National Debt Facts

NOTE: This research contains comprehensive and in-depth facts about the national debt. For basic facts, click here. For a two-minute video overview of the national debt (current as of 2009), click here.

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• Quantifying the National Debt

• Causes

└ Spending and taxes

└ Spending distribution

└ Tax distribution

• Politics

└ Responsibility

└ Current policies

└ Alternative policies

└ Public opinion

└ Congresses

└ Presidents

• Consequences

• Government Accounting

└ Trust funds and the two main categories of debt

└ "Deficits" and "surpluses"

• Ownership

└ Debt owed to non-federal entities

- Debt owed to foreign entities

└ Debt owed to federal entities

• Media

└ Budget cuts

└ Tax cuts

└ "Do nothing" plan

└ Context

* As of December 22, 2011, the official debt of the United States government is $15.1 trillion ($15,123,728,427,980).[1] This amounts to:

* Publicly traded companies are legally required to account for "explicit" and "implicit" future obligations such as employee pensions and retirement benefits.[5] [6] [7] The federal budget, which is the "federal government's primary financial planning and control tool," is not bound by this rule.[8] [9]

* As of September 30, 2010 (the end of the federal government's fiscal year), the federal government has:

• $7.3 trillion ($7,297,000,000,000) in liabilities such as federal employee retirement and veterans' benefits[10]

• $17.2 trillion ($17,195,000,000,000) in unfunded obligations for the Social Security program

• $22.8 trillion ($22,800,000,000,000) in unfunded obligations for the Medicare program

• $122 billion ($122,000,000,000) in unfunded obligations for two other "social insurance" programs called "Black Lung" and "Railroad Retirement"[11]

These unfunded obligations are referred to as "closed group present values" and are calculated in a manner that approximates how publicly traded companies are required to calculate their debts and obligations.[12] [13] [14] The figures represent how much money must be immediately placed in interest-bearing investments to cover the shortfalls between projected revenues and expenditures for all current taxpayers and beneficiaries in these programs.[15] [16] [17]

* Combining the figures above with the national debt and subtracting the value of federal assets, the federal government has $56.5 trillion ($56,529,800,000,000) in debt, liabilities, and unfunded obligations as of September 30, 2010.[18]

* This shortfall is 103% of the combined net worth of all U.S. households and nonprofit organizations, including all assets in savings, real estate, corporate stocks, private businesses, and consumer durable goods such as automobiles.[19] [20]

* These figures do not account for the future costs implied by any current policy outside of the "social insurance" programs listed above.[24]

* These figures are contingent upon the continuance of current federal law and "a wide range of complex assumptions" made by federal agencies."[25] Regarding this:

• Social Security's 2010 annual report states that "significant uncertainty" surrounds the "best estimates" of future circumstances.[26]

• Medicare's 2010 annual report states that the program's financial projections "do not represent a reasonable expectation for actual program operations in either the short range … or the long range" because:

a) "Current law would require physician fee reductions totaling an estimated 30 percent over the next 3 years—an implausible result."

b) The 2010 Affordable Care Act [Obamacare] eventually reduces "Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services" to "less than half of their level under the prior law. …. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. … [This] would lead to far higher costs for Medicare in the long range than those projected under current law."[27]

† To measure the entirety of government expenditures and receipts, "total" instead of "current" figures are preferable, but such data (shown in the next graph) only extends back to 1960.[28]

‡ In 2009, receipts consisted of: 95% taxes; 3% premiums, settlements, donations, fines, fees, & penalties; and 2% interest & dividends.[29]

Year	Receipts (Portion of GDP)	Expenditures (Portion of GDP)
1930	3%	3%
1940	8%	8%
1950	17%	15%
1960	18%	16%
1970	18%	19%
1980	19%	21%
1990	19%	22%
2000	21%	19%
2009	16%	24%
2010	---	25%

† Social spending includes income security (Social Security, welfare, etc.), healthcare, education, housing, and recreation.

‡ National defense includes military spending and veterans' benefits.

§ General government and debt service includes the executive & legislative branches, tax collection, financial management, and interest payments.

# Economic affairs includes transportation, general economic & labor affairs, agriculture, natural resources, energy, and space. (This excludes spending for infrastructure projects such as new highways, which is not accounted for in this graph.[32])

£ Public order and safety includes police, fire, law courts, and prisons.

	2007 (latest available data)
Quintile	Average Household Income	Effective Federal Tax Rate	Average Federal Taxes Paid Per Household
Lowest	$18,400	4.0%	$736
Second	$42,500	10.6%	$4,505
Middle	$64,500	14.3%	$9,224
Fourth	$94,100	17.4%	$16,373
Highest	$264,700	25.1%	$66,440

* The U.S. Constitution vests Congress with the powers to tax, spend, and pay the debts of the federal government. Legislation to carry out these functions must either be:

1) passed by majorities in both houses of Congress and approved by the President; or

2) passed by majorities in both houses of Congress, vetoed by the President, and then passed by two-thirds of both houses of Congress; or

3) passed by majorities in both houses of Congress and left unaddressed by the President for ten days.[35]

* Other factors impacting the national debt include but are not limited to legislation passed by previous Congresses and Presidents,[36] economic cycles, terrorist attacks, natural disasters, demographics, and the actions of U.S. citizens and foreign governments.[37]

* In 2010, the Congressional Budget Office (CBO) projected the debt that the U.S. government would accumulate under "current policy" with a sustained economic recovery.[38] The projection used the following assumptions:

• Unemployment will incrementally decline from 10.1% in 2010 to 5.0% in 2016 and remain at 5.0% thereafter.[39] [40] (For reference, the average of the previous 40 years is 6.2%.[41])

• GDP will grow at an average rate of 4.3% above the rate of inflation from 2012-2014 and then grow at an average rate of 2.1% thereafter.[42] (The average of the previous 40 years is 2.8%.[43])

• Federal revenues (chiefly, taxes) will incrementally increase from 14.9% of GDP in 2010 to 19.3% in 2020 and remain constant thereafter.[44] [45] [46] (The average of the previous 40 years is 18.1%.[47])

• Federal spending on all government functions† but Social Security, mandatory healthcare‡, and interest payments on the national debt will incrementally decline from 12.5% of GDP in 2010 to 9.9% in 2015 and 8.3% in 2081.[48] (The average of the previous 40 years is 11.5%.[49])

† Such functions include but are not limited to national defense, unemployment, housing, education, recreation, infrastructure, agriculture, law enforcement, and energy.

‡ "Mandatory healthcare" includes Medicare, Medicaid, "Obamacare" subsidies, and CHIP (Children’s Health Insurance Program).[50]

• Payments for Medicare services will not undergo scheduled reductions that would cause "severe problems with beneficiary access to care."[51] [52]

* Combining these projections with historical data yields the following results:

† To measure the entirety of the national debt, it would be preferable to chart "gross" instead of "publicly held" debt, but this data is not presented in this report. Nonetheless, it would make little difference because the excluded debt primarily resides in federal government trust funds that dwindle and become insolvent during the projection period.[54] Facts regarding why and how the federal government keeps its books in this manner are covered in the section of this research entitled "Government Accounting."

• "do not include the harmful effects that rising debt would have on economic growth and interest rates. If those effects were taken into account, projected debt would increase even faster."[56]

• "indicate that postponing action would substantially increase the size of the policy adjustments needed to put the budget on a sustainable course. For example, if lawmakers wanted to close the fiscal gap through 2035 but did not begin until 2015, they would have to reduce primary spending or increase revenues over that period by 5.7 percent of GDP, rather than by 4.8 percent if they acted in 2011…."[57]

* The following Ph.D. economists and political scientists have cited the level of national debt during World War II as reason not to be overly concerned about the modern national debt:

• Paul Davidson, editor of the Journal of Post Keynesian Economics and author of The Keynes Solution: The Path to Global Economic Prosperity,[58] writing in 2001:

Rather than bankrupting the nation, this large growth in the national debt [during World War II] promoted a prosperous economy. By 1946, the average American household was living much better economically than in the prewar days. Moreover, the children of that Depression–World War II generation were not burdened by having to pay off what then was considered a huge national debt. Instead, for the next quarter century, the economy continued on a path of unprecedented economic growth and prosperity….[59]

• Douglas J. Amy, Professor of Politics at Mount Holyoke College,[60] in an undated commentary currently posted on his website:

Conservatives are also wrong when they argue that deficit spending and a large national debt will inevitably undermine economic growth. To see why, we need to simply look back at times when we have run up large deficits and increased the national debt. The best example is World War II when the national debt soared to 120% of GDP – nearly twice the size of today’s debt. This spending not only got us out of the Great Depression but set the stage for a prolonged period of sustained economic growth in the 50s and 60s.[61]

• Paul Krugman, Nobel Prize-winning economist and Princeton University Professor,[62] writing in 2009:

Right now, federal debt is about 50% of GDP. So even if we do run these deficits, federal debt as a share of GDP will be substantially less than it was at the end of World War II.

Again, the debt outlook is bad. But we’re not looking at something inconceivable, impossible to deal with; we’re looking at debt levels that a number of advanced countries, the US included, have had in the past, and dealt with.[63]

• federal spending as a percent of GDP averaged 42% lower than the last year of the war;[64] and

• publicly held debt as a percent of GDP decreased by 72 percentage points.[65]

* Under current policy, assuming a sustained economic recovery during the 40 years that follow 2010,

• federal spending as a percent of GDP is projected to average 35% higher than in 2010 and over 78% higher than in the four decades that followed World War II;[66] and

• publicly held debt as a percent of GDP is projected to rise by 277 percentage points.[67]

* In 2010, as alternatives to the CBO's "current policy" projections detailed above, the CBO ran projections for scenarios such as these:

• Federal revenues will incrementally increase from 14.9% of GDP in 2010 to 20.0% in 2015, 25.0% in 2044, and 30.3% in 2084.[69] [70] [71] At this point, federal revenues (chiefly, taxes) will be 67% higher than the average of the previous 40 years (18.1%).[72]

• Federal spending on all government functions but Social Security, mandatory healthcare, and interest payments on the national debt will incrementally decline from 12.5% of GDP in 2010 to 8.3% in 2020 and 6.8% in 2080.[73] At this point, spending on such functions will be 41% lower than the average of the previous 40 years (11.5%).[74]

• Payments for Medicare services will undergo reductions that cause "severe problems with beneficiary access to care."[75] [76]

• Federal revenues will increase from 14.9% of GDP in 2010 to 18.6% in 2020, 19% in 2030, and stay constant thereafter.[78] (The average of the previous 40 years is 18.1%.[79])

• Federal spending on all government functions but Social Security, mandatory healthcare, and interest payments on the national debt will incrementally decline from 12.5% of GDP in 2010 to 7.7% in 2020 and 3.8% in 2080.[80] [81] At this point, spending on such functions will be 67% lower than the average of the previous 40 years (11.5%).[82]

• Social Security spending will be 2% higher than projected under current law in 2020, 7% higher in 2040, 0% higher in 2063, and 16% lower in 2080.[83] Workers and beneficiaries who are age 56 or older in 2011 will experience no change in benefits.[84] Younger workers will have the option to invest a portion of their payroll taxes in personal accounts.[85] Lower-income workers will receive more money in standard benefits, and higher-income workers will receive less.[86] [87] After 2026, the full retirement age will be indexed to increases in life expectancy.[88]

• Medicare and Medicaid will be restructured over time so that most beneficiaries receive tax credits, subsidies, or cash-value vouchers to purchase health insurance and pay for medical services.[89] Lower-income beneficiaries will receive more money, and higher-income beneficiaries will receive less.[90] Medicare beneficiaries who are age 65 or older in 2020 will stay in the current Medicare system, which will increase premiums for higher-income beneficiaries and reduce payments for some services.[91] From 2021 to 2091, the eligibility age for Medicare benefits will incrementally rise from 65 to 69.5.[92]

• The health insurance tax exemption, which currently applies only to employers, will be replaced by a refundable tax credit for employers and individuals to purchase health insurance.[93] Both employers and individuals will be able to buy health insurance across state lines,[94] and awards for medical malpractice lawsuits will be curbed.[95]

• Healthcare vouchers, subsidies, and tax credits will grow in value at a projected rate of 2.7 percentage points per year above the general rate of inflation, which is about 2.3 percentage points lower than the projected rate of medical inflation.[96] Over time, this "could impose significant downward pressure on the rate of development and spread of new medical technologies and the growth of overall spending on health care."[97]

* Overlaying the CBO's "current policy," "current law," and "Ryan Roadmap" projections combined with historical data on the national debt yields the following results:

* A poll conducted by NBC News and the Wall Street Journal in February 2011 found that:

• 80% of Americans are concerned "a great deal" or "quite a bit" about federal budget deficits and the national debt.

• if the deficit cannot be eliminated by cutting wasteful spending, 35% of Americans prefer to cut important programs while 33% prefer to raise taxes.

• 22% think cuts in Social Security spending will be needed to "significantly reduce the federal budget deficit," 49% do not, and 29% have no opinion or are not sure.

• 18% think cuts in Medicare spending will be needed to "significantly reduce the federal budget deficit," 54% do not, and 28% have no opinion or are not sure.[100]

* Other than interest on the national debt, all of the long-term growth in federal spending (as a percent of GDP) under the CBO's "current policy" and "current law" scenarios stems from Social Security, Medicare, Medicaid, and "to a lesser extent" Obamacare subsidies. Among these items, the health care programs account for 80% of all non-interest spending growth over the next 25 years.[101]

* A poll conducted in November 2010 by the Associated Press and CNBC found that:

• 85% of Americans are worried that the national debt "will harm future generations."

• 56% think "the shortfalls will spark a major economic crisis in the coming decade."

• when asked to choose between two options to balance the budget, 59% prefer to cut unspecified government services, while 30% prefer to raise unspecified taxes.[102]

* During the 111th Congress (2009-2010), U.S. Representatives and Senators introduced 176 bills that would have reduced spending and 2,480 bills that would have raised spending.[104]

* The table below quantifies the costs and savings of these bills by political party. This data is provided by the National Taxpayers Union Foundation and represents the annual net fiscal effects of these bills averaged over periods of up to five years (omitting inflation).[105]

* Click here to look up any member of Congress and see the five-year annual costs and savings of the legislation he or she has sponsored or cosponsored.

* The table below quantifies the five-year annual net agendas of the political parties in previous Congresses:

Many of you have talked about the need to pay down our national debt. I listened, and I agree. We owe it to our children and grandchildren to act now, and I hope you will join me to pay down $2 trillion in debt during the next 10 years. At the end of those 10 years, we will have paid down all the debt that is available to retire. That is more debt, repaid more quickly than has ever been repaid by any nation at any time in history.[108]

* From the time that Congress enacted the President's first major economic proposal (June 2001[109]) until the time that he left office (January 2009), the national debt rose from 5.7 trillion[110] to 10.6 trillion.[111] This equates to an increase of $4.9 trillion over 7.4 years or $662 billion per year.[112] This also equates to an increase from 56% of GDP to 76%, or an average of 2.7 percentage points per year.[113]

* During eight years in office, President Bush vetoed 12 bills, four of which were overridden by Congress and thus enacted without his approval.[114] These bills were projected by the Congressional Budget Office to increase the deficit by $26 billion during 2008-2022.[115]

* From the time that Congress enacted the President's first major economic proposal (February 2009[117]) through February 2011, the national debt rose from 10.9 trillion[118] to 14.2 trillion.[119] This equates to an increase of $3.3 trillion over 2.0 years or $1,659 billion per year.[120] This also equates to an increase from 77% of GDP to 95%, or an average of 8.6 percentage points per year.[121]

* As of March 15, 2011, President Obama has vetoed two bills, none of which have been overridden by Congress and thus enacted without his approval.[122]

* As detailed in publications of the Congressional Budget Office, a Brooking Institution paper authored by Alan J. Auerbach (University of California, Berkeley) & William G. Gale (Brookings Institution), and a Princeton University Press book authored by Carmen M. Reinhart (University of Maryland) & Kenneth S. Rogoff (Harvard University),[123] the following are some potential consequences of unchecked government debt:

• "higher inflation" that increases "the size of future budget deficits" and decreases the "the purchasing power" of citizens' savings and income"[129] [130];

• restricted "ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises"[131];

• "losses for mutual funds, pension funds, insurance companies, banks, and other holders of federal debt"[132]; and

• increased "probability of a fiscal crisis in which investors would lose confidence in the government’s ability to manage its budget, and the government would be forced to pay much more to borrow money."[133] [134]

* A paper published in the American Economic Review (2010) researched, systematized, and tabulated the national debt and economic growth in 20 advanced economies (such as the United States, France, and Japan). The authors (Reinhart & Rogoff) obtained 2,317 data points from over 200 years and found the following:

* The study also found that the association between government debt and economic growth in emerging markets (such as India, Brazil, and Nigeria) is "remarkably similar" to advanced countries.[136]

* The study's "main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes."[137]

* The United States exceeded a debt/GDP level of 90% in the second quarter of 2010.[138]

* Some federal programs (such as Social Security) have "trust funds" that are legally separated from the rest of the federal government.[139]

* When these programs spend less than the federal government allocates to them, their surpluses are loaned to the federal government. This creates a legal obligation for the federal government to pay money and interest to these programs, thus adding to the national debt.[140] [141] [142] [143] [144]

* The federal government divides the national debt into two main categories[145] [146]:

1) money that it owes to federal entities such as the Social Security program; and

2) money that it owes to non-federal entities such as individuals, corporations, local governments, and foreign governments.[147] Also, money owed to the Federal Reserve is classified under this category, even though the Federal Reserve is a federal entity.[148] [149]

NOTE: Just Facts has identified numerous instances in which politicians and journalists have used terms that technically refer to the overall national debt, when in fact, they are only referring to a portion of it. In order to clear up some of the confusion this has created, below are common terms for the national debt categorized by their proper meanings:

(b) Portion of the national debt owed to federal entities: debt held by government accounts, government-held debt, intragovernmental holdings[151] [152] [153]

* The federal law that governs the repayment of the national debt draws no distinction between the debt owed to federal and non-federal entities. Both must be repaid with interest.[157]

* The White House Office,[158] [159] Congressional Budget Office,[160] and other federal agencies[161] sometimes exclude the debt owed to federal entities in their reckonings of the national debt because this portion of the debt "represents internal transactions of the government and thus has no effect on credit markets."

* Federal programs to which this money is owed, such as Social Security and Medicare, include this money and the interest it generates in their assets and financial projections.[162] [163] [164]

* In the 2000 presidential race, the Gore-Liebermann campaign released a 192-page economic plan that contains over 150 uses of the word "debt." In none of these instances does the plan mention or account for any of the debt owed to federal entities.[165] The same plan includes the debt owed to federal entities in the assets of the Social Security and Medicare programs.[166]

* During the federal government's 2010 fiscal year (October 1, 2009 - September 30, 2010[167]), the national debt rose from $12.0 trillion to $13.6 trillion, thus increasing by $1.6 trillion.[168]

* The White House,[169] USA Today,[170] Reuters,[171] and other government and media entities reported that the 2010 federal "deficit" was $1.3 trillion.

* The difference between the national debt increase of $1.6 trillion and the reported deficit of $1.3 trillion is attributable to the following accounting practices:

• When calculating the reported deficit, the federal government merges the finances of all federal programs into what is called the "unified budget." Hence, the deficit does not account for the intergovernmental debt that arises when programs such as Social Security loan their surpluses to the federal government.[172]

• When the federal government lays out money for programs such as TARP and student loans, the outgo is not fully counted in the deficit. The deficit reflects only what the government expects to lose or gain on these loans.[173] [174]

* PolitiFact, a Pulitzer Prize-winning project of the St. Petersburg Times to "help you find the truth in politics,"[175] wrote that there were "several years of budget surpluses" during Bill Clinton's presidency. This same article cites the rise in "national debt" during the tenure of George W. Bush.[176]

* Using the same criterion PolitiFact applied to Bush's presidency (change in gross national debt), the national debt rose every year of Clinton's presidency:

Year	National debt on inauguration date† (billions)
1993	$4,188
1994	$4,501
1995	$4,797
1996	$4,988
1997	$5,310
1998	$5,496
1999	$5,624
2000	$5,706
2001	$5,728
† NOTE: PolitiFact used the inauguration date for their debt baseline. The national debt also rose every fiscal year of Clinton's presidency.

Entities	Amount (billions)	Portion of Total
Foreign & International	$4,257	47%
Other Investors	$1,281	14%
Federal Reserve[180]	$812	9%
Mutual Funds	$608	7%
Private Pension Funds	$588	7%
State & Local Governments	$509	6%
Banks & Savings Institutions	$338	4%
Insurance Companies	$255	3%
U.S. Savings Bonds	$189	2%
State and Local Government Pension Funds	$188	2%

During most of American history, the Federal debt was held almost entirely by individuals and institutions within the United States. In the late 1960s, foreign holdings were just over $10 billion, less than 5 percent of the total Federal debt held by the public. Foreign holdings began to grow significantly starting in 1970 and now represent almost half of outstanding [publicly held] debt.[182]

* Ownership of U.S. government debt by foreign creditors as of January 31, 2011:

Country	Amount (billions)	Portion of Total
China	$1,154.7	26%
Japan	$885.9	20%
United Kingdom	$278.4	6%
Oil Exporters†	$215.5	5%
Brazil	$197.6	4%
Caribbean Banking Centers‡	$166.5	4%
Taiwan	$157.2	4%
Russia	$139.3	3%
Hong Kong	$128.1	3%
Switzerland	$107.6	2%
Others	$1,022.6	23%
Total	$,4453.4	100%
† Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria. ‡ Caribbean Banking Centers include the Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, Panama, and British Virgin Islands.

* Foreign purchases of U.S. government debt increase the demand for this debt, thus putting downward pressure on U.S. interest rates. Conversely, foreign sales of U.S. government debt place upward pressure on U.S. interest rates.[184] [185]

* Per a 2008 Congressional Research Service report, a "potentially serious short-term problem would emerge if China decided to suddenly" sell its holding of U.S. government debt. Possible effects could include:

• "a more general financial reaction (or panic), in which all foreigners responded by reducing their holdings of U.S. assets";

The likelihood that China would suddenly reduce its holdings of U.S. securities is questionable because it is unlikely that doing so would be in China’s economic interests. First, a large sell-off of China’s U.S. holdings could diminish the value of these securities in international markets…. Second, such a move would diminish U.S. demand for Chinese imports…. A sharp reduction of U.S. imports from China could have a significant impact on China’s economy….[187]

* During a visit to China in February 2009, Secretary of State Hillary Clinton said:

* In August 2007 during a currency dispute between the U.S. and China, two leading officials of Chinese Communist Party bodies suggested that China use the threat of selling U.S. debt as a "bargaining chip."[189]

* In February 2009 during a dispute over U.S. arms sales to Taiwan, a Chinese general made the following statements in the state-run magazine Outlook Weekly:

* One month later while appearing before China's parliament, the head of China's State Administration of Foreign Exchange said

* In April 2011, journalists reported on a $38 billion federal budget cut agreement with the following headlines and phraseology:

• "New Cuts Detailed in Agreement for $38 Billion in Reductions"; "deep budget cuts in programs for the poor, law enforcement, the environment and civic projects" - Los Angeles Times[193]

• "Congress Sends Budget Cut Bill to Obama"; "cutting a record $38 billion from domestic spending" - Associated Press[194]

• "Budget Deal to Cut $38 Billion Averts Shutdown"; "Republicans were able to force significant spending concessions from Democrats…." – New York Times[195]

* None of these articles reported that this figure of $38 billion in cuts was primarily relative to a portion of the budget called "discretionary non-emergency appropriations."[196] Relative to the entire federal budget, this cut leaves a projected spending increase of $135 billion from 2010 to 2011. This equates to an inflation-adjusted increase of $49 billion or 0.1 percentage points of GDP:[197]

* None of the articles quoted above contains a budget-wide frame of reference for the cuts. A spending reduction of $38 billion equates to 1.0% of the estimated 2011 budget or 2.7% of the projected deficit:

* As of April 11, 2011, the Congressional Budget Office, White House, and Joint Committee on Taxation have not published a hindsight valuation of the Bush tax cuts with figures for 2010.[201] Per a 2007 Congressional Budget Office projection adjusted for inflation, the Bush tax cuts were slated to have a revenue effect of -$283 billion in fiscal year 2010.[202] This equates to 22% of the reported budget deficit ($1,293 billion) or 8% of the budget ($3,456 billion).[203]

* In April 2011, Ezra Klein of the Washington Post posted a graph of spending and revenue projections based upon the Congressional Budget Office's (CBO) "current law" scenario and wrote that it

* Klein's graph and commentary omit the interest and outcome of the national debt under this plan.[205] In the "do nothing" scenario, outlays are projected to exceed revenues every year through 2084, and the publicly held debt is projected to increase from 62% of GDP in 2010, to 74% in 2030, 90% in 2050, and 113% in 2084.[206]

* In the same commentary, Klein wrote that the "current law" scenario is "a pretty good plan" that contains

• Certain elements of the tax code are not indexed for inflation or wage growth. Consequently, taxpayers are shifted over time into higher tax brackets, and by 2020, revenues "reach higher levels relative to the size of the economy than ever recorded in the nation’s history." Revenues as a percent of GDP continue climbing through 2084, rising 69% higher than the average of the past 40 years and 47% higher than ever recorded in the history of the United States.[208] [209]

• Federal spending sans interest on the national debt rises by 2084 to 68% higher (as a percent of GDP) than the average of the past 40 years.[210]

* Without mentioning the role of Congress in taxes, spending, or the national debt,[211] [212] PolitiFact (in the same article cited above) wrote that the national debt increased by $5.73 trillion "under" George W. Bush whereas there were budget surpluses "at the end of the Clinton administration."[213]

* Below are the fluctuations in national debt organized by the tenures of recent Presidents and Congressional majorities:

Political Power	Dates	Average Annual Change in National Debt (Percentage Points of GDP)
Bill Clinton with Democratic House and Senate	1/20/93 – 1/4/95	0.9
Bill Clinton with Republican House and Senate	1/4/95 – 1/19/01	-1.6
George W. Bush with Republican House and Senate	1/19/01 – 6/6/01 11/12/02 – 1/4/07	0.7
George W. Bush with Republican House and Democratic Senate	6/6/01 – 11/12/02	2.2
George W. Bush with Democratic House and Senate	1/4/07 – 1/20/09	6.2
Barack Obama with Democratic House and Senate	1/20/09 – 1/4/11	9.1

* Other factors impacting the national debt include but are not limited to legislation passed by previous Congresses and Presidents,[215] economic cycles, terrorist attacks, natural disasters, demographics, and the actions of U.S. citizens and foreign governments.[216]

CALCULATION: $15,123,728,427,980 debt / 312,602,730 people = $48,380 debt/person

[3] Dataset: "Average Number of People per Household, by Race and Hispanic Origin, Marital Status, Age, and Education of Householder: 2011." U.S. Census Bureau, November 2011. http://www.census.gov/population/www/socdemo/...

Total households = 118,682,000

CALCULATION: $15,123,728,427,980 debt / 118,682,000 households = $127,431 debt/household

[5] Report: "Enron: Selected Securities, Accounting, and Pension Laws Possibly Implicated in its Collapse." By Michael V. Seitzinger, Marie B. Morris, and Mark Jickling. Congressional Research Service, Library of Congress, January 16, 2002. http://fpc.state.gov/documents/organization/7960.pdf

Among the disclosures of publicly traded companies are accounting statements. Since financial information is of little use to investors unless all firms use comparable accounting methods, the securities laws give the Securities and Exchange Commission broad authority to establish standards for financial reporting. The SEC has delegated the task of writing accounting standards to private sector bodies, and since 1973 the Financial Accounting Standards Board has been charged with formulating accounting and financial reporting standards.

This Statement establishes accounting standards for employers' accounting for postretirement benefits other than pensions…. It will significantly change the prevalent current practice of accounting for postretirement benefits on a pay-as-you-go (cash) basis by requiring accrual, during the years that the employee renders the necessary service, of the expected cost of providing those benefits to an employee and the employee's beneficiaries and covered dependents. …

… The Board believes that measurement of the obligation and accrual of the cost based on best estimates are superior to implying, by a failure to accrue, that no obligation exists prior to the payment of benefits. The Board believes that failure to recognize an obligation prior to its payment impairs the usefulness and integrity of the employer's financial statements. …

The provisions of this Statement are similar, in many respects, to those in FASB Statements No. 87, Employers' Accounting for Pensions, and No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. …

This Statement relies on a basic premise of generally accepted accounting principles that accrual accounting provides more relevant and useful information than does cash basis accounting. …

[L]ike accounting for other deferred compensation agreements, accounting for postretirement benefits should reflect the explicit or implicit contract between the employer and its employees.

[7] Book: Finance for Managers. By Richard Luecke and Samuel L. Hayes. Harvard Business School Press, 2002. Page 39:

In contrast to cash-basis accounting, accrual accounting records transactions as they are made, whether or not the cash has actually changed hands. Most companies of any size use accrual accounting. This system provides a better matching between revenues and their associated cost, which helps companies understand the true causes and effect of business activities. Accordingly, revenues are recognized during the period in which the sales activities occur, whereas expenses are recognized in the same period as their associated revenues.

[8] See the three notes above for details regarding the manner in which publicly traded companies are required to calculate their debt and obligations using accrual-based accounting. The following note explains that the federal budget, in contrast, is calculated on a cash basis. More details are spelled out here.

Page 21 (in pdf): "The President's Budget (Budget), the Government's primary financial planning and control tool, describes how the Government spent and plans to spend the money it collects.

Page 30 (in pdf): President's Budget … Prepared primarily on a 'cash basis'

Page 45: "United States Government Balance Sheets as of September 30, 2010, and September 30, 2009"

Liabilities	2010 (billions $)
Accounts payable	72.9
Federal employee and veteran benefits payable	5720.3
Environmental and disposal liabilities	321.3
Benefits due and payable	164.3
Insurance program liabilities	175.6
Loan guarantee liabilities	65.8
Liabilities to Government-Sponsored Enterprises	359.9
Other liabilities	416.5
Total of above (excludes national debt)	7,297

Page 21: "Table 8, Social Insurance Future Expenditures in Excess of Future Revenues"

- The "other" social insurance programs are the Railroad Retirement and Black Lung programs, as explained on page 3 of this report: "Statements of Social Insurance (SOSI). Amounts equal estimated present value of projected revenues and expenditures for scheduled benefits over the next 75 years of certain 'Social Insurance' programs (Social Security, Medicare Parts A, B, & D, Railroad Retirement - Black Lung is projected through 2040)."

- In this report, the trust fund balances of the social programs are not included in the table above, as explained on page 127 of this report: "The present values of future expenditures in excess of future revenue [for the social insurance programs] are the current amounts of funds needed to cover projected shortfalls, excluding the starting trust fund balances, over the projection period." Just Facts accounts for these trust fund balances using the following data from the report.

CALCULATIONS: (Closed Group Future Expenditures in Excess of Future Revenues) – (Trust Fund Balance) = Closed Group Unfunded Obligations

[12] See here, here, and here for details regarding the manner in which publicly traded companies are required to calculate their debt and obligations using accrual-based accounting. The following two notes show that the federal budget, in contrast, is calculated on a cash basis. These notes also show that accrual-based accounting is used in the "Annual Financial Report of the United States Government," which is the source for the shortfall figures cited above.

Each year, the Administration issues two reports which detail the financial results for the Government. The President's Budget (Budget), the Government's primary financial planning and control tool, describes how the Government spent and plans to spend the money it collects. By comparison, the accrual-based Financial Report of the United States Government (Report) includes the cost of operations, the sources used to finance those costs, how much the Government owns and owes, and the outlook for its social insurance programs.

President's Budget	Financial Report of the U.S. Government
Prepared primarily on a 'cash basis'	Prepared on an 'accrual basis'

[14] Report: "Understanding the Primary Components of the Annual Financial Report of the United States Government." U.S. Government Accountability Office, September, 2005. http://www.gao.gov/new.items/d05958sp.pdf

Accrual accounting, which is also used by private business enterprises, is the basis for U.S. generally accepted accounting principles for federal government entities. It is intended to provide a complete picture of the federal government's financial operations and financial position. The federal government primarily uses the cash basis of accounting for its budget, which is the federal government's primary financial planning and control tool.

The accrual basis of accounting recognizes revenue when it is earned and recognizes expenses in the period incurred, without regard to when cash is received or disbursed. The federal government, which receives most of its revenue from taxes, nevertheless recognizes tax revenue when it is collected, under an accepted modified cash basis of accounting.

The [social insurance] estimates are actuarial present values² of the projections and are based on the economic and demographic assumptions representing the trustees' best estimates as set forth in the relevant Social Security and Medicare trustees' reports and in the relevant agency performance and accountability reports for the RRB and the Department of Labor (Black Lung). …

²Present values recognize that a dollar paid or collected in the future is worth less than a dollar today, because a dollar today could be invested and earn interest. To calculate a present value, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed.

Participants for the Social Security and Medicare programs are assumed to be the "closed group" of individuals who are at least age 15 at the start of the projection period, and are participating as either taxpayers, beneficiaries, or both, except for the 2007 Medicare programs for which current participants are assumed to be at least 18 instead of 15 years of age.

The present values of future expenditures in excess of future revenue are the current amounts of funds needed to cover projected shortfalls, excluding the starting trust fund balances, over the projection period. They are calculated by subtracting the actuarial present values of future scheduled contributions and dedicated tax income by and on behalf of current and future participants from the actuarial present value of the future scheduled benefit payments to them or on their behalf.

[16] Report: "Social Security and Medicare Trust Funds and the Federal Budget." By James Duggan and Christopher Soares. Office of Economic Policy, U.S. Department of Treasury, March 2008. http://www.treas.gov/offices/economic-policy/reports/...

Page 16: "The resulting present value is the amount that would have to be put in the bank today at the assumed interest rate to fund the future cash flows."

NOTE: In addition to the "closed group" projections, this report also contains projections for the "open-group" and "infinite horizon." Details are below.

Page 10: " 'Closed' Group and 'Open' Group differ by the population included in each calculation. From the [Statement of Social Insurance], the 'Closed' Group includes: (1) participants who have attained eligibility and (2) participants who have not attained eligibility. The 'Open' Group adds future participants to 'Closed' Group."

Current participants in the Social Security and Medicare programs form the "closed group" of taxpayers and/or beneficiaries who are at least age 15 at the start of the projection period. For the 2007 Medicare projections, current participants are at least 18 years of age at the beginning of the projection period. Since the projection period for the Social Security, Medicare, and Railroad Retirement social insurance programs consists of 75 years, the period covers virtually all of the current participants’ working and retirement years, a period that could be more than 75 years in a relatively small number of instances.

[W]hen calculating unfunded obligations, a 75-year horizon includes revenue from some future workers but only a fraction of their future benefits. In order to provide a more complete estimate of the long-run unfunded obligations of the programs, estimates can be extended to the infinite horizon. The open-group infinite horizon net obligation is the present value of all expected future program outlays less the present value of all expected future program tax and premium revenues. …

In comparison to the analogous 75-year number in Table 5, extending the calculations beyond 2082, captures the full lifetime benefits and taxes and premiums of all current and future participants. The shorter horizon understates financial needs by capturing relatively more of the revenues from current and future workers and not capturing all of the benefits that are scheduled to be paid to them.

Federal Debt, Liabilities, Obligations, and Assets as of September 30, 2010
Category	(Billions $)
Publicly-Held Debt † ‡	9,060
Other Liabilities §	7,297
Social Security Future Expenditures in Excess of Future Revenues #	19,735
Medicare Future Expenditures in Excess of Future Revenues #	23,181
Other Social Insurance Programs Future Expenditures in Excess of Future Revenues #	141
Assets £	-2,884
Total	56,530

† Page 45: Federal debt securities held by the public and accrued interest as of September 30, 2010 = $9,060 billion

‡ The "Publicly-Held Debt" differs from the "National Debt" in that it excludes "intergovernmental debt," which is money the federal government owes to various trust funds such as Social Security's. Hence, to be consistent, the social program shortfalls shown in the table above do not include their starting trust fund balances. Facts regarding how and why the federal government keeps its books in this manner is covered in the section of this research entitled "Government Accounting."

£ Page 45: "United States Government Balance Sheets as of September 30, 2010, and September 30, 2009"

Assets	2010 (billions $)
Cash and other monetary assets	428.6
Accounts and taxes receivable, net	94.6
Loans Receivable and Mortgage-Backed Securities, net	688.6
TARP Direct Loans & Equity Investments, net	144.7
Beneficial interest in trust	20.8
Inventories and related property, net	286.2
Property, plant, and equipment, net	828.9
Debt and equity securities	98.9
Investments in Government-Sponsored Enterprises;	109.2
Other assets	183.3
Total	2,883.8

[19] Calculation performed with data from the footnote above and the report: "Flow of Funds Accounts of the United States, Third Quarter 2010." Board of Governors of the Federal Reserve System, December 9, 2010. http://www.federalreserve.gov/releases/z1/current/z1.pdf

Page 104: "Table B.100 Balance Sheet of Households and Nonprofit Organizations; Billions of dollars; amounts outstanding end of period, not seasonally adjusted … Assets … 2010 Q3 [=] 54,891.2"

NOTE: Household assets detailed in this table include items such as real estate, corporate equities, mutual funds, equity in noncorporate businesses, life insurance, pension fund reserves, and consumer durable goods. Nonprofit organizations are explicitly named in the title of this table because their assets are not considered household property, whereas assets of for-profit entities are considered household property.

CALCULATION: $56,530 Federal Debt, Liabilities, & Unfunded Obligations / $54,891.2 Total Assets of Households and Nonprofit Organizations = 103%

[20] Web page: "Updated PPI Commodity Weight Allocations to Stage-of-Processing Indexes." Bureau of Labor Statistics. Last modified February 18, 2009. http://www.bls.gov/ppi/ppisopallo.htm

"SOP 3130 - Consumer Durable Goods: contains nonfood products, ready for final consumption, with a life expectancy of more than three years. Examples of durable goods include furniture, passenger cars, and appliances."

The SOSI [Statement of Social Insurance] provides additional perspective on the Government's long term estimated exposures and costs. However, it should be noted that the Government's financial statements do not reflect future costs implied by any current policy, such as national defense, the global war on terrorism, and disaster relief and recovery.

Page 5: "Further, the long-term nature of these costs and their sensitivity to a wide range of complex assumptions can, in some cases, cause significant fluctuation in agency and Governmentwide costs from year to year. … At VA and other agencies that administer postemployment benefit programs, these fluctuations are attributable to an array of assumptions and variables including interest rates, inflation, beneficiary eligibility, life expectancy, and cost of living."

Page 131: "Assumptions are made about many economic and demographic factors, including gross domestic product (GDP), earnings, the CPI, the unemployment rate, the fertility rate, immigration, mortality, disability incidence and terminations and, for the Medicare projections, health care cost growth."

[26] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." United States Social Security Administration, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

Page 7: "The intermediate demographic and economic assumptions shown in table II.C1 reflect the Trustees' best estimates of future experience, and therefore most of the figures in this overview depict only the outcomes under the intermediate assumptions. Any projection of the future is, of course, uncertain. For this reason, alternatives I (low-cost) and III (high-cost) are included to provide a range of possible future experience."

Page 15: "Uncertainty of the Projections … Significant uncertainty surrounds the intermediate assumptions."

[27] "2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare & Medicaid Services, August 5, 2010. https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf

... Current law would require physician fee reductions totaling an estimated 30 percent over the next 3 years—an implausible result.

Further, while the Patient Protection and Affordable Care Act, as amended, makes important changes to the Medicare program and substantially improves its financial outlook, there is a strong likelihood that certain of these changes will not be viable in the long range. Specifically, the annual price updates for most categories of non-physician health services will be adjusted downward each year by the growth in economy-wide productivity. The best available evidence indicates that most health care providers cannot improve their productivity to this degree—or even approach such a level—as a result of the labor-intensive nature of these services.

Without major changes in health care delivery systems, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to far higher costs for Medicare in the long range than those projected under current law.

For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable).

NOTE: Credit for bringing this fact to our attention belongs to Alex Adrianson of the Heritage Foundation. [Commentary: "What If Things that Have No Chance of Happening Happen? Asks Medicare’s Actuaries." By Alex Adrianson. InsiderOnline, August 12, 2010. http://www.insideronline.org/blogarchive.cfm?month=...]

a) Table 3.2: "Federal Government Current Receipts and Expenditures." United States Department of Commerce, Bureau of Economic Analysis. Last revised February 25, 2011. http://www.bea.gov/national/nipaweb/TableView.asp?...

Primary constituents of receipts from Table 3.2: "Federal Government Current Receipts and Expenditures."	2009 (billions $)	Portion of Total
Current tax receipts. Tax revenues received by government from all sources. It is the sum of personal current taxes, taxes on production and imports, taxes on corporate income, and taxes from the rest of the world.	1,142	52%
Contribution* for government social insurance. Employer contributions for government social insurance as well as payments by employees, the self-employed, and other individuals who participate in government social insurance programs.	954	43%
Income receipts on assets. … For government, it consists of interest and miscellaneous receipts and dividends.	46	2%
Current transfer receipts. Government net transfer receipts from businesses and from persons. These receipts largely consist of deposit insurance premiums, net insurance settlements, donations, fines, fees, certain penalty taxes, and excise taxes paid by nonprofit institutions serving households.	68	3%
Current surplus of government enterprises. The current operating revenue and subsidies received by government enterprises from other levels of government less the current expenses of government enterprises.	-4	0%

* NOTE: In this context, "contribution" is another name for taxes that fund social insurance programs like Social Security & Medicare. [Web page: " What does FICA mean and why are Social Security taxes called FICA contributions?" United States Social Security Administration. Last reviewed or modified February 9, 2011. http://www.ssa.gov/mystatement/fica.htm

"Social Security payroll taxes are collected under authority of the Federal Insurance Contributions Act (FICA). … The payroll taxes collected for Social Security are of course taxes, but they can also be described as contributions to the social insurance system that is Social Security."]

- The key figures in this graph (and many others that follow) are expressed as a percentage of GDP because debates about the size of government are often centered upon how much of a country's economy is consumed by government. This measure also inherently accounts for the effects of population changes and inflation/deflation.

NOTE: An Excel file containing the data and calculations is available upon request.

[32] Although the below-cited table of "Government Current Expenditures by Function" includes a line item for "Highways," the BEA's definition of "Government Current Expenditures" does not include "Gross Investment," which is defined as "what government spends on structures, equipment, and software, such as new highways, schools, and computers." Such spending is included in "Total Government Expenditures,"* for which the BEA does not provide a breakdown by function.

* Webpage: "FAQ: BEA seems to have several different measures of government spending. What are they for and what do they measure?" United States Department of Commerce, Bureau of Economic Analysis. Last updated May 28, 2010. http://faq.bea.gov/cgi-bin/bea.cfg/php/enduser/std_adp.php?...

b) Report: "Fiscal Year 2012 Historical Tables: Budget Of The U.S. Government." White House Office of Management and Budget. http://www.whitehouse.gov/sites/default/files/omb/...
Pages 47-55: "Table 3.1—Outlays by Superfunction and Function: 1940–2016."
Line item: "Veterans Benefits and Services."

- Per correspondence from the Bureau of Economic Analysis (March 8, 2011), spending for veterans' benefits is "included within those functions that best reflect the nature of the specific benefits programs managed by the agency." Per the White House Office of Management and Budget (Table 3.2: "Outlays by Function and Subfunction, 1962–2016." Accessed March 8, 2011 at http://www.whitehouse.gov/omb/budget/Historicals), "Veterans benefits and services" consist of "Income security for veterans," "Veterans education, training, and rehabilitation," "Hospital and medical care for veterans," "Veterans housing," and "Other veterans benefits and services." These all fall into categories that Just Facts categorizes as "Social spending." Thus, Just Facts subtracted the total "Veterans benefits and services" from the "Social spending" category and added this to the "National defense" category. Per the same correspondence from the Bureau of Economic Analysis, "The administrative expenses of the [Veterans' Affairs] agency … might be included within the General Public Service function." Because of the uncertainty implicit in this statement and the lack of such data from all sources known to Just Facts, we are unable to segregate this spending.

- Given the recent steep rise in the national debt, Just Facts has been asked why the portion of federal spending dedicated to "General government and debt service" has generally fallen since the mid-1990s. Major causes for this include (1) the recent steep rise in overall government spending (2) the recent low interest rates (3) the interest payments shown here do not include the interest due on government-held (a.k.a., "nonmarketable") debt, which as of February 28, 2011, has a 75% higher interest rate than publicly held debt ["Average Interest Rates on U.S. Treasury Securities." February 2011, U.S. Department of the Treasury. http://www.treasurydirect.gov/govt/rates/pd/avg/2011/2011_02.htm]. Facts regarding how and why the federal government keeps its books in this manner are covered in the section of this research entitled "Government Accounting."

Blog: "Issues to Consider for Distributional Analysis." CBO Director’s Blog, December 11th, 2007. http://cboblog.cbo.gov/?p=40

In its analysis, CBO estimates effective tax rates for the four largest sources of federal revenues—individual income taxes, social insurance (payroll) taxes, corporate income taxes, and excise taxes—as well as the total effective rate for the four taxes combined. Those taxes account for over 95 percent of total federal revenues. The analysis does not include federal estate and gift taxes, customs duties, and other miscellaneous receipts. Nor does it include state and local taxes.

CBO’s analysis of effective tax rates assumes that households bear the burden of the taxes that they pay directly, such as individual income taxes (including taxes on interest, dividends and capital gains) and employees’ share of payroll taxes. The analysis assumes—as do most economists—that employers’ share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid. Therefore, the amount of those taxes is included in employees’ income, and the taxes are counted as part of employees’ tax burden. …

Excise taxes are assumed to fall on households according to their consumption of taxed goods (such as tobacco and alcohol). Excise taxes that affect intermediate goods, which are paid by businesses, are attributed to households in proportion to their overall consumption. …

Far less consensus exists about how to attribute corporate income taxes (and taxes on capital income generally). In this analysis, CBO assumes that corporate income taxes are borne by owners of capital in proportion to their income from interest, dividends, capital gains, and rents. Over the long term, however, some models suggest that at least part of the burden falls on labor income. …

This analysis focuses on households’ adjusted pretax comprehensive income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals, as noted above), employees’ contributions to 401(k) retirement plans, and the value of income received in-kind from various sources (such as employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps). …

NOTE: An Excel file containing the data and calculations is available upon request.

[Clause 1] All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.

[Clause 2] Every Bill which shall have passed the House of Representatives and the Senate, shall, before it become a Law, be presented to the President of the United States; If he approve he shall sign it, but if not he shall return it, with his Objections to that House in which it shall have originated, who shall enter the Objections at large on their Journal, and proceed to reconsider it. If after such Reconsideration two thirds of that House shall agree to pass the Bill, it shall be sent, together with the Objections, to the other House, by which it shall likewise be reconsidered, and if approved by two thirds of that House, it shall become a Law. But in all such Cases the Votes of both Houses shall be determined by yeas and Nays, and the Names of the Persons voting for and against the Bill shall be entered on the Journal of each House respectively. If any Bill shall not be returned by the President within ten Days (Sundays excepted) after it shall have been presented to him, the Same shall be a Law, in like Manner as if he had signed it, unless the Congress by their Adjournment prevent its Return, in which Case it shall not be a Law.

Article I, Section 8, Clause 1: "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States…."

[36] "Citizen's Guide to the Federal Budget: Fiscal Year 2000." Section 3: "How Does the Government Create a Budget?" Government Printing Office, Updated January 24, 2008. http://www.gpoaccess.gov/usbudget/fy00/guide03.html

• Discretionary spending, which accounts for one-third of all Federal spending, is what the President and Congress must decide to spend for the next year through the 13 annual appropriations bills. It includes money for such activities as the FBI and the Coast Guard, for housing and education, for space exploration and highway construction, and for defense and foreign aid.

• Mandatory spending, which accounts for two-thirds of all spending, is authorized by permanent laws, not by the 13 annual appropriations bills. It includes entitlements--such as Social Security, Medicare, veterans' benefits, and Food Stamps--through which individuals receive benefits because they are eligible based on their age, income, or other criteria. It also includes interest on the national debt, which the Government pays to individuals and institutions that hold Treasury bonds and other Government securities. The President and Congress can change the law in order to change the spending on entitlements and other mandatory programs--but they don't have to.

Changing security threats: The world has changed dramatically in overall security, from the conventional threats posed during the Cold War era to more unconventional and asymmetric threats. Providing for people’s safety and security requires attention to threats as diverse as terrorism, violent crime, natural disasters, and infectious diseases. The response to many of these threats depends not only on the action of the U.S. government but also on the cooperation of other nations and multilateral organizations, as well as on state and local governments and the private and independent sectors. Complicating such efforts are a number of failed states allowing the trade of arms, drugs, or other illegal goods; the spread of infectious diseases; and the accommodation of terrorist groups. …

Economic growth and competitiveness: Economic growth and competition are also affected by the skills and behavior of U.S. citizens, the policies of the U.S. government, and the ability of the private and public sectors to innovate and manage change. … Importantly, the saving and investment behavior of U.S. citizens affects the capital available to invest in research, development, and productivity enhancement. …

Global interdependency: Economies as well as governments and societies are becoming increasingly interdependent as more people, information, goods, and capital flow across increasingly porous borders. …

Societal change: The U.S. population is aging and becoming more diverse. As U.S. society ages and the ratio of elderly persons and children to persons of working age increases, the sustainability of social insurance systems will be further threatened. Specifically, according to the 2000 census, the median age of the U.S. population is now the highest it has ever been, and the baby boomer age group—people born from 1946 to 1964, inclusive—was a significant part of the population.

Page 1: "An alternative scenario presented in this report incorporates several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period. If such changes occurred—maintaining what some analysts might consider "current policy" as opposed to current law—revenues would increase much more slowly than spending…."

Page 14: "Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policy than the extended-baseline scenario does—because, for example, it does not allow the impact of the AMT [Alternative Minimum Tax] to expand substantially. The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course."

Page 76: "The unemployment rate was projected to decline to 5.0 percent and remain at that level over the long run."

[41] Calculated with data from: "Unemployment Rate, Civilian Labor Force, LNS14000000." U.S. Department of Labor, Bureau of Labor Statistics. Accessed March 19, 2011. http://data.bls.gov/cgi-bin/surveymost?ln

NOTE: An Excel file containing the data and calculations is available upon request.

[43] Calculated with data from Table 1.1.1: "Percent Change From Preceding Period in Real Gross Domestic Product." U.S. Department of Commerce, Bureau of Economic Analysis. Last revised February 25, 2011. http://bea.gov/national/nipaweb/TableView.asp?...

NOTE: An Excel file containing the data and calculations is available upon request.

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product)."

[M]ost tax cuts enacted under EGTRRA [Economic Growth and Tax Relief Reconciliation Act of 2001] and JGTRRA [Jobs and Growth Tax Relief Reconciliation Act of 2003] [also known as "Bush tax cuts"], which are currently scheduled to expire in 2011, are assumed to remain in place. Those extensions would apply primarily to middle-and low-income taxpayers; certain provisions applying to high-income taxpayers (married couples with adjusted gross income above $250,000 and singles with income above $200,000) would not be extended.

The alternative fiscal scenario is based on the assumption that certain tax policies that have recently expired, or that are scheduled to expire, will be extended through 2020, and that tax policies will adjust so that revenues remain at a constant share of GDP thereafter. Specifically:

• Certain provisions of EGTRRA and JGTRRA are assumed to be extended, including the $1,000 child tax credit, marriage penalty relief, and lower tax rates for taxpayers with incomes under $250,000;

• AMT [Alternative Minimum Tax] relief, which expired at the end of 2009, is assumed to be extended; and

• The estate tax, which expired completely in 2010 and is scheduled to be reinstated in 2011—at the rates and exemption amounts scheduled to apply in 2011 before the law was changed in 2001—is assumed instead to be extended at the rates in effect in 2009 and with the exemption amounts (adjusted for inflation) that applied in that year.

Those changes are widely expected to be made in some form over the next few years.

Page 56: "Alternative Fiscal Scenario … Estate and Gift Taxes - 2009 tax rates and exemption amount (adjusted for inflation) continue through 2020; revenues are constant as a share of GDP thereafter."

"Beginning tomorrow (2009), the federal estate tax will have a rate of 45 percent combined with a generous exemption level of $3.5 million."

Page 55: "Over the past 40 years, total federal revenues have ranged from 14.8 percent to 20.6 percent of GDP, averaging 18.1 percent, with no evident trend over time…."

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product)."

NOTE: An Excel file containing the data and calculations is available upon request.

Page ii: "In this report, 'recently enacted health care legislation' refers to the Patient Protection and Affordable Care Act (Public Law 111-148) [Obamacare] and the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) [Amendments to Obamacare]."

Page ix: "Mandatory programs are ones that do not require annual appropriations by the Congress; the major mandatory health programs consist of Medicare, Medicaid, the Children’s Health Insurance Program, and health insurance subsidies that will be provided through the exchanges established by the recently enacted health care legislation."

Page 27: "In this report, federal discretionary [as opposed to mandatory] spending on health care—that is, spending that is subject to annual appropriations—is included in the budget projections for other noninterest spending (see Table 1-2 in Chapter 1). Some mandatory spending on health care (for example, spending for federal retirees) is also included in other noninterest spending; that mandatory spending represents a very small share of the federal budget."

Page x: "In this scenario, CBO assumed that Medicare’s payment rates for physicians would gradually increase (which would not happen under current law) and that several policies enacted in the recent health care legislation that would restrain growth in health care spending would not continue in effect after 2020."

Page 3: "Alternative Fiscal Scenario … Medicare Spending - As scheduled under current law, except that payment rates for physicians grow with the Medicare economic index (rather than at the lower rates of the sustainable growth rate mechanism) and that after 2020, several policies that would restrain spending growth are assumed not to be in effect."

One challenge that arises in projecting federal outlays for health care over the long term is that the recent legislation either left in place or put into effect a number of procedures that may be difficult to sustain over a long period. For example, the legislation did not alter the sustainable growth rate mechanism used for determining updates to Medicare’s payment rates for physicians; under that mechanism, those rates are scheduled to be reduced by about 21 percent in 2010 and then decline further in subsequent years. Since that mechanism was enacted in 1997, its provisions have usually been modified to avoid scheduled reductions in payment rates, and legislation was just enacted to delay cuts in those payment rates until December 2010 (a development that is not reflected in the projections). At the same time, the legislation includes provisions that will constrain payment rates for other providers of Medicare’s services. In particular, increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs.

[52] "2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare & Medicaid Services, August 5, 2010. https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf

… Current law would require physician fee reductions totaling an estimated 30 percent over the next 3 years—an implausible result.

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product)."

NOTE: An Excel file containing the data and calculations is available upon request.

Page 9: "Under both scenarios, the trust funds for Social Security and Part A of Medicare would become insolvent during the long-term projection period."

The most meaningful measure of federal debt for such projections is debt held by the public, which represents the amount that the government is borrowing in the financial markets (by issuing Treasury securities) to pay for federal operations and activities. That borrowing competes with other participants in the credit markets for financial resources and can crowd out private investment.¹⁴

¹⁴ In contrast, debt held by trust funds and other government accounts—which, together with debt held by the public, make up gross federal debt—represents internal transactions of the government and thus has no effect on credit markets.

Page 139: "Table 7.1—Federal Debt at the End of Year: 1940–2016 … Total Debt held by the Public as a Percentage of GDP"

Figure 1-2: "Federal Debt Held by the Public Under CBO’s Long-Term Budget Scenarios"

NOTE: An Excel file containing the data and calculations is available upon request.

CBO’s projections understate the severity of the long-term budget problem because they do not incorporate the significant negative effects that accumulating substantial amounts of additional federal debt would have on the economy:

• Large budget deficits would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States.

• Growing debt would also reduce lawmakers’ ability to respond to economic downturns and other challenges.

• Over time, higher debt would increase the probability of a fiscal crisis in which investors would lose confidence in the government’s ability to manage its budget, and the government would be forced to pay much more to borrow money.

Page 1: "The projected outcomes under both scenarios do not include the harmful effects that rising debt would have on economic growth and interest rates. If those effects were taken into account, projected debt would increase even faster."

The projections in this report understate the size of the budgetary shortfalls that would be likely to result from such fiscal policies. For the purposes of the projections, CBO assumed stable economic conditions after 2020— in particular, a constant real (inflation-adjusted) interest rate on federal debt and steady growth rates for real wages and output. That approach omits the pressures that a rise in debt as a percentage of GDP would have on real CBO interest rates and economic growth. It also omits the impact that higher effective marginal tax rates and the increasing value of government benefits would have on incentives to work and save.[Footnote 4: Effective marginal tax rates on labor or capital income represent the percentage of the last dollar of such income that is taken by federal taxes.]

Page 12: "As discussed later in this chapter, higher federal debt would in fact lead to higher interest rates, making interest outlays even larger, particularly under the alternative fiscal scenario."

Page 13: "For a combination of federal spending and revenues to be sustainable over time, the resulting debt must eventually grow no faster than the economy."

Pages 14-15: "How much would policies have to change to avoid unsustainable increases in government debt? A useful answer comes from looking at the fiscal gap, which measures the immediate change in spending or revenues that would be necessary to keep the debt-to-GDP ratio the same at the end of a given period as at the beginning of the period."

Waiting to close the fiscal gap would make the necessary changes larger. To illustrate the costs of delay, CBO simulated the effects of closing the fiscal gap under the alternative fiscal scenario beginning in 2011, 2015, 2020, or 2025. Those simulations indicate that postponing action would substantially increase the size of the policy adjustments needed to put the budget on a sustainable course. For example, if lawmakers wanted to close the fiscal gap through 2035 but did not begin until 2015, they would have to reduce primary spending or increase revenues over that period by 5.7 percent of GDP, rather than by 4.8 percent if they acted in 2011 (see Figure 1-3). If they waited until 2020 to close the fiscal gap through 2035, they would have to cut noninterest outlays or raise revenues over that period by 7.9 percent of GDP. Moreover, those simulations omit the effects that deficits and debt would have on economic growth and interest rates in the intervening years; incorporating such effects would make the impact of delaying policy changes even more severe.

Another perspective on the effects of delay comes from the so-called sustainable spending level—the fixed amount of outlays (measured as a share of GDP) that could be supported by a projected stream of revenues. To eliminate the fiscal gap through 2035 under the alternative fiscal scenario, primary outlays could be reduced to 17.3 percent of GDP in 2015 and later. If no changes were made until 2020, primary outlays would have to fall permanently to 15.9 percent of GDP, and if action was delayed until 2025, the projected revenue stream would only support primary outlays of 12.1 percent of GDP (see Figure 1-4). By comparison, primary outlays are expected to equal 23.0 percent of GDP this year.

NOTE: An Excel file containing the data and calculations is available upon request.

Page 139: "Table 7.1—Federal Debt at the End of Year: 1940–2016 … Total Debt held by the Public as a Percentage of GDP."

108.7 (publicly held debt as a % of GDP in 1946) - 36.4 (publicly held debt as a % of GDP in 1985) = 72.3

Subset: "Summary Data for the Alternative Fiscal Scenario (percentages of gross domestic product)"

b) Table 3.2: "Federal Government Current Receipts and Expenditures." United States Department of Commerce, Bureau of Economic Analysis. Last revised February 25, 2011. http://www.bea.gov/national/nipaweb/TableView.asp?...

- The methodologies used by the above-cited government agencies to quantify federal spending differ. The CBO uses "total outlays" for projections, and the BEA uses "current expenditures" for historical data back to World War II. The CBO's spending figure for 2010 is 24.3%, and the figure calculated using BEA data is 25.4%. Thus, Just Facts uses the term "over" to describe the relationship between historical and projected data in this context.

344 (publicly held debt as a % of GDP in 2050) - 67 (publicly held debt as a % of GDP in 2011) = 277

Page ii: "The extended-baseline scenario adheres closely to current law, following CBO’s 10-year baseline budget projections through 2020 (with adjustments for the aforementioned health care legislation) and then extending the baseline concept for the rest of the long-term projection period."

Page 2: "The current-law assumption of the extended-baseline scenario implies that many adjustments that lawmakers have routinely made in the past—such as changes to the AMT [Alternative Minimum Tax] and to the Medicare program’s payments to physicians—will not be made again."

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product)."

Page 6: "Revenues would also rise considerably under current law; by the 2020s, they would reach higher levels relative to the size of the economy than ever recorded in the nation’s history. … First, ongoing increases in real income would push taxpayers into higher tax brackets. Second, ongoing inflation, even if modest, would cause more people to owe tax under the AMT [Alternative Minimum Tax]. And third, the recently enacted excise tax on certain high-premium health insurance plans would have a growing effect on revenues."

Page 13: "[T]he effective marginal tax rate on labor income would rise from 29 percent today to about 38 percent in 2035. … All told, average tax rates (taxes as a share of income) would rise considerably, and people at various points in the income scale would pay a very different percentage of their income in taxes than people at the same points do today."

Page 60: "Estate and gift taxes are projected to increase as a share of GDP following the reinstatement of the estate tax after 2010. The dollar amount of an estate that is exempt from taxation will remain fixed at $1 million starting in 2011 and not be indexed for inflation thereafter; as a result, a greater share of wealth would become subject to the tax over time."

Page 64: "Over the coming decades, the cumulative effect of rising prices will sharply reduce the value of some parameters of the tax system that are not indexed for inflation. Under the extended-baseline scenario, the estate tax exemption, which will be $1 million in 2011 under current law, would be worth about $600,000 (in 2010 dollars) by 2035…."

"On Jan. 1, 2011, the federal estate tax rate is scheduled to be 55 percent with an exemption level of only $1 million."

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product). … Extended-Baseline Scenario … Revenues … 2084 [=] 30.3"

Page 55: "Over the past 40 years, total federal revenues have ranged from 14.8 percent to 20.6 percent of GDP, averaging 18.1 percent, with no evident trend over time…."

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product)."

NOTE: An Excel file containing the data and calculations is available upon request.

One challenge that arises in projecting federal outlays for health care over the long term is that the recent legislation either left in place or put into effect a number of procedures that may be difficult to sustain over a long period. For example, the legislation did not alter the sustainable growth rate mechanism used for determining updates to Medicare’s payment rates for physicians; under that mechanism, those rates are scheduled to be reduced by about 21 percent in 2010 and then decline further in subsequent years. … At the same time, the legislation includes provisions that will constrain payment rates for other providers of Medicare’s services. In particular, increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs.

[76] "2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare & Medicaid Services, August 5, 2010. https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf

… Current law would require physician fee reductions totaling an estimated 30 percent over the next 3 years—an implausible result.

Page 1: "The analysis is subject to a great deal of uncertainty, because of both the complexity of the proposal and the very long time horizon over which its many provisions would unfold."

Page 5: "CBO’s cost estimates generally apply only to the 10-year budget projection period, because the uncertainties about the budgetary effects of legislation (especially regarding health care) are simply too great beyond that span."

Other Tax Provisions. The proposal would make significant changes to the tax system.² However, as specified by your staff, for this analysis total federal tax revenues are assumed to equal those under CBO’s alternative fiscal scenario (which is one interpretation of what it would mean to continue current fiscal policy) until they reach 19 percent of gross domestic product (GDP) in 2030, and to remain at that share of GDP thereafter.

² The proposal would offer individuals the choice of paying their income taxes under the existing tax code or a highly simplified tax system. The simplified system would broaden the tax base, compress the tax schedule down to two rates, and retain a standard deduction and personal exemption. No tax would apply to capital gains, dividends, or interest. No alternative minimum tax or estate tax would exist. Taxpayers would pay 10 percent on earnings up to $100,000 for joint filers ($50,000 for single filers) and 25 percent on earnings above that amount. The standard deduction would be $25,000 for joint filers ($12,500 for single filers), and the personal exemption would be $3,500. The corporate income tax would be replaced with a broad-based business consumption tax of 8.5 percent. New business investment could be immediately expensed. Payroll taxes, excise taxes, customs duties, and other miscellaneous receipts would be maintained.

Page 6: "Table 1: Federal Outlays, Revenues, and Debt Under CBO’s Alternative Fiscal Scenario and the Roadmap (Percentage of gross domestic product) … Revenues … 2020 = 18.6 … 2040 = 19.0"

Page 55: "Over the past 40 years, total federal revenues have ranged from 14.8 percent to 20.6 percent of GDP, averaging 18.1 percent, with no evident trend over time…."

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product) … Other Noninterest Outlays … 2010 = 12.5"

Other Government Spending. From 2010 through 2019, nondefense discretionary spending would be frozen at 2009 levels in nominal terms. In addition, the Roadmap would rescind all unobligated discretionary funds provided by the American Recovery and Reinvestment Act of 2009 (Public Law 111-5) and would reduce the amount of assets that could be purchased under the Troubled Asset Relief Program. Starting in 2020, spending in all areas of the budget except for Social Security, Medicare, Medicaid, and net interest on debt held by the public is specified to grow at the rate of the CPI-U plus 0.7 percentage points, resulting in an average annual growth rate of 2.7 percent, by CBO’s estimate.

Page 6: Table 1: "Federal Outlays, Revenues, and Debt Under CBO’s Alternative Fiscal Scenario and the Roadmap (Percentage of gross domestic product) … Outlays … Other … 2020 = 7.7 … 2080 = 3.8"

Figure A-1: "Revenues and Primary Spending, by Category, Under CBO’s Long-Term Budget Scenarios, Through 2084 (percentage of gross domestic product)."

NOTE: An Excel file containing the data and calculations is available upon request.

Figure 2: "Social Security Revenues and Outlays Under CBO’s Alternative Fiscal Scenario with Scheduled Benefits and the Roadmap (Percentage of GDP)."

NOTE: An Excel file containing the data and calculations is available upon request.

Page 2: "Current beneficiaries and workers who are age 55 or older in 2010 would experience no change in benefits."

Page 18: "The Roadmap would allow workers who are age 55 or younger in 2012 to participate in voluntary individual accounts (IAs), funded with a portion of their payroll taxes. … For a worker who established an individual account, an offset would be applied to traditional benefits that would reduce those benefits proportionally to the amount of Social Security payroll taxes that the person diverted to his or her account."

CBO assumed that individual accounts would be invested in a mix of stocks and corporate bonds and that the value of an account at a person’s retirement would be paid out as a life annuity.⁵ Under the Roadmap, a federal guarantee would ensure a rate of return of at least the rate of inflation. With such individual accounts, total annual benefits would, on average, exceed those projected under the alternative fiscal scenario, but those payouts would also be more uncertain, despite the guarantee, because returns on stocks and corporate bonds are risky. However, total benefits under the Roadmap would probably not fall below those under the alternative fiscal scenario.

⁵ A life annuity is a financial contract that makes a series of payments in the future to a retiree for as long as he or she lives, in exchange for the immediate payment of a lump sum before the annuity begins. For this analysis, CBO models a joint-and-survivor annuity in which the surviving spouse receives two-thirds of the retiree’s payment.

As necessary, the government would make payments to account holders upon withdrawal from those accounts in retirement to guarantee that their contributions earned a rate of return at least equal to the rate of inflation. That is, the value of a person's individual account at the time of annuitization would be guaranteed by the government to be at least equal to the sum of the contributions the person had made (adjusted for inflation).

Without constraints, the presence of a guarantee could cause some individuals to choose very risky portfolios. However, under the proposal, the choice of investments would be limited to options like those in the federal government’s Thrift Savings Plan or, for individuals with larger balances in their accounts, options approved by the Personal Social Security Savings Board.

NOTE: For general facts regarding Social Security personal accounts, click here.

Page 2: "A new special minimum benefit exceeding that under current law would be established for workers with at least 20 years of earnings that were less than or equal to the earnings of a full-time worker making the minimum wage."

Page 2: "Traditional retirement benefits would be reduced below those scheduled under current law for many workers who are age 55 or younger in 2011. People with lower earnings would experience smaller reductions in benefits, and those with higher earnings would experience larger reductions."

Beginning in 2018 … [b]enefits for "maximum earners" (people with high earnings over their lifetime who have made maximum contributions to Social Security) would be determined by price increases since 2010 rather than by earnings increases (which are projected to be higher) during that period. Benefits for other new beneficiaries with lifetime earnings above the new bend point would grow with a mix of price and wage increases. Because the change would not take effect until 2018, it would not affect people who are age 55 or older in 2010.

[87] "A Roadmap for America's Future Version 2.0." By Paul D. Ryan. January 2010.

Progressive Price Indexing. Excluding those now over 55, employs, starting in 2018, a mix of wage indexing and "progressive price indexing" for calculating initial Social Security benefits under the traditional system, with adjustments for income levels as follows:

- Low-Income. Individuals making less than a certain threshold level (approximately $27,700 per year in 2018) will continue to receive initial benefits based on wage indexing. Threshold indexed for inflation.

- Middle-Income. Individuals who make between the minimum threshold and the maximum taxable amount (approximately $27,700 and $147,9000 in 2018) will have initial benefits adjusted upward by a combination of wage and price indexing that becomes more oriented toward price indexing as they move up the income scale. For example, an individual whose income is half way between $27,700 and $147,900 (in 2018 dollars) will have his initial benefit adjusted upward approximately 50 percent by wage indexing and 50 percent by price indexing. These amounts will also be adjusted for inflation.

- Upper-Income. Individuals who make more than the taxable maximum amount (approximately $147,900 in 2018) will have initial benefits adjusted upward by price indexing, also adjusted for inflation.

- No Effect on Colas. The proposal does not affect the cost-of-living adjustment [COLA] that Social Security beneficiaries receive each year once they have already begun receiving benefits. Further, it does not affect any individuals over 55, as it is not applied to Social Security beneficiaries until 2018.

[88] "A Roadmap for America's Future Version 2.0." By Paul D. Ryan. January 2010.

Page 56: "[T]his proposal extends the gradual increase in the retirement age, from 65 to 67, occurring under existing policies, and speeds it up by 1 year. Once the current-law retirement age reaches 67 in 2026, this proposal continues its progression in line with expected increases in life expectancy. This will have the effect of increasing the retirement age by 1 month every 2 years. The retirement age will gradually increase until it reaches 70 in the next century."

Starting in 2021, new [Medicare] enrollees would no longer receive coverage through the current program but, instead, would be given a voucher with which to purchase private health insurance. …

- The voucher would be adjusted to reflect the age and health status of enrollees. If all Medicare beneficiaries (including older people with higher average expenditures) were to receive a voucher in 2021, the average voucher amount would be $11,000 (in 2010 dollars).

Page 22: "The Roadmap specifies that Medicaid enrollees would purchase private health insurance using a combination of a new federal tax credit and a subsidy for low-income people. Services for disabled beneficiaries and long-term care would remain in the current Medicaid program, and states would receive block grants for those services."

The government would provide funding for medical savings accounts (MSAs) for low-income Medicare beneficiaries. Currently, Medicaid pays out-of-pocket expenses that are not, for many low-income beneficiaries, covered by Medicare. The legislation would replace that Medicaid coverage with federal funding of MSAs for those individuals. According to specifications provided by your staff, the federal government initially would contribute $6,600 per year to the MSAs of qualifying beneficiaries.

The Roadmap specifies income thresholds to determine whether an elderly person would receive 100 percent of the voucher amount, 50 percent, or 30 percent. As Congressman Ryan’s staff specified for CBO’s analysis, people in the top 2 percent of the income distribution would receive 30 percent of the voucher amount, and people in the next top 6 percent would receive 50 percent of the voucher amount. The remaining 92 percent would receive the full voucher amount.

Page 2: "People who are age 65 or older in 2020 and other existing enrollees at that time would continue to be covered by the current program, although some higher-income enrollees would pay higher premiums, and some program payments would be reduced."

People who are age 65 or older in 2020 and other existing enrollees in 2020 would continue to be covered by the Medicare program, subject to a number of changes.[footnote omitted]

• The Roadmap would establish a fail-safe mechanism that would be activated if the Medicare trustees determined that the percentage of funding from general revenues exceeded 45 percent in the prior fiscal year. If activated, on July 1 or two months after the Medicare trustees’ report is released, whichever comes last, the mechanism would apply an automatic 1 percent reduction in payments for services provided in Medicare’s fee-for-service sector.[footnote omitted]

• The Roadmap would reduce the update factor for hospitals’ inpatient operating payments under Medicare by 1 percentage point.[footnote omitted]

• It would institute a premium for higher-income enrollees under Medicare’s drug benefit similar to that used in Part B.[footnote omitted]

• It would increase the fraction of beneficiaries who pay an income-related premium for Part B of Medicare (Supplementary Medical Insurance).[footnote omitted]

Page 2: "The age of eligibility for Medicare would increase incrementally from 65 (for people born before 1956), as it is under current law, to 69 years and 6 months for people born in 2022 and later."

Page 3: "In 2011, the current tax exclusion for employment-based health insurance would be replaced by a refundable tax credit for the purchase of health insurance, either through an employer or on an individual basis. The tax credit initially would be set at $2,300 per adult and $1,700 per child, not to exceed $5,700 per tax-filing unit."

Over the next 10 years, removing the existing tax exclusion and replacing it with the fixed tax credit for the purchase of health insurance, as specified in the Roadmap, would decrease the number of uninsured people relative to the number under current law. That decrease would occur because the move to a fixed refundable tax credit would have the effect of increasing the subsidy for health insurance to lower-income people, who are also most likely to be uninsured.

The tax credit would provide a subsidy for purchasing health insurance, but its value would not depend on the cost of the insurance purchased; the absence of that link would encourage consumers to reduce both the cost of the policies they bought and the extent of the coverage provided. Moreover, by extending a tax preference to individually purchased insurance, the Roadmap would affect the number of people with insurance coverage and would encourage some people to switch from employment-based to individually purchased coverage. The tax credit would also be targeted more toward lower-income people, who are more likely to be uninsured, and would have the same dollar value regardless of people’s income; by contrast, the tax preference for health insurance under current law provides a somewhat larger subsidy to higher-income workers.

[94] "A Roadmap for America's Future Version 2.0." By Paul D. Ryan. January 2010.

Allowing consumers to shop across State lines will balance State regulation of health insurance. Individuals no longer will have to pay for health benefits mandated by their home States that they do not need; they will be able to choose policies from States whose mandates better fit their personal circumstances. States will then have an incentive to balance their insurance mandates against costs to remain competitive with other States.

The amounts of the Medicare voucher, the subsidy for low-income Medicare beneficiaries, the federal funding for Medicaid, and the tax credit for the purchase of health insurance would all be indexed to grow at a rate halfway between the general inflation rate, as measured by the consumer price index for all urban consumers (CPI-U), and the rate of price inflation for medical care, as measured by the consumer price index for medical care (CPI-M). Using that blended rate, CBO estimates that those amounts would increase at an average annual rate of 2.7 percent for the next 75 years, in comparison with the average annual growth rate of nearly 5 percent that CBO expects for per capita national spending for health care under current law.

Because of the declining value of the credit relative to projected spending under the baseline, the proposal would probably affect the nature or comprehensiveness of health insurance plans that were purchased and the number of people purchasing insurance; it also could impose significant downward pressure on the rate of development and spread of new medical technologies and the growth of overall spending on health care.

Much less uncertainty about future federal spending on Medicare would exist under the Roadmap than exists today. Under the alternative fiscal scenario, Medicare spending per enrollee depends on the volume and complexity of services used and on the costs of those services, both of which are uncertain; under the Roadmap, per capita Medicare spending over the long term would depend only on the amount of each voucher, which would grow at a rate that is more predictable.

Both the level of expected federal spending on Medicare and the uncertainty surrounding that spending would decline, but enrollees’ spending for health care and the uncertainty surrounding that spending would increase. Under the Roadmap, the value of the voucher would be less than expected Medicare spending per enrollee in 2021, when the voucher program would begin. In addition, Medicare’s current payment rates for providers are lower than those paid by commercial insurers, and the program’s administrative costs are lower than those for individually purchased insurance. Beneficiaries would therefore face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare. Moreover, the value of the voucher would grow significantly more slowly than CBO expects that Medicare spending per enrollee would grow under current law. Beneficiaries would therefore be likely to purchase less comprehensive health plans or plans more heavily managed than traditional Medicare, resulting in some combination of less use of health care services and less use of technologically advanced treatments than under current law. Beneficiaries would also bear the financial risk for the cost of buying insurance policies or the cost of obtaining health care services beyond what would be covered by their insurance.

By 2035, the tax system [under the current law scenario] would be quite different from what it is today. Households at all points in the income scale would pay a higher share of their income in taxes than similar households pay today and a much larger share of households— nearly half—would be subject to the AMT [Alternative Minimum Tax].²

² The long-term revenue projections reflect the assumption that economic conditions are stable after 2020 and thus exclude the effects of rising taxes on people’s behavior.

The projections in this report understate the size of the budgetary shortfalls that would be likely to result from such fiscal policies [under the "current law" and "current policy" scenarios]. For the purposes of the projections, CBO assumed stable economic conditions after 2020— in particular, a constant real (inflation-adjusted) interest rate on federal debt and steady growth rates for real wages and output. That approach omits the pressures that a rise in debt as a percentage of GDP would have on real CBO interest rates and economic growth. It also omits the impact that higher effective marginal tax rates and the increasing value of government benefits would have on incentives to work and save.⁴

⁴ Effective marginal tax rates on labor or capital income represent the percentage of the last dollar of such income that is taken by federal taxes.

Page 139: "Table 7.1—Federal Debt at the End of Year: 1940–2016 … Total Debt held by the Public as a Percentage of GDP."

Figure 1-2: "Federal Debt Held by the Public Under CBO’s Long-Term Budget Scenarios."

Figure 1: "Debt Held by the Public under CBO's Alternative Fiscal Scenario and the Roadmap (Percentage of GDP)."

[100] Article: "Poll Shows Budget-Cuts Dilemma." By Neil King Jr. and Scott Greenberg. Wall Street Journal, March 3, 2011. http://online.wsj.com/article/...

In the Congressional Budget Office’s (CBO’s) long-term projections of spending, growth in noninterest spending as a share of gross domestic product (GDP) is attributable entirely to increases in spending on several large mandatory programs: Social Security, Medicare, Medicaid, and (to a lesser extent) insurance subsidies that will be provided through the exchanges established by the recently enacted health care legislation.¹ The health programs are the main drivers of that growth; they are responsible for 80 percent of the total projected rise in spending on those mandatory programs over the next 25 years.

¹ Under the new law, certain people with income up to 400 percent of the federal poverty level will be eligible for federal subsidies to reduce their cost of obtaining private health insurance coverage. Although the premium subsidies are structured as tax credits, most of the funds involved will be classified as outlays because their value will generally exceed what recipients’ income tax liability would otherwise be. CBO’s spending projections for major mandatory health care programs also include the Children’s Health Insurance Program, but spending on that program constitutes less than 0.1 percent of GDP.

[102] Article: "AP-CNBC Poll: Cut services to balance the budget." By Alan Fram and Jennifer Agiesta. Associated Press, November 30, 2010. http://apnews.myway.com

Eighty-five percent worry that growing red ink will harm future generations - the strongest expression of concern since AP polls began asking the question in 2008. Fifty-six percent think the shortfalls will spark a major economic crisis in the coming decade. …

Asked to choose between two paths lawmakers could follow to balance the budget, 59 percent in the AP-CNBC Poll preferred cutting unspecified government services while 30 percent picked unspecified tax increases.

[103] Article: "Experts Warn Debt May Threaten Economy." By Robert Tanner. Associated Press, Aug 27, 2005. http://ap.org/

The AP/Ipsos poll of 1,000 adults taken July 5-7 found that a sweeping majority - 70 percent - worried about the size of the federal deficit either "some" or "a lot."

But only 35 percent were willing to cut government spending and experience a drop in services to balance the budget. Even fewer - 18 percent - were willing to raise taxes to keep current services. Just 1 percent wanted to both raise taxes and cut spending. The poll has a margin of error of 3 percentage points.

"The 111th Congress saw a sharp rise in the number of bills to reduce federal spending, with 122 introduced in the House and 54 in the Senate. … Representatives authored 1,532 increase bills….Senators offered 948 bills that would increase budgetary outlays…."

In cases where a Member cosponsors the same spending in more than one bill (e.g., cosponsored more than one universal health care bill), the same spending is offset and thus is not counted twice toward the Member’s total. …

In estimating the cost of reauthorization and appropriation bills, NTUF [National Taxpayers Union Foundation] counts only the net increase or decrease in cost over the prior year’s authorization or appropriation. …

The estimates contained in the BillTally study are generally obtained from sources outside of NTUF. Where there is more than one estimate available for a given bill, NTUF uses the most credible source. Where NTUF obtains estimates from more than one equally credible source, NTUF uses the least optimistic (largest increase/smallest reduction) estimate. In cases where cost estimates are not readily available from any outside source, NTUF will attempt to calculate an estimate (with the assistance of the sponsor where possible). Generally, these estimates prove to be low compared to the actual cost of the program. …

Each bill used in the report contains spending estimates for budget years one through five, the source of those estimates, and an annualized cost.¹ NTUF cannot obtain a full five-year estimate for every bill. In some cases, only multi-year totals are available; while in others, NTUF can obtain only a first-year estimate. To compensate for this irregularity, NTUF annualizes the cost of each bill.

In general, where estimates for each of the next five fiscal years are available, or where only a five-year total estimate can be obtained, the annualized amount is the five-year average. Where only estimates for less than five fiscal years are available, the annualized amount is the average shown for those years. In certain cases where multi-year estimates are available, but where out-year spending estimates are lower than the first year estimate, the annualized amount reflects either the first year estimate, or an average of the years during which spending is projected to grow.² …

[Footnote 1: Since the estimates were generated over a two-year period, some five-year estimates began with FY 2009 while others began with FY 2010. To avoid confusion between these two sets of estimates this report shows estimates for years one through five. In some bills, the estimate for the first fiscal year reflects FY 2009 spending while in others it reflects FY 2010 spending. The effect of this change is to bias downward estimates beginning in FY 2009, since NTUF has made no attempt to adjust those estimates for inflation.]

[Footnote 2 For example, in the case of a five-year estimate where the estimated spending rises for three years but falls to zero by the fifth year, the annualized cost reflected an average of the first three years. …

The scope and nature of the BillTally cost survey make total precision impossible. To maximize accuracy and ensure fairness, NTUF provides Members of Congress with a significant review period to comment confidentially on the accuracy of their own reports. In response to these comments, NTUF makes appropriate changes to the BillTally database. To the extent that more up-to-date information comes to light, it will be reflected in subsequent reports. However, the comprehensive nature of the database makes it unlikely that errors with respect to individual bills will alter the general findings of this study.

If all the bills supported by the average House Republican were enacted into law, spending would have fallen by $78.1 billion, the net of $114.2 billion in savings and $36.2 billion in new outlays. House Democrats proposed $549.7 billion in new spending. … [T]his would be offset by $10.8 billion in savings, for a net spending agenda of $538.8 billion.

… Democrats in the Senate … advocated $3.4 billion in budget reductions and $199.0 billion in increases, for a net agenda of $195.6 billion.

The typical Senate Republican sought $76.4 billion in new outlays. … [T]his would be offset by $51.0 billion in cuts, for a net spending agenda of $25.4 billion. …

A Senator’s or Representative’s record of authored and sponsored bills can be viewed as his or her legislative "wish list," free from the pressure of party leaders that normally comes with the voting process. By tabulating the cost and/or savings of each Member’s agenda, taxpayers and constituents can gain a better understanding of the policy interests as well as the guiding budgetary philosophies of their elected representatives.

Table 2: "Average House Sponsorship of Legislation in the Past Ten Congresses (by Party, in Millions)."

Table 3: "Average Senate Sponsorship of Legislation in the Past Ten Congresses (by Party, in Millions)"

"President George W. Bush signed into law Thursday the first major piece of legislation of his presidency, a $1.35 trillion tax cut over 10 years."

[110] Report: "Monthly Statement of the Public Debt of the United States." U.S. Bureau of the Public Debt, June 30, 2001. ftp://ftp.publicdebt.treas.gov/opd/opds062001.pdf

[113] Calculated with data from the four footnotes above and Table 1.1.5: "Gross Domestic Product." United States Department of Commerce, Bureau of Economic Analysis. Last revised March 25, 2011. http://www.bea.gov/national/nipaweb/TableView.asp?...

Line 1: "Gross Domestic Product [billions $] … 2001Q3 [=] 10,305.2 … 2009Q1 [=] 14,049.7"

* NOTE: "The House and Senate passed H.R. 2419 over veto, enacting 14 of 15 farm bill titles into law. The trade title (title III) was inadvertently excluded from the enrolled bill. To remedy the situation, both chambers re-passed the farm bill conference agreement (including the trade title) as H.R. 6124, again over veto. H.R. 6124, in section 4, repealed Public Law 110-234 and amendments made by it, effective on the date of that Act's enactment." [Web page: "Bill Summary & Status, H.R.2419: Food, Conservation, and Energy Act of 2008." Library of Congress. Accessed March 14, 2011 at http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.2419:]

a) Cost Estimate: "H.R. 2419, Food, Conservation, and Energy Act of 2008." Congressional Budget Office, May 13, 2008. http://www.cbo.gov/ftpdocs/92xx/doc9230/hr2419conf.pdf "Relative to CBO’s March 2008 baseline projections, we estimate that enacting H.R. 2419 would increase direct spending by about $3.6 billion over the 2008-2018 period, assuming that the legislation would remain in effect throughout that period. JCT and CBO estimate that revenues would increase under the legislation by $0.7 billion over the same period. On balance, those changes would produce net costs (increases in deficits or reductions in surpluses) of about $2.9 billion over the 11-year period, relative to CBO’s most recent baseline projections."

"CBO estimates that enacting H.R. 6331 will increase direct spending by less than $50 million over the 2008-2013 period and by $0.3 billion over the 2008-2018 period. In addition, the Joint Committee on Taxation (JCT) estimates that the act will increase federal revenues by $0.2 billion over the 2008-2013 period and by $0.4 billion over the 2008-2018 period. In total, CBO estimates that the act will reduce deficits (or increase surpluses) by $0.1 billion over the 2008-2013 period and by less than $50 million over the 2008-2018 period."

"Assuming appropriation of the necessary amounts, including adjustments for increases in anticipated inflation, CBO estimates that implementing this conference agreement for H.R. 1495 would result in discretionary outlays of about $11.2 billion over the 2008-2012 period and an additional $12.0 billion over the 10 years after 2012. (Some construction costs and operations and maintenance would continue or commence after those first 15 years.)"

$2.9 billion (over 2008-2018 for H.R. 2419) + $0.1 billion (over 2008-2013 for H.R. 6331) + $11.2 billion (over 2008-2012 for H.R. 1495) + $12.0 billion (over 2013-2022) = 26.2 billion over 2008-2022

"The American Recovery and Reinvestment Act that I will sign today, a plan that meets the principles I laid out in January, is the most sweeping economic recovery package in our history."

[121] Calculated with data from the four footnotes above and Table 1.1.5: "Gross Domestic Product." United States Department of Commerce, Bureau of Economic Analysis. Last revised March 25, 2011. http://www.bea.gov/national/nipaweb/TableView.asp?...

Line 1: "Gross Domestic Product [billions $] … 2009Q1 [=] 14,049.7 … 2010Q3 [=] 14745.1 … 2010Q4 [=] 14,871.4"

* NOTE: GDP data from the first quarter of 2011 is not yet available. Thus, this figure is extrapolated based upon the GDP growth rate in the previous quarter as follows:

[123] Book: This Time is Different: Eight Centuries of Financial Folly. By Carmen M. Reinhart (University of Maryland) and Kenneth S. Rogoff (Harvard University). Princeton University Press, 2009.

xxvii: "Our aim here is to be expansive, systematic, and quantitative: our empirical analysis covers sixty-six countries over nearly eight centuries."

Page 1: "Some of those consequences would arise gradually: A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that "crowding out" of investment would lead to lower output and incomes than would otherwise occur."

Page xi: "Large budget deficits would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment—which in turn would lower income growth in the United States."

Page 14: "[S]ustained large deficits will reduce future national income and living standards."

Page 1: "Rising interest costs might also force reductions in spending on important government programs."

Page 1: "[I]f the payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce output."

[129] Book: This Time is Different: Eight Centuries of Financial Folly. By Carmen M. Reinhart (University of Maryland) and Kenneth S. Rogoff (Harvard University). Princeton University Press, 2009.

Page 175: "[I]nflation has long been the weapon of choice in sovereign defaults on domestic debt and, where possible, on international debt."

Page 77: "Inflation conditions often continue to worsen after an external default.¹²"

Page 398: "¹² Domestic defaults produce even worse inflation outcomes; see chapter 9."

Page 175: "[G]overnments engage in massive monetary expansion, in part because they can thereby gain a seigniorage tax on real money balances (by inflating down the value of citizen's currency and issuing more to meet demand). But they also want to reduce, or even wipe out, the real value of public debts outstanding."

Page 400: "Seigniorage is simply the real income a government can realize by exercising its monopoly on printing currency. The revenue can be broken down into the quantity of currency needed to meet the growing transactions demand at constant prices and the remaining growth, which causes inflation, thereby lowering the purchasing power of existing currency."

[A]s governments create money to finance their activities or pay creditors during fiscal crises, they raise inflation. Higher inflation has negative consequences for the economy, especially if inflation moves above the moderate rates seen in most developed countries in recent years.[footnote omitted] Higher inflation might appear to benefit the U.S. government financially because the value of the outstanding debt (which is mostly fixed in dollar terms) would be lowered relative to the size of the economy (which would increase when measured in dollar terms). [footnote omitted] However, higher inflation would also increase the size of future budget deficits.

Page 1: "Moreover, rising debt would increasingly restrict the ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises."

Page 7: "A sudden increase in interest rates would also reduce the market value of outstanding government bonds, inflicting losses on investors who hold them. That decline could precipitate a broader financial crisis by causing losses for mutual funds, pension funds, insurance companies, banks, and other holders of federal debt—losses that might be large enough to cause some financial institutions to fail."

Page xi: "Over time, higher debt would increase the probability of a fiscal crisis in which investors would lose confidence in the government’s ability to manage its budget, and the government would be forced to pay much more to borrow money."

Page 14: "The federal government could not issue ever-larger amounts of debt relative to the size of the economy indefinitely. If debt continued to rise rapidly relative to GDP, investors at some point would begin to doubt the government’s willingness to pay interest on that debt."

A rising level of government debt would have another significant negative consequence. Combined with an unfavorable long-term budget outlook, it would increase the probability of a fiscal crisis for the United States. In such a crisis, investors become unwilling to finance all of a government’s borrowing needs unless they are compensated with very high interest rates; as a result, the interest rates on government debt rise suddenly and sharply relative to rates of return on other assets. Unfortunately, there is no way to predict with any confidence whether and when such a crisis might occur in the United States; in particular, there is no identifiable tipping point of debt relative to GDP indicating that a crisis is likely or imminent. But all else being equal, the higher the debt, the greater the risk of such a crisis. …

The history of fiscal crises in other countries does not necessarily indicate the conditions under which investors might lose confidence in the U.S. government’s ability to manage its budget or the consequences for the nation of such a loss of confidence. On the one hand, the United States may be able to issue more debt (relative to output) than the governments of other countries can, without triggering a crisis, because the United States has often been viewed as a "safe haven" by investors around the world, and the U.S. government’s securities have often been viewed as being among the safest investments in the world. On the other hand, the United States may not be able to issue as much debt as the governments of other countries can because the private saving rate has been lower in the United States than in most developed countries, and a significant share of U.S. debt has been sold to foreign investors.

[135] Paper: "Growth in a Time of Debt." By Carmen M. Reinhart (University of Maryland) and Kenneth S. Rogoff (Harvard University). May 2010. American Economic Review, May 2010. Pages 573-578. http://www.nber.org/papers/w15639

"Table 1—Real GDP Growth as the Level of Government Debt Varies: Selected Advanced Economies, 1790–2009 (annual percent change)"

[136] Paper: "Growth in a Time of Debt." By Carmen M. Reinhart (University of Maryland) and Kenneth S. Rogoff (Harvard University). May 2010. American Economic Review, May 2010. Pages 573-578. http://www.nber.org/papers/w15639

Page 573: "Surprisingly, the relationship between public debt and growth is remarkably similar across emerging markets and advanced economies."

NOTE: Figures 2 (External Debt, Growth, and Inflation, Selected Advanced Economies, 1946–2009) and 3 (Figure 3. External Debt, Growth, and Inflation: Selected Emerging Markets, 1970-2009) show this similarity.

[137] Paper: "Growth in a Time of Debt." By Carmen M. Reinhart (University of Maryland) and Kenneth S. Rogoff (Harvard University). May 2010. American Economic Review, May 2010. Pages 573-578. http://www.nber.org/papers/w15639

Page 573: "In this paper 'public debt' refers to gross central government debt."

Page 577: "Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes."

NOTE: An Excel file containing the data and calculations is available upon request.

[139] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." United States Social Security Administration, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

Page 138: "The Federal Old-Age and Survivors Insurance (OASI) Trust Fund was established on January 1, 1940 as a separate account in the United States Treasury. The Federal Disability Insurance (DI) Trust Fund, another separate account in the United States Treasury, was established on August 1, 1956. All the financial operations of the OASI and DI programs are handled through these respective funds."

Summary: "[D]ebt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts."

"Additionally, the Government Trust Funds are required by law to invest accumulated surpluses in Treasury securities. The Treasury securities issued to the public and to the Government Trust Funds (intragovernmental holdings) then become part of the total debt."

[142] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." Board of Trustees of the Federal OASDI Trust Funds, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

Page 221: "Funds not withdrawn for current monthly or service benefits, the financial interchange, and administrative expenses are invested in interest-bearing Federal securities, as required by law; the interest earned is also deposited in the trust funds."

Because those trust funds and other government accounts are part of the federal government, transactions between them and the Treasury are intragovernmental; that is, the government securities in those funds are an asset to the individual programs but a liability to the rest of the government. The resources needed to redeem the government securities in the trust funds and other accounts in some future year must be generated from taxes, income from other government sources, or borrowing by the government in that year.

Page 57: "The … Federal social insurance and employee retirement programs … own 93 percent of the debt held by Government accounts…."

NOTE: As shown in this source, the Bureau of the Public Debt breaks down the "Total Public Debt Outstanding" into "Debt Held by the Public" and "Intragovernmental Holdings." Forthcoming facts define these terms.

Total debt of the federal government can increase in two ways. First, debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt.

"The Debt Held by the Public is all federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the United States Government less Federal Financing Bank securities. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities."

Page 2: "The figure shows federal debt "held by the public," which includes debt held by the Federal Reserve System but excludes debt held by other parts of the federal government, such as the Social Security trust fund."

Page 14: "A significant amount of federal debt is held by the Federal Reserve—the nation’s central bank and an independent entity within the government that is responsible for conducting monetary policy, among other activities."

Page 125: "The gross Federal debt is defined to consist of both the debt held by the public and the debt held by Government accounts. Nearly all the Federal debt has been issued by the Treasury and is sometimes called 'public debt,' but a small portion has been issued by other Government agencies and is called 'agency debt.' "

Page 2: "[G]overnment held debt is expected to grow due to the large projected increases in trust fund surpluses invested in special Treasury securities."

Intragovernmental Holdings are Government Account Series securities held by Government trust funds, revolving funds, and special funds; and Federal Financing Bank securities.

Page 56: "For the purposes of the Budget, 'debt held by the public' is defined as debt held by investors outside of the Federal Government, both domestic and foreign, including U.S. State and local governments and foreign governments. It also includes debt held by the Federal Reserve."

Page iv: "[T]he largest contributors to the Government’s net cost include … the interest paid on debt held by the public (i.e., publicly-held debt)."

[156] Report: "Monthly Statement of the Public Debt of the United States, December 31, 2010." United States Department of the Treasury, Bureau of the Public Debt.

[157] United States Code Title 31, Subtitle III, Chapter 31, Subchapter II, Section 3123: "Payment of obligations and interest on the public debt." Accessed April 7, 2011 at http://www.law.cornell.edu/uscode/html/uscode31/...

Section (a): "The faith of the United States Government is pledged to pay, in legal tender, principal and interest on the obligations of the Government issued under this chapter."

However, issuing debt to Government accounts does not have any of the credit market effects of borrowing from the public. It is an internal transaction of the Government, made between two accounts that are both within the Government itself. Issuing debt to a Government account is not a current transaction of the Government with the public; it is not financed by private saving and does not compete with the private sector for available funds in the credit market. While such issuance provides the account with assets—a binding claim against the Treasury—those assets are fully offset by the increased liability of the Treasury to pay the claims, which will ultimately be covered by taxation or borrowing. Similarly, the current interest earned by the Government account on its Treasury securities does not need to be financed by other resources. …

… For all these reasons, debt held by the public and debt net of financial assets are both better gauges of the effect of the budget on the credit markets than gross Federal debt.

Page 223: "Debt is the largest legally binding obligation of the Federal Government. At the end of 2008, the Government owed $5,803 billion of principal to the individuals and institutions who had loaned it the money to fund past deficits."

NOTE: As proof that the statement above excludes the debt owed to federal entities, consider that at the end of fiscal year 2008 (September 30, 2008), the gross national debt was $10,025 billion, which consisted of $5,809 billion of publicly held debt and $4,216 billion of government-held debt. ["The Debt to the Penny and Who Holds It." United States Department of the Treasury, Bureau of the Public Debt. Accessed April 4, 2011 at http://www.treasurydirect.gov/NP/BPDLogin?application=np]

Page 26: "Intra-governmental debt is not shown on the balance sheet because claims of one part of the Government against another are eliminated for consolidation purposes (see Financial Statement Note 11)."

[162] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." United States Social Security Administration, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

Page 141: "Another source of income to the trust funds is interest received on investments held by the trust funds. That portion of each trust fund that is not required to meet the current cost of benefits and administration is invested, on a daily basis, primarily in interest-bearing obligations of the U.S. Government (including special public-debt obligations described below)."

Page 2: "Total income was $807 billion ($689 billion in tax revenue and $118 billion in interest earnings), and assets held in special issue U.S. Treasury securities grew to $2.5 trillion."

[163] Table VI.F7: "Operations of the Combined OASI and DI Trust Funds, in Constant 2010 Dollars, Calendar Years 2010-85 [In billions]." United States Social Security Administration, Office of the Chief Actuary. Last reviewed or modified August 5, 2010. http://www.ssa.gov/OACT/TR/2010/lr6f7.html

- The "combined OASI and DI Trust Funds" comprise the "Social Security Trust Fund."

- Just Facts has conducted extensive research on Social Security, and all of the Social Security Administration's solvency projections include the monies owed to the program by the federal government.

[164] "Status of the Social Security and Medicare Programs: A Summary of the 2000 Annual Reports." Social Security and Medicare Boards of Trustees, April 2000. http://www.ssa.gov/history/pdf/tr00summary.pdf

Page 1: "Trust fund operations, in billions of dollars … HI [Hospital Insurance, a.k.a., Medicare Part A] … Assets (end of 1999) [=] 44.8"

NOTE: Just Fact searched this document from cover to cover three times while examining all usages of the word "debt." In all such instances, the debt owed to public entities is not mentioned, acknowledged, or included in any of the data. This document uses the phrases "publicly held debt" and "debt held by the public" a total of five times. On more than 150 other occasions, the document uses terms such as "debt," "federal debt," and "national debt," when in fact, it is actually referring only to the debt owed to non-federal entities in many of these cases.

Page 12: "But with Social Security projected to become insolvent in 2037* and Medicare in 2025,† they face looming challenges that are just around the corner."

* The Social Security program required the money owed to it by the federal government in order to remain solvent until the date given in the Gore-Liebermann proposal. In 2000, Social Security tax revenues were "expected to exceed expenditures until 2015," but the program was projected to remain solvent until 2037 by collecting on the principal and interest owed by the federal government to the Social Security trust fund. ["2000 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." Board of Trustees of the Federal OASDI Trust Funds, March 30, 2000. http://www.ssa.gov/oact/tr/TR00/tr00.pdf

Pages 3-4: "Under the intermediate assumptions, OASDI [Social Security] tax revenues are estimated to exceed expenditures until 2015 (1 year later than estimated in last year’s report). Total income (including interest earnings on the trust funds) will exceed expenditures through 2024. It is estimated that beginning in 2025, trust fund assets would have to be redeemed to cover the difference until the assets of the combined funds are exhausted in 2037, 3 years later than estimated in last year’s report."]

† The same applies here. The Medicare program required the money owed to it by the federal government in order to remain solvent until the date given in the Gore-Liebermann proposal. ["Status of the Social Security and Medicare Programs: A Summary of the 2000 Annual Reports." Social Security and Medicare Boards of Trustees, April 2000. http://www.ssa.gov/history/pdf/tr00summary.pdf

Page 8: "Key Dates For The Trust Funds … HI [i.e., Hospital Insurance or Medicare Part A] … First year outgo exceeds income including interest [=] 2017 … Year trust fund assets are exhausted [=] 2025"]

"The fiscal year of the Treasury begins on October 1 of each year and ends on September 30 of the following year."

$13,561,623,030,892 - $11,920,519,164,319 = $1,641,103,866,573 increase in national debt during fiscal year 2010

NOTE: Using a different methodology, the White House Office of Management and Budget arrives at a very similar figure of $1,653 billion. [Report: "Analytical Perspectives: Budget of the U.S. Government, Fiscal Year 2012." White House Office of Management and Budget. http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdf

Page 61: "In [fiscal year] 2010 the … gross Federal debt increased by $1,653 billion…."]

Page 40: "The Federal budget deficit on September 30, the end of fiscal year 2010, was $1.29 trillion, down about 8.5 percent from $1.41 trillion the year before."

"The $1.29 trillion is the official U.S. budget deficit for the 2010 fiscal year, which ended two weeks ago."

Page 135: "Unified budget includes receipts from all sources and outlays for all programs of the Federal Government, including both on- and off-budget programs."

Page 137: "The Federal Government has used the unified budget concept as the foundation for its budgetary analysis and presentation since the 1969 Budget…."

Page 64: "Debt held by Government accounts.—The amount of Federal debt issued to Government accounts depends largely on the surpluses of the trust funds, both on-budget and off-budget, which owned 92 percent of the total Federal debt held by Government accounts at the end of 2010. … The remainder of debt issued to Government accounts is owned by a number of special funds and revolving funds."

Page 73: "The trust fund surplus reduces the total budget deficit or increases the total budget surplus…."

Pages 68-69 contain a listing of all federal programs to which money is owed: "Debt Held by Government Accounts (in Millions of Dollars) … Investment or Disinvestment … 2010 Actual [=] 178,723"

NOTE: To understand how this all fits together, see the calculation shown two footnotes below.

To illustrate the budgetary and non-budgetary components of a credit program, consider a portfolio of new direct loans made to a cohort of college students. To encourage higher education, the Government offers loans at a lower cost than private lenders. Students agree to repay the loans according to the terms of their promissory notes. The loan terms may include lower interest rates or longer repayment periods than would be available from private lenders. Some of the students are likely to become delinquent or default on their loans, leading to Government losses to the extent the Government is unable to recover the full amount owed by the students. … In other words, the subsidy cost is the difference in present value between the amount disbursed by the Government and the estimated value of the loan assets the Government receives in return. Because the loan assets have value, the remainder of the transaction (beyond the amount recorded as a subsidy) is simply an exchange of financial assets of equal value and does not result in a cost to the Government.

Borrowing is not exactly equal to the deficit, and debt repayment is not exactly equal to the surplus, because of the other means of financing such as those discussed in this section. …

The budget treats borrowing and debt repayment as a means of financing, not as receipts and outlays. …

In 2010, the Government borrowed $1,474 billion from the public, bringing debt held by the public to $9,019 billion. This borrowing financed the $1,293 billion deficit in that year as well as the net effect of other means of financing, such as changes in cash balances and other accounts discussed below. …

The budget records the net cash flows of credit programs in credit financing accounts. These accounts include the transactions for direct loan and loan guarantee programs, as well as the equity purchase programs under TARP….

Page 63: "In 2010 the deficit was $1,293 billion while these other factors—primarily the net disbursements of credit financing accounts—increased the need to borrow by $181 billion."

NOTE: To understand how this all fits together, see the calculation shown in the next footnote.

[174] The following calculation reconciles the reported budget deficit for fiscal year 2010 and the increase in national debt during this period. All data are from the footnotes above.

$1,293 billion "deficit" + $181 billion "other means of financing" + $179 billion increase in "debt held by government accounts" = $1,653

This figure of $1,653 is exactly the same as that cited in the source for all of the data used in this calculation. [Report: "Analytical Perspectives: Budget of the U.S. Government, Fiscal Year 2012." White House Office of Management and Budget. http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/spec.pdf

Page 61: "In [fiscal year] 2010 the … gross Federal debt increased by $1,653 billion…."]

PolitiFact is a project of the St. Petersburg Times to help you find the truth in politics.

Every day, reporters and researchers from the Times examine statements by members of Congress, the president, cabinet secretaries, lobbyists, people who testify before Congress and anyone else who speaks up in Washington. We research their statements and then rate the accuracy on our Truth-O-Meter – True, Mostly True, Half True, Barely True and False. The most ridiculous falsehoods get our lowest rating, Pants on Fire.

At the end of the Clinton administration, there were several years of budget surpluses. …

When Bush took office, the national debt was $5.73 trillion. When he left, it was $10.7 trillion. …

[177] See the statement above. Also, per the source below, the national debt was $5.73 trillion on Bush's inauguration date of January 20th, 2001.

NOTE: In cases where data for the exact date is not available, the closest date is used (never more than four days away).

Year	National debt (in billions $) at start of fiscal year (October 1)
1993	4,406
1994	4,693
1995	4,988
1996	5,235
1997	5,421
1998	5,541
1999	5,653
2000	5,662
2001	5,806

NOTE: The facts contained in this footnote pertain to the differing accounting criteria that PolitiFact applied to Bush and Clinton. Facts regarding the actual figures and the propriety of linking the national debt solely to the president are presented further below.

Page 2: "The figure shows federal debt "held by the public," which includes debt held by the Federal Reserve System…."

"9/30/2010 … Debt Held by the Public [=] $9,022,808,423,453.08 … Intragovernmental Holdings [=] $4,538,814,607,438.71 … Total Public Debt Outstanding [=] $13,561,623,030,891.79"

c) Report: "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks." U.S. Federal Reserve, September 30, 2010. http://www.federalreserve.gov/releases/h41/20100930/

"Sep 29, 2010 … U.S. Treasury securities [=] 811,669 [millions $] … Federal agency debt securities [=] 154,105"

NOTE: An Excel file containing the data and calculations is available upon request.

[184] Article: "Experts Warn Debt May Threaten Economy." By Robert Tanner. Associated Press, Aug 27, 2005. http://ap.org/

"In a very real sense, the U.S. economy is dependent on the central banks of Japan, China and other nations to invest in U.S. Treasuries and keep American interest rates down. The low rates here keep American consumers buying imported goods."

All else equal, Chinese government purchases of U.S. assets increases the demand for U.S. assets, which reduces U.S. interest rates.

If China attempted to reduce its holdings of U.S. securities, they would be sold to other investors (foreign and domestic), who would presumably require higher interest rates than those prevailing today to be enticed to buy them. … All else equal, the reduction in Chinese Treasury holdings would cause the overall foreign demand for U.S. assets to fall, and this would cause the dollar to depreciate. … The magnitude of these effects would depend on how many U.S. securities China sold; modest reductions would have negligible effects on the economy given the vastness of U.S. financial markets.

A potentially serious short-term problem would emerge if China decided to suddenly reduce their liquid U.S. financial assets significantly. The effect could be compounded if this action triggered a more general financial reaction (or panic), in which all foreigners responded by reducing their holdings of U.S. assets. The initial effect could be a sudden and large depreciation in the value of the dollar, as the supply of dollars on the foreign exchange market increased, and a sudden and large increase in U.S. interest rates, as an important funding source for investment and the budget deficit was withdrawn from the financial markets. The dollar depreciation would not cause a recession since it would ultimately lead to a trade surplus (or smaller deficit), which expands aggregate demand.²⁸ (Empirical evidence suggests that the full effects of a change in the exchange rate on traded goods takes time, so the dollar may have to "overshoot" its eventual depreciation level in order to achieve a significant adjustment in trade flows in the short run.)²⁹ However, a sudden increase in interest rates could swamp the trade effects and cause a recession. Large increases in interest rates could cause problems for the U.S. economy, as these increases reduce the market value of debt securities, cause prices on the stock market to fall, undermine efficient financial intermediation, and jeopardize the solvency of various debtors and creditors. Resources may not be able to shift quickly enough from interest-sensitive sectors to export sectors to make this transition fluid. The Federal Reserve could mitigate the interest rate spike by reducing short-term interest rates, although this reduction would influence long-term rates only indirectly, and could worsen the dollar depreciation and increase inflation.

Some U.S. officials have expressed doubts that a Chinese sell-off of U.S. securities would cause liquidity problems or have much of an impact on the U.S. economy. In January 2007, Secretary of Treasury Henry Paulson was asked at a Senate Banking Committee hearing whether or not he was concerned over China’s large ownership of U.S. debt. Paulson stated that the daily volume of trade in Treasury securities was larger than China’s total Treasury securities holdings and concluded: "given the size of our debt outstanding and the way it trades and the diversity and so on, that’s not at the top of the list."

²⁸ A sharp decline in the value of the dollar would also reduce living standards, all else equal, because it would raise the price of imports to households. This effect, which is referred to as a decline in the terms of trade, would not be recorded directly in GDP, however.

²⁹ Since the decline in the dollar would raise import prices, this could temporarily increase inflationary pressures. The effect would likely be modest, however, since imports are small as a share of GDP and import prices would only gradually rise in response to the fall in the dollar.

"Table III - Detail of Treasury Securities Outstanding, March 31, 2011 … Government Account Series - Intragovernmental Holdings"

Page 70: "The Government account holdings of Federal securities are concentrated among a few funds: the Social Security Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds; the Medicare Hospital Insurance and Supplementary Medical Insurance trust funds; and four Federal employee retirement funds. These Federal employee retirement funds include the military retirement trust fund, the special fund for uniformed services Medicare-eligible retiree health care, the Civil Service Retirement and Disability Fund (CSRDF), and a separate special fund for Postal Service retiree health benefits."

NOTE: An Excel file containing the data and calculations is available upon request.

The estimated range provided above is lower than the estimated net change in budget authority (the authority for federal agencies to enter into obligations) for 2011 that would result from enactment of H.R. 1473 [i.e., "the $38 billion budget cut"], compared with earlier continuing resolutions. For example, Public Law 111-322, which funded the government’s operations through March 4, provided (on an annualized basis) budget authority of $1,087.5 billion for nonemergency appropriations for fiscal year 2011—an amount that is relatively close to the funding level for 2010.* In contrast, H.R. 1473 would provide net new budget authority of $1,049.8 billion, producing a difference of $37.7 billion. That difference reflects reductions in budget authority for BOTH regularly appropriated discretionary programs and some mandatory programs.

- To help sort through the intricacies of this matter, Just Facts queried the legislative director of a U.S. congressman to identify the proper baselines for these cuts (referenced in this footnote and the one below). Just Facts then double-checked these figures in various ways to ensure continuity.

* This figure is $1,089.7 billion, which equates to a cut of $39.9 billion relative to 2010.† [Document: "Subcommittee Allocations for FY 11 Continuing Resolution - 302(b)s." U.S. House of Representatives, Committee on Appropriations, February, 3, 2011. http://appropriations.house.gov/_files/...

"The following table outlines the spending limits and cuts announced by Chairman Rogers for each Appropriations Subcommittee for the CR [continuing resolution] … Regular [i.e., nonemergency] Discretionary only (Budget authority; in millions) … Total Fiscal Year 2010 Enacted [=] 1,089,671"

† CALCULATION: $1,089.7 billion (enacted budget authority during 2010) - $1,049.8 billion (budget authority under the 2011 budget cut) = $39.9 billion differential

Page 21: "Table 1.1— Summary of Receipts, Outlays, and Surpluses or Deficits, 1789–2016"

Page 211: "Table 10.1— Gross Domestic Product and Deflators used in the Historical Tables, 1940–2016"

b) Report: "An Analysis of the President’s Budgetary Proposals for Fiscal Year 2012." Congressional Budget Office. April 2011. http://cbo.gov/ftpdocs/121xx/doc12130/...

Page 2: "Table 1-1. Comparison of Projected Revenues, Outlays, and Deficits Under CBO’s March 2011 Baseline and CBO’s Estimate of the President’s Budget (Billions of dollars) … 2011 … Revenues [=] 2,230 … Outlays [=] 3,629 … Total Deficit = -1,399."

Page 4: "Table 1-2. CBO’s Estimate of the President’s Budget … Gross Domestic Product … 2011 [=] 15,034 [billions $]"

NOTE: An Excel file containing the data and calculations is available upon request.

NOTE: Credit for bringing this fact to our attention belongs to NewsBusters ["Fareed Zakaria: Bush Tax Cuts Are Largest Cause Of Budget Deficit." By Noel Sheppard. February 14, 2010. http://www.newsbusters.org/blogs/noel-sheppard/...].

[201] Just Facts conducted a search of all federal agencies for this data and found nothing. On April 11, 2011, Just Facts sent correspondence to the Congressional Budget Office, White House Office of Management and Budget, and Joint Committee on Taxation asking if they had "published research that quantifies the actual (not projected) revenue effects of EGTRRA and JGTRRA Economic Growth and Taxpayer Relief Act of 2001 during 2010." These acronyms collectively refer to the "Bush tax cuts" and stand for the "Economic Growth and Taxpayer Relief Act of 2001" and "Economic Growth and Taxpayer Relief Act of 2001." The Joint Committee on Taxation and White House Office of Management and Budget replied negatively. The Congressional Budget Office did not respond. Just Facts located several estimates by nonprofit organizations but found the methodologies questionable.

[202] Letter: "From Peter R. Orszag (CBO Director) to John M. Spratt, Jr. (House Budget Committee Chairman)." Congressional Budget Office, July 20, 2007. http://www.cbo.gov/doc.cfm?index=8337&type=0

JCT [the Joint Committee On Taxation] estimated the revenue effects of EGTRRA and JGTRRA at the time the acts were considered in 2001 and 2003, respectively. Taken together, those estimates imply a loss of revenues totaling $165 billion in 2007. As you requested, CBO has calculated the debt-service costs that would result in 2007 from the legislation under an assumption that they were financed in full by additional debt rather than offset elsewhere in the budget. On that basis, CBO estimates that the revenue loss in JCT's projections would lead to additional debt-service costs of $46 billion in 2007, for a total budgetary cost of $211 billion. On the same basis, the agency estimates the total budgetary costs, including interest, for 2008 through 2011 to be $233 billion, $245 billion, $269 billion, and $215 billion, respectively.

- Per the Bureau of Labor Statistics' "CPI Inflation Calculator," $269 billion in 2007 had the same buying power as $282.90 in 2010. [Accessed April 13, 2011 at http://www.bls.gov/data/inflation_calculator.htm]

- The projections in this letter are likely overestimates given the ensuing recession's widespread negative effects on tax revenues.

Page 120: "Table 12–1. Totals For the Budget and the Federal Government (In billions of dollars) … 2010 Actual … Outlays (Unified) [=] 3,456 … Deficit (Unified) [=] 1,293."

$282.90 billion reduced revenue from the Bush tax cuts / $1,293 reported budget deficit = 21.9%

$282.90 billion reduced revenue from the Bush tax cuts / $3,456 budget outlays = 8.2%

[204] Commentary: "The graph all budget discussions should start with." By Ezra Klein. Washington Post, April 11, 2011.

[207] Commentary: "The graph all budget discussions should start with." By Ezra Klein. Washington Post, April 11, 2011.

NOTE: The graph shows revenues and expenditures, but the vertical axis is unlabeled. Thus, one cannot see that the data represents percentages of GDP, while the text of the piece provides a misleading impression for the scale of the tax increases.