Year: 2000; Accumulated surplus/deficit: $9.70; Annual net gain/loss: $2.67. Year: 2001; Accumulated surplus/deficit: $7.73; Annual net gain/loss: -$1.97. Year: 2002; Accumulated surplus/deficit: -$3.64; Annual net gain/loss: -$11.37. Year: 2003; Accumulated surplus/deficit: -$11.24; Annual net gain/loss: -$7.60. Year: 2004; Accumulated surplus/deficit: -$23.30; Annual net gain/loss: -$12.06. Year: 2005; Accumulated surplus/deficit: -$22.80; Annual net gain/loss: $0.56. Year: 2006; Accumulated surplus/deficit: $-18.1; Annual net gain/loss: $4.63. Source: Pension Benefit Guaranty Corporation. [End of figure] PBGC Claims and Exposures by Principle Industry Category: [See PDF for image] –graphic text: Two pie charts with three items each. PBGC Claims by Industry, FY 1975-2006: Total = $32.6 billion. Manufacturing (e.g. steel, heavy equipment): 52%; Transportation (e.g. airlines): 39%; Other (e.g. construction, services): 9%. Reasonably Possible Exposure, FY 2006: Total = $73.3 billion. Manufacturing (e.g. steel, heavy equipment): 51%; Transportation (e.g. airlines): 28%; Other (e.g. construction, services): 21%. Source: Pension Benefit Guaranty Corporation. Note: Claims data based on preliminary estimates. The transportation category may also include communications and/or utilities. [End of figure] Broad Goals for Reform of the DB System: Provide incentives and safeguards for plan sponsors to improve plan funding without causing terminations that would otherwise not occur: Hold plan sponsors accountable for adequately funding their plans: Improve transparency and timeliness of plan financial information: Pension Protection Act of 2006: An Important Reform with Unfinished Business: PPA shrinks, but does not close, many loopholes regarding DB plan funding: PBGC deficit expected to continue to grow: Ultimately does not address fundamental mismatch between DB plan assets and liabilities: Will likely not reverse long-term decline in DB system: Long phase-in period and uncertain effects suggest that careful ongoing monitoring of DB plans and PBGC deficit is needed. Financing of adequate retirement for all Americans continues to pose a major national challenge: * Issues of coverage remain largely unanswered: * Appropriate balance of responsibility for retirement among employers, government and workers remains unclear: GAO's Ongoing Work: State and Local Retiree Benefits: Request from Senators Baucus and Grassley, Senate Finance Committee, covering both pensions and other post-employment benefits (OPEB): Currently planning 2 reports for late 2007: * Nationwide Overview describing governance, benefits provided, and fiscal implications: * Status Report on Funding and Contributions, with discussion of actuarial methods and implications of under-funding: * Both will explore differences and interactions between pensions and OPEB: Have met with NASRA, NCTR, NCSL, NCPERS, NASACT, GASB, NASBO, N EA, AFSCM E, and others: SMI Premium as Share of Average Social Security (OASI) Benefit: [See PDF for image] - graphic text: Line graph with 17 items. Year: 1990; Percent of average OASI benefit: 5.43%. Year: 1991; Percent of average OASI benefit: 5.34%. Year: 1992; Percent of average OASI benefit: 5.44%. Year: 1993; Percent of average OASI benefit: 6.03%. Year: 1994; Percent of average OASI benefit: 6.55%. Year: 1995; Percent of average OASI benefit: 7.09%. Year: 1996; Percent of average OASI benefit: 6.32%. Year: 1997; Percent of average OASI benefit: 6.27%. Year: 1998; Percent of average OASI benefit: 6.08%. Year: 1999; Percent of average OASI benefit: 6.19%. Year: 2000; Percent of average OASI benefit: 5.97%. Year: 2001; Percent of average OASI benefit: 6.27%. Year: 2002; Percent of average OASI benefit: 6.53%. Year: 2003; Percent of average OASI benefit: 6.93%. Year: 2004; Percent of average OASI benefit: 7.61%. Year: 2005; Percent of average OASI benefit: 8.63%. Year: 2006; Percent of average OASI benefit: 9.51%. Note: Data for 2006 are based on the announced SMI monthly premium of $88.50 and do not include the Medicare Prescription Drug premium. In August, the Centers for Medicare & Medicaid Services estimated that the national average monthly premium for prescription drug coverage equivalent to the Medicare standard coverage would be $32.20. Source: CMS, Office of the Actuary. [End of figure] Key Dates Highlight Long Term Challenges of the Medicare Program: [See PDF for Image]--Graphic Text: Date: 2006; Event: Medicare Part A outlays exceed cash income; Date: 2007; Event: Estimated trigger date for "Medicare funding warning"; Date: 2012; Event: Projected date that annual "general revenue funding" for Part B will exceed 45 percent of total Medicare outlays; Date: 2018: Event: Part A trust fund exhausted, annual income sufficient to pay about 80% of promised Part A benefits. Source: 2006 Annual Report of The Boards of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Washington, DC, May 2006). [End of figure] Health Care Is the Nation's Top Tax Expenditure in Fiscal Year 2005: [See PDF for image] --graphic text: Bar chart with five items: Exclusion of employer contributions for insurance premiums and medical care: $118.4[A]. Deductibility of mortgage interest on owner-occupied dwellings: $62.2. Exclusion of pension contributions and earnings: employer-sponsored 401(K) plans: $50.6. Exclusion of pension contributions and earnings: employer-sponsored defined benefit plans: $41.8[B]. Deductibility of nonbusiness state and local taxes (other than on owner- occupied dwellings): $37.4. Source: Office of Management and Budget (OMB), Analytical Perspectives, Budget of the United States Government, Fiscal Year 2007. Note: `Tax expenditures" refers to the special tax provisions that are contained in the federal income taxes on individuals and corporations. OMB does not include forgone revenue from other federal taxes such as Social Security and Medicare payroll taxes. [A] If the payroll tax exclusion were also counted here, the total tax expenditure for employer contributions for health insurance premiums would be about 50 percent higher or $177.6 billion. [B] This is the revenue loss and does not include associated outlays of $14.6 billion. Growth in Health Care Spending: Cumulative Growth in Health Care Spending Per Capita, Medical Inflation, GDP, and General Inflation, 2000-2005: [See PDF for Image] - graphic text: Line graph with 4 separate lines. Year: 2000; Health Care Spending per capita: 0; CPI-Medical: 0; GDP: 0; CPI-Urban Consumers: 0. Year: 2001; Health Care Spending per capita: 7.47%; CPI-Medical: 4.60%; GDP: 3.17%; CPI-Urban Consumers: 2.85%. Year: 2002; Health Care Spending per capita: 16.05%; CPI-Medical: 9.51%; GDP: 6.65%; CPI-Urban Consumers: 4.47%. Year: 2003; Health Care Spending per capita: 24.26%; CPI-Medical: 13.92%; GDP: 11.65%; CPI-Urban Consumers: 6.85%. Year: 2004; Health Care Spending per capita: 31.98%; CPI-Medical: 18.90%; GDP: 19.31%; CPI-Urban Consumers: 9.70%. Year: 2005; Health Care Spending per capita: 39.81%; CPI-Medical: 23.93%; GDP: 26.88%; CPI-Urban Consumers: 13.41%. Source: Bureau of Labor Statistics, The Centers for Medicare & Medicaid Services, Office of the Actuary, and the Bureau of Economic Analysis. [End of figure] 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 action action: Revise the government's payment systems and leverage its purchasing authority to foster value-based purchasing for health care products and services; Short-term: Check; Long-term: [Empty]. Reform Approach action action: Consider additional flexibility for states to serve as models for possible health care reforms; Short-term: Check; Long-term: [Empty]. Reform Approach action action: Consider limiting direct advertising and allowing limited importation of prescription drugs; Short-term: Check; Long-term: [Empty]. Reform Approach action action: Foster more transparency in connection with health care costs and outcomes; Short-term: Check; Long-term: [Empty]. Reform Approach action action: Create incentives that encourage physicians to utilize prescription drugs and other health care products and services economically and efficiently; Short-term: Check; Long-term: [Empty]. Reform Approach action action: Foster the use of information technology to increase consistency, transparency, and accountability in health care; Short-term: Check; Long-term: [Empty]. Reform Approach action action: 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: Check; Long-term: [Empty]. Reform Approach action action: 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: Check; Long-term: Check. Reform Approach action action: Revise certain federal tax preferences for health care to encourage more efficient use of health care products and services; Short-term: Check; Long-term: Check. Reform Approach action action: Foster more preventative care and wellness services and capabilities, including fighting obesity and encouraging better nutrition; Short-term: Check; Long-term: Check. Reform Approach action action: Promote more personal responsibility in connection with health care; Short-term: Check; Long-term: Check. Reform Approach action action: Limit spending growth for government- sponsored health care programs (e.g., percentage of the budget and/or economy); Short-term: [Empty]; Long-term: Check. Reform Approach action action: Develop a core set of basic and essential services. Create insurance pools for alternative levels of coverage, as necessary; Short-term: [Empty]; Long-term: Check. Reform Approach action action: Develop a set of evidence-based national practice standards to help avoid unnecessary care, improve outcomes, and reduce litigation; Short-term: [Empty]; Long-term: Check. Reform Approach action action: Pursue multinational approaches to investing in health care R&D; Short-term: [Empty]; Long-term: Check. [End of table] Four National Deficits: Budget: Balance of Payments: Savings: Leadership: Key Leadership Attributes Needed for These Challenging and Changing Times: Courage: Integrity: Creativity: Stewardship: On the Web: Web site: [Hyperlink, http://ww.gao.gov/cghome.htm]: Contact: Paul Anderson, Managing Director, Public Affairs AndersonP1@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. if you wish to reproduce this material separately.