» This research contains detailed facts about the national debt. For basic facts, click here. For a video, click here.   » Click on the footnote numbers for meticulous documentation of each fact.   » Quick click to: • Introductory Notes • 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

• $56,649 for every person living in the U.S.[2]
• $147,304 for every household in the U.S.[3]
• 103% of the U.S. gross domestic product.[4]
• 540% of annual federal revenues.[5]
  

[6]

• $7.9 trillion ($7,932,000,000,000) in liabilities that are not accounted for in the national debt, such as federal employee retirement benefits, accounts payable, and environmental/disposal liabilities.[12]
• $25.4 trillion ($25,386,000,000,000) in obligations for current Social Security participants above and beyond projected revenues from their payroll and benefit taxes, certain transfers from the general fund of the U.S. Treasury, and assets of the Social Security trust fund.[13]
• $28.2 trillion ($28,200,000,000,000) in obligations for current Medicare participants above and beyond projected revenues from their payroll taxes, benefit taxes, premium payments, and assets of the Medicare trust fund.[14]

• $232,627 for every person living in the U.S.[24]
• $603,194 for every household in the U.S.[25]
• 422% of the U.S. gross domestic product.[26]
• 2,210% of annual federal revenues.[27]

• Social Security's 2014 annual report states that "significant uncertainty" surrounds the "best estimates" of future circumstances.[30]
• Medicare's 2014 annual report states that the program's financial projections "are highly uncertain, especially when looking out more than several decades."
• Medicare's 2014 annual report states that the program's long-term costs may be "substantially higher" than projected under current law. This is because current law includes the effects of the Affordable Care Act, which will cut Medicare prices for "many" healthcare services to "less than half of their level" under prior law. Per the report:

[34]

_______

[35]

[37]

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.[39]

• Unemployment will incrementally decline from 10.1% in 2010 to 5.0% in 2016 and remain at 5.0% thereafter.[43] [44] (For reference, the average of the previous 40 years is 6.2%.[45])

• 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.[46] (The average of the previous 40 years is 2.8%.[47])

• Federal revenues (i.e., taxes) will incrementally increase from 14.9% of GDP in 2010 to 19.3% in 2020 and remain constant thereafter.[48] [49] [50] (The average of the previous 40 years is 18.1%.[51])

• 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.[52] (The average of the previous 40 years is 11.5%.[53])

† 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, Affordable Care Act (a.k.a. Obamacare) subsidies, and CHIP (Children’s Health Insurance Program).[54]

• Payments for Medicare services will not undergo scheduled reductions that would cause "severe problems with beneficiary access to care."[55] [56]

[57]

• "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."[60]

• "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…."[61]

_______

• Paul Davidson, editor of the Journal of Post Keynesian Economics and author of The Keynes Solution: The Path to Global Economic Prosperity:[62]

• Douglas J. Amy, Professor of Politics at Mount Holyoke College:[64]

• Paul Krugman, Nobel Prize-winning economist and Princeton University Professor:[66]

• federal spending as a percent of GDP averaged 42% lower than the last year of the war;[68] and

• publicly held debt as a percent of GDP decreased by 72 percentage points.[69]

• 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;[70] and

• publicly held debt as a percent of GDP is projected to rise by 277 percentage points.[71]

1) "Current Law"[72]:

• 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.[73] [74] [75] At this point, federal revenues (i.e., taxes) will be 67% higher than the average of the previous 40 years (18.1%).[76]

• 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.[77] At this point, spending on such functions will be 41% lower than the average of the previous 40 years (11.5%).[78]

• Payments for Medicare services will undergo reductions that cause "severe problems with beneficiary access to care."[79] [80]

2) Republican Congressman Paul Ryan's "Roadmap for America’s Future"[81]:

• Federal revenues will increase from 14.9% of GDP in 2010 to 18.6% in 2020, 19% in 2030, and stay constant thereafter.[82] (The average of the previous 40 years is 18.1%.[83])

• 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.[84] [85] At this point, spending on such functions will be 67% lower than the average of the previous 40 years (11.5%).[86]

• 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.[87] Workers and beneficiaries who are age 56 or older in 2011 will experience no change in benefits.[88] Younger workers will have the option to invest a portion of their payroll taxes in personal accounts.[89] Lower-income workers will receive more money in standard benefits, and higher-income workers will receive less.[90] [91] After 2026, the full retirement age will be indexed to increases in life expectancy.[92]

• 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.[93] Lower-income beneficiaries will receive more money, and higher-income beneficiaries will receive less.[94] 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.[95] From 2021 to 2091, the eligibility age for Medicare benefits will incrementally rise from 65 to 69.5.[96]

• 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.[97] Both employers and individuals will be able to buy health insurance across state lines,[98] and awards for medical malpractice lawsuits will be curbed.[99]

• 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.[100] 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."[101]

• 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.[104]

• 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.[106]

• 70% of Americans were worried about the size of the federal deficit.

• 35% were willing to cut government spending.

• 18% were willing to raise taxes.

• 1% were willing to cut government spending and raise taxes.[107]

[110]

[111]

• reduced "future national income and living standards"[122] [123] [124];

• "reductions in spending" on "government programs"[125];

• "higher marginal tax rates"[126];

• "higher inflation" that increases "the size of future budget deficits" and decreases the "the purchasing power" of citizens' savings and income"[127] [128];

• restricted "ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises"[129];

• "losses for mutual funds, pension funds, insurance companies, banks, and other holders of federal debt"[130]; 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."[131] [132]

* In 2012, the Journal of Economic Perspectives published a paper by Carmen M. Reinhart (University of Maryland), Kenneth S. Rogoff (Harvard University), and Vincent R. Reinhart (chief U.S. economist at Morgan Stanley). Using 2000+ data points on national debt and economic growth in 20 advanced economies (such as the United States, France, and Japan) from 1800-2009, the authors found that countries with national debts above 90% of GDP averaged 34% less real annual economic growth than when their debts were below 90% of GDP.[133]

* The United States exceeded a debt/GDP level of 90% in the second quarter of 2010.[134]

* Per the textbook Microeconomics for Today:

* In 2013, the Political Economy Research Institute at the University of Massachusetts, Amherst, published a working paper by Thomas Herndon, Michael Ash, and Robert Pollin. Using data on national debt and economic growth in 20 advanced economies from 1946-2009, the authors found that countries with national debts over 90% of GDP averaged 31% less real annual economic growth than when their debts were 60-90% of GDP, 29% less growth than when their debts were 30-60% of GDP, and 48% less growth than countries when their debts were 0-30% of GDP.[136]

* The authors of the above-cited papers have engaged in a heated dispute about the results of their respective papers and the effects of government debt on economic growth. Facts about these issues can be found in the Just Facts Daily article, "Do large national debts harm economies?"

* Some federal programs (such as Social Security) have "trust funds" that are legally separated from the rest of the federal government.[137]

* 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.[138] [139] [140] [141] [142]

* The federal government divides the national debt into two main categories[143] [144]:

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.[145] Also, money owed to the Federal Reserve is classified under this category, even though the Federal Reserve is a federal entity.[146] [147]

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:

(a) Overall national debt: gross debt, federal debt, public debt[148]

(b) Portion of the national debt owed to federal entities: debt held by government accounts, government-held debt, intragovernmental holdings[149] [150] [151]

(c) Portion of the national debt owed to non-federal entities: debt held by the public, publicly held debt[152] [153]

* On December 31, 2010, the national debt consisted of:

[154]

* 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.[155]

* The White House Office,[156] [157] Congressional Budget Office,[158] and other federal agencies[159] 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.[160] [161] [162]

* 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.[163] The same plan includes the debt owed to federal entities in the assets of the Social Security and Medicare programs.[164]

* During the federal government's 2010 fiscal year (October 1, 2009 - September 30, 2010[165]), the national debt rose from $12.0 trillion to $13.6 trillion, thus increasing by $1.6 trillion.[166]

* The White House,[167] USA Today,[168] Reuters,[169] 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.[170]

• 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.[171] [172]

* PolitiFact, a Pulitzer Prize-winning project of the St. Petersburg Times to "help you find the truth in politics,"[173] 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.[174]

* 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:

[175] [176]

* As of March 31, 2011, the national debt consists of:

[177]

* Ownership of publicly held debt as of September 30, 2010:

* Data from the chart above:

[179]

* Per the White House Office of Management and Budget (2011):

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

* Data from the chart above:

[181]

* 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.[182] [183]

* 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";

• "a sudden and large depreciation in the value of the dollar";

• "a sudden and large increase in U.S. interest rates";

• a stock market fall; and/or

• "a recession."[184]

* The same report states:

* 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."[187]

* 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

* Ownership of intergovernmental debt as of March 31, 2011:

* Data from the chart above:

[190]

* 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[191]

• "Congress Sends Budget Cut Bill to Obama"; "cutting a record $38 billion from domestic spending" - Associated Press[192]

• "Budget Deal to Cut $38 Billion Averts Shutdown"; "Republicans were able to force significant spending concessions from Democrats…." – New York Times[193]

* 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."[194] 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:[195]

[196]

* 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:

[197]

* In February 2010, Fareed Zakaria of CNN stated:

* 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.[199] 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.[200] This equates to 22% of the reported budget deficit ($1,293 billion) or 8% of the budget ($3,456 billion).[201]

* 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.[203] 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.[204]

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

* Under this scenario:

• 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.[206] [207]

• 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.[208]

NOTE: Further details on the "current law" scenario are provided above.

* Without mentioning the role of Congress in taxes, spending, or the national debt,[209] [210] 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."[211]

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

[212]

* Other factors impacting the national debt include but are not limited to legislation passed by previous Congresses and Presidents,[213] economic cycles, terrorist attacks, natural disasters, demographics, and the actions of U.S. citizens and foreign governments.[214]

[1] Web page: "The Debt to the Penny and Who Holds It." United States Department of the Treasury, Bureau of the Public Debt. Accessed April 7, 2015 at http://www.treasurydirect.gov/NP/BPDLogin?application=np
 

As of 4/3/2015, the "Total Public Debt Outstanding" is $18,152,112,019,695.

[2] Dataset: "Monthly Population Estimates for the United States: April 1, 2010 to December 1, 2014." U.S. Census Bureau, Population Division, April 2014. http://www.census.gov/popest/data/index.html

"Resident Population … March 1, 2014 [=] 320,430,996"

CALCULATION: $18,152,112,019,695 debt / 320,430,996 people = $56,649 debt/person

[3] Dataset: "Average Number of People per Household, by Race and Hispanic Origin, Marital Status, Age, and Education of Householder: 2014." U.S. Census Bureau, January 2015. http://www.census.gov/hhes/families/data/cps2014.html

Total households = 123,229,000

CALCULATION: $18,152,112,019,695 debt / 123,229,000 households = $147,304 debt/household

[4] Dataset: "Table 1.1.5. Gross Domestic Product." U.S. Department of Commerce, Bureau of Economic Analysis. Last revised March 27, 2015. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

"[Billions of dollars] Seasonally adjusted at annual rates"

Line 1: "Gross Domestic Product … 2014Q4 [=] 17,703.7"

CALCULATION: $18,152,112,019,695 debt / $17,703,700,000,000 GDP = 103%

[5] Dataset: "Table 3.1. Federal Government Current Receipts and Expenditures." U.S. Department of Commerce, Bureau of Economic Analysis. Last revised March 27, 2015. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

"[Billions of dollars] Seasonally adjusted at annual rates"

Line 37: "Total receipts … 2014Q4 [=] 3,361.6"

CALCULATION: $18,152,112,019,695 debt / $3,361,600,000,000 receipts = 540%

[6] Calculated with data from:

a) Dataset: "Historical Debt Outstanding – Annual, 1790-1849." United States Department of the Treasury, Bureau of the Public Debt. Updated May 5, 2013. http://www.treasurydirect.gov/...

b) Dataset: "Historical Debt Outstanding – Annual, 1850-1899." United States Department of the Treasury, Bureau of the Public Debt. Updated May 5, 2013. http://www.treasurydirect.gov/...

c) Dataset: "Historical Debt Outstanding – Annual, 1900-1949." United States Department of the Treasury, Bureau of the Public Debt. Updated May 5, 2013. http://www.treasurydirect.gov/...

d) Dataset: "Historical Debt Outstanding – Annual, 1950-1999." United States Department of the Treasury, Bureau of the Public Debt. Updated May 5, 2013. http://www.treasurydirect.gov/...

e) Dataset: "Historical Debt Outstanding – Annual, 2000-2014." United States Department of the Treasury, Bureau of the Public Debt. November 10, 2014. http://www.treasurydirect.gov/...

f) Dataset: "Historical Data on the Federal Debt." Congressional Budget Office, August 5, 2010. http://www.cbo.gov/sites/default/files/historicaldebt2000.xls

g) Dataset: "Table 1.1.5. Gross Domestic Product [Billions of dollars]." U.S. Bureau of Economic Analysis. Last revised March 27, 2015. http://www.bea.gov/...

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

[7] 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

Page 2:

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.

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.

[11] "2008 Financial Report of the United States Government." U.S. Department of the Treasury, 2008. http://www.fms.treas.gov/fr/08frusg/08frusg.pdf

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'

[12] "Fiscal Year 2014 Financial Report of the United States Government." U.S. Department of the Treasury, February 26, 2015. http://www.fiscal.treasury.gov/...

Page 46:

United States Government Balance Sheets
 

Table VI.F2.—Present Values of OASDI [Social Security] Cost Less Non-interest Income and Unfunded Obligations for Program Participants, Based on Intermediate Assumptions [Present values as of January 1, 2014; dollar amounts in trillions] …

[P]resent value of future cost for current participants [=] 54.6 …

[P]resent value of future dedicated tax income for current participants [=] 26.4 …

[P]resent value of future general fund reimbursements over the infinite horizon^a ... <sup>c

a</sup> Distribution of general fund reimbursements among past, current, and future participants cannot be determined. ...

^c Less than $50 billion.
 

NOTES:
- The past participants wash out of the calculation below, because their benefits have already been paid.

- The general fund of the U.S. Treasury is "used to carry out the general purposes of Government rather than being restricted by law to a specific program…." ["Internal Revenue Manual." Internal Revenue Service. Accessed January 11, 2011 at http://www.irs.gov/irm/index.html. Part 1, Chapter 34, Section 1 (http://www.irs.gov/irm/part1/irm_01-034-001.html)]
- Prior to 2012, the Social Security Trustees Report provided an explicit "closed group unfunded obligation" for the Social Security program. Since this figure is not provided in later reports, Just Facts has calculated it using the methodology provided in the 2011 Report ["2011 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, May 13, 2011. http://www.ssa.gov/oact/tr/2011/tr2011.pdf. Page 66: "The present value of future cost reduced by future non-interest income over the next 100 years for all current participants¹ equals $21.4 trillion. Subtracting the current value of the trust fund gives a closed group unfunded obligation of $18.8 trillion, which represents the shortfall of lifetime contributions for all past and current participants relative to the cost of benefits for them. ... ¹ Individuals who attain age 15 or older in 2011."]
 

CALCULATION: $54.6 present value of future cost for current participants - $26.4 present value of future dedicated tax income for current participants - > $0.05 present value of future general fund reimbursements over the infinite horizon - $2.764 current value of the trust fund = $25.386 closed group unfunded obligation

_______

[14] NOTE: These bullet points provide important context for understanding the calculation that follows:

• Federal general revenues are "used to carry out the general purposes of Government rather than being restricted by law to a specific program…." ["Internal Revenue Manual." Internal Revenue Service. Accessed January 11, 2011 at http://www.irs.gov/irm/index.html. Part 1, Chapter 34, Section 1 (http://www.irs.gov/irm/part1/irm_01-034-001.html)]
• Medicare Part A (a.k.a. HI or Hospital Insurance) covers hospital inpatient services, skilled nursing facility care (not custodial care), and hospice care. This part of Medicare is funded by dedicated revenues (not general revenues), and the law does allow for the transfer of general revenues to cover projected shortfalls. ["2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare and Medicaid Services, May 31, 2013. https://www.cms.gov/.... Page 202: "There is no provision under current law to cover the shortfall [of Medicare Part A]. In particular, transfers from the general fund of the Treasury could not be made for the purpose of avoiding asset exhaustion without new legislation."]
• Medicare Parts B and D (a.k.a. SMI or Supplementary Medical Insurance) cover physician, hospital outpatient, prescription drug, and other healthcare services. The law specifies that these parts of Medicare are automatically funded with general revenues to cover any shortfalls between dedicated revenues and expenses. ["2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare and Medicaid Services, May 31, 2013. https://www.cms.gov/.... Page 44: "[B]oth the Part B and Part D accounts of the SMI trust fund will remain in financial balance for all future years because beneficiary premiums and general revenue transfers will be set at a level to meet expected costs each year."]
• "Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private 'Medicare Advantage' and certain other health insurance plans. Medicare Advantage and Program of All-Inclusive Care for the Elderly (PACE) plans receive prospective, capitated payments for such beneficiaries from the HI [Part A] and SMI Part B trust fund accounts; the other plans are paid on the basis of their costs." ["2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare and Medicaid Services, May 31, 2013. https://www.cms.gov/.... Page 1.]
• Medicare's "closed-group population … includes all persons currently participating in the program as either taxpayers or beneficiaries, or both." ["2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare and Medicaid Services, May 31, 2013. https://www.cms.gov/.... Page 251.]
• Previous Medicare participants wash out of the calculations below, because their taxes and benefits have already been paid.

Medicare's unfunded obligations are calculated with data from the "2014 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare and Medicaid Services, July 28, 2014. http://www.cms.gov/...

Page 11: "Table II.B1.—Medicare Data for Calendar Year 2013 … Assets at end of 2013 (billions) … Total [=] $280.5"

Page 233: "The first line of table V.G2 [which displays unfunded Part A obligations] shows the present value of future expenditures less future taxes for current participants, including both beneficiaries and covered workers [i.e., taxpayers]. Subtracting the current value of the HI trust fund (the accumulated value of past HI taxes less outlays) results in a closed-group unfunded obligation of $8.7 trillion."

Page 236: "Table V.G4.—Unfunded Part B Obligations for Current and Future Program Participants through the Infinite Horizon [Present values as of January 1, 2014; dollar amounts in trillions] … unfunded obligations for past and current participants … General revenue contributions [=] 14.6"

Page 238: "Table V.G6.—Unfunded Part D Obligations for Current and Future Program Participants through the Infinite Horizon [Present values as of January 1, 2014; dollar amounts in trillions] … unfunded obligations for past and current participants … General revenue contributions [=] 4.9"

CALCULATION: $8.7 trillion in unfunded obligations for Part A + $14.6 trillion in unfunded obligations for Part B + $4.9 trillion in unfunded obligations for Part D = $28.2 trillion in unfunded obligations for the Medicare program

[15] 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 was originally the source for all of the shortfall figures cited above. However, in 2009, the Financial Management Service of the U.S. Treasury, which produces the "Annual Financial Report of the United States Government," stopped providing individual values for the "closed group" shortfalls of the Social Security and Medicare programs. Since that time, the report has only shown a "closed group" total for all social insurance programs combined. For the 2009 and 2010 reports, Just Facts requested and received the components of this total from the U.S. Treasury. For the 2011 report, the U.S. Treasury refused to provide these figures despite repeated requests from Just Facts. Thus, Just Facts now calculates these figures using data from the Social Security and Medicare Trustees Reports.

[16] "2008 Financial Report of the United States Government." U.S. Department of the Treasury, 2008. http://www.fms.treas.gov/fr/08frusg/08frusg.pdf

Page 21 (in pdf):

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.

[17] 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

Page 5:

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.

Page 51 (in pdf):

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). …

² Present 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.

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."

[20] "2008 Financial Report of the United States Government." U.S. Department of the Treasury, 2008. http://www.fms.treas.gov/fr/08frusg/08frusg.pdf

NOTE: In addition to the "closed group" projections, the annual Financial Report of the United States Government 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."

Page 122:

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.

Page 137:

[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.

NOTES:

a) "Fiscal Year 2014 Financial Report of the United States Government." U.S. Department of the Treasury, February 26, 2015. http://www.fiscal.treasury.gov/...

Page 48: "United States Government Balance Sheets as of September 30, 2014 (In billions of dollars) … Federal debt securities held by the public and accrued interest [=] 12,833.6"

b) "Publicly held debt" differs from the "national debt" in that it excludes "intergovernmental debt," which is money that the federal government owes to various trust funds such as Social Security's. Just Facts uses the publicly held debt in this calculation because this is the convention of the Financial Report of the United States Government, which is the source for the federal assets and liabilities cited in the table above. 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." Hence, to account for the portion of the national debt that consists of monies owed to the Social Security and Medicare Trust Funds, the shortfalls for these programs in the table above do not include the trust fund balances.

c) See here

d) Calculated by adding Social Security's unfunded closed-group obligation of $25,386 billion to Social Security's trust fund assets of $2,764 billion (see here for documentation of this data). The sum of these figures equals $28,150 billion.

e) Calculated by adding Medicare's unfunded closed-group obligation of $28,200 billion to Medicare's trust fund assets of $280.5 billion (see here for documentation of this data). The sum of these figures equals $28,481 billion.

f) "Fiscal Year 2014 Financial Report of the United States Government." U.S. Department of the Treasury, February 26, 2015. http://www.fiscal.treasury.gov/.... Page 46: "United States Government Balance Sheets"

Page 133: "B.101 Balance Sheet of Households and Nonprofit Organizations … Billions of dollars; amounts outstanding end of period, not seasonally adjusted … [Line] 42 Net worth … 2014 Q3 [=] 81394.8"

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. Liabilities detailed in this table include items such as home mortgages and consumer credit. 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: $74,331 in federal debts, liabilities, and Social Security/Medicare obligations / $8,1394.8 net worth of households and nonprofit organizations = 91%

[23] 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."

[24] Dataset: "Monthly Population Estimates for the United States: April 1, 2010 to December 1, 2015." U.S. Census Bureau, Population Division, March 2015. http://www.census.gov/popest/data/index.html

"Resident Population … October 1, 2014 [=] 319,528,204"

CALCULATION: $74,331,000,000,000 / 319,528,204 people = $232,627/person

[25] Dataset: "Average Number of People per Household, by Race and Hispanic Origin, Marital Status, Age, and Education of Householder: 2014." U.S. Census Bureau, January 2015. http://www.census.gov/hhes/families/data/cps2014.html

"Total households (In Thousands) ... All [=] 123,229"

CALCULATION: $74,331,000,000,000 / 123,229,000 households = $603,194 / household

[26] Dataset: "Table 1.1.5. Gross Domestic Product." U.S. Bureau of Economic Analysis. Last revised March 27, 2015. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

"[Billions of dollars] Seasonally adjusted at annual rates … Gross Domestic Product … 2014Q3 [=] 17,599.8"
 

CALCULATION: $74,331,000,000,000 / $17,599,800,000,000 GDP = 422%

[27] Dataset: "Table 3.2. Federal Government Current Receipts and Expenditures." U.S. Department of Commerce, Bureau of Economic Analysis. Last revised March 27, 2015. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

"[Billions of dollars] Seasonally adjusted at annual rates … Total receipts … 2014Q3 [=] 3,362.9"

CALCULATION: $74,331,000,000,000 / $3,362,900,000,000 receipts = 2,210%

[28] "2008 Financial Report of the United States Government." U.S. Department of the Treasury, 2008. http://www.fms.treas.gov/fr/08frusg/08frusg.pdf

Page 28 (in pdf): "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."

[29] "2010 Financial Report of the United States Government." U.S. Department of the Treasury, December 21, 2010. http://www.fms.treas.gov/fr/10frusg/10frusg.pdf

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."

[30] "2014 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, July 28, 2014. http://www.ssa.gov/oact/tr/2014/tr2014.pdf

Page 8: "The intermediate assumptions reflect the Trustees' best estimates of future experience. Therefore, most of the figures in this overview present only the outcomes under the immediate assumptions. Any projection of the future is, of course, uncertain. For this reason, the Trustees also present results under low-cost and high-cost alternatives to provide a range of possible future experience."

Page 18: "Uncertainty of the Projections … Significant uncertainty surrounds the intermediate assumptions."

NOTE: For a detailed explanation of Social Security's finances, visit Just Facts' research on this issue at http://www.justfacts.com/socialsecurity.asp#financial

[31] "2014 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare and Medicaid Services, July 28, 2014. http://www.cms.gov/...
 

Pages 276-277:

STATEMENT OF ACTUARIAL OPINION …

In past reports, the Board of Trustees has emphasized the virtual certainty that actual Part B expenditures will exceed the projections under current law due to further legislative action to avoid substantial reductions in the Medicare physician fee schedule. Current law would require a physician fee reduction of almost 21 percent on April 1, 2015—an implausible expectation.

Since lawmakers have overridden these scheduled reductions each year since 2003, the Trustees have changed the basis of their projections of Part B expenditures from current law to a projected baseline, which includes an assumption that the physician payment updates will equal the increase averaged over the last 10 years. This change results in a far more reasonable expectation of Medicare expenditures than occurs under current law. The projected baseline estimates are summarized throughout the main body of this report, while current-law estimates are included in appendix C.

The Affordable Care Act is making important changes to the Medicare program that are designed, in part, to substantially improve its financial outlook. While the ACA has been successful in reducing many Medicare expenditures to date, there is a strong possibility 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 ability of health care providers to sustain these price reductions will be challenging, as the best available evidence indicates that most providers cannot improve their productivity to this degree for a prolonged period given the labor-intensive nature of these services.

Absent an unprecedented change in health care delivery systems and payment mechanisms, the prices paid by Medicare for health services will fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for many services would be less than half of their level without consideration of the productivity price reductions. Before such an outcome would occur, lawmakers would likely 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 lawmakers have done repeatedly in the case of physician payment rates, would lead to substantially higher costs for Medicare in the long range than those projected in this report.
 

NOTES:

- 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=...]

- Cuts in Medicaid prices under the Affordable Care Act affect "hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services." ["2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare and Medicaid Services, May 31, 2013. http://www.cms.gov/.... Page 273.]

- For a detailed explanation of Medicare's finances, visit Just Facts' research on this issue at http://www.justfacts.com/healthcare.asp#medicare_finances

[32] For explanation of the differences between "total" and "current" expenditures, see http://faq.bea.gov/cgi-bin/bea.cfg/php/enduser/... and http://www.bea.gov/scb/pdf/2008/03March/0308_primer.pdf

[33] Calculated with data from:

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?...

b) "Glossary." United States Department of Commerce, Bureau of Economic Analysis. Last modified August 8, 2008. http://www.bea.gov/glossary/glossary_a.htm

* 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."]

[34] Calculated with data from:

a) Table 3.2: "Federal Government Current Receipts and Expenditures." United States Department of Commerce, Bureau of Economic Analysis. Last revised November 25, 2014. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1
Line items 1 and 20: "Current receipts" and "Current expenditures"

b) Table 1.1.5: "Gross Domestic Product." United States Department of Commerce, Bureau of Economic Analysis. Last revised November 25, 2014. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

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

[35] Calculated with data from:

a) Table 3.2: "Federal Government Current Receipts and Expenditures." United States Department of Commerce, Bureau of Economic Analysis. Last revised October 26, 2012. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1
Line items 37 and 40: "Total receipts" and "Total expenditures."

b) Table 1.1.5: "Gross Domestic Product." United States Department of Commerce, Bureau of Economic Analysis. Last revised October 26, 2012. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1

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

[36] 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?...

[37] Calculated with data from:

a) Table 3.16: "Government Current Expenditures by Function." U.S. Department of Commerce, Bureau of Economic Analysis. Last revised September 17, 2014. http://www.bea.gov/iTable/iTable.cfm...

b) Report: "Fiscal Year 2015 Historical Tables: Budget Of The U.S. Government." White House Office of Management and Budget, February 26, 2014. http://www.whitehouse.gov/sites/default/files/omb/...
Pages 50-59: "Table 3.1—Outlays by Superfunction and Function: 1940–2018."
Line item: "Veterans Benefits and Services."

NOTES:

- 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 programs." Thus, Just Facts subtracted the total "Veterans benefits and services" from the "Social programs" 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."

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

[38] Constructed with data from:

a) Dataset: "The Distribution of Household Income and Federal Taxes, 2008 and 2009." Congressional Budget Office, July 10, 2012. http://www.cbo.gov/...

b) Report: "The Distribution of Household Income and Federal Taxes, 2008 and 2009." Congressional Budget Office, July 10, 2012. http://www.cbo.gov/...

Page 1: "This report shows average tax rates for various income categories for the four largest sources of federal revenue—individual income taxes, social insurance (or payroll) taxes, corporate income taxes, and excise taxes— and for the four taxes combined."†

† NOTE: This does not include federal estate and gift taxes, customs duties, and other miscellaneous receipts, which amount to about 5% of federal taxes. [Report: "Data on the Distribution of Federal Taxes and Household Income." Congressional Budget Office, April 2009. Blog: "Issues to Consider for Distributional Analysis." CBO Director's Blog, December 11th, 2007. "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."]

This latest CBO report on effective tax rates doesn't quantify the federal taxes not included in the analysis, but Just Facts has used data from another CBO report to calculate that it is 4.7%. [Report: "The Budget and Economic Outlook: Fiscal Years 2012 to 2022." Congressional Budget Office, January 31, 2012. http://www.cbo.gov/.... Page 134: "Table F-2. Revenues, by Major Source, Since 1972 (In Billions of Dollars) … 2009 … Estate and Gift Taxes [=] 23.5 … Customs Duties [=] 22.5 Miscellaneous Receipts [=] 52.1 … Total [=] 2,105.0"
CALCULATION: (23.5 + 22.5 + 52.1) / 2,105.0 = 4.7%]

Page 9: "This report includes only federal taxes. CBO did not include state and local taxes in this analysis because of the difficulty of estimating them for individual households."

Page 2 (in pdf): "Before-tax income is the sum of market income and government transfers. Market income is composed of labor income, business income, capital gains, capital income (excluding capital gains), income received in retirement for past services, and other sources of income."

Page 24:

Government transfers consist of cash payments from Social Security, unemployment insurance, Supplemental Security Income, Temporary Assistance for Needy Families (and its predecessor, Aid to Families with Dependent Children), veterans' programs, workers' compensation, and state and local government assistance programs. They also include the value of in-kind benefits, such as Supplemental Nutrition Assistance Program vouchers (formerly known as food stamps), school lunches and breakfasts, housing assistance, energy assistance, and benefits provided by Medicare, Medicaid, and the Children’s Health Insurance Program.

In its analysis, CBO assumed that households bear the economic cost of the taxes they pay directly, such as individual income taxes and the employee's share of payroll taxes. CBO further assumed—as do most economists— that employers pass on their share of payroll taxes to employees by paying lower wages than they would otherwise pay. Therefore, CBO included the employer's share of payroll taxes in households’ before-tax income and in households’ taxes.

CBO also assumed that the economic cost of excise taxes falls on households according to their consumption of taxed goods (such as tobacco and alcohol). Excise taxes on intermediate goods, which are paid by businesses, were attributed to households in proportion to their overall consumption.

This report makes two significant changes to the methodology that CBO previously used in estimating average federal tax rates. The agency has changed:

• Its allocation of the incidence of the federal corporate income tax, and

• Its method for valuing government-provided health insurance.

Those changes alter CBO’s estimates somewhat: The change in the assumed incidence of the corporate income tax makes the federal tax system appear a bit less progressive, and the change in valuing government-provided health insurance increases the measured level and growth of income for many households with low income. However, those methodological changes do not alter this report’s basic findings about the distribution of income and federal taxes. …

Pages 16-17: "In previous reports, CBO allocated the entire economic burden of the corporate income tax to owners of capital in proportion to their capital income. CBO has reevaluated the research on that topic, and in this report it allocates 75 percent of the federal corporate income tax to capital income and 25 percent to labor income."

Health insurance provided though Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) represents a significant and growing portion of government transfers. CBO assigned a higher value to that insurance for the estimates in this report than in previous analyses of the distribution of household income and federal taxes.
 

Receiving health insurance enhances the economic wellbeing of recipients, enabling them to obtain health care services at a reduced out-of-pocket cost and thereby to consume more health care without giving up other forms of consumption. Accordingly, CBO includes estimated values of health insurance—whether provided by an employer or the government—in its analyses of household income.

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

Article I, Section 7:

[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.

• 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.

Table 2: Forces Shaping the United States and Its Place in the World

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."

[43] Report: "The Long-Term Budget Outlook." Congressional Budget Office, June 2010 (Revised August 2010). http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

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

[44] Dataset: "Supplemental Data for the Congressional Budget Office's Long-Term Budget Outlook (June 2010)." http://www.cbo.gov/ftpdocs/115xx/doc11579/LTBO-2010data.xls

Subset: "Economic Variables Underlying the Long-Term Budget Projections."

[45] 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.

[46] Calculated with "Supplemental Data for the Congressional Budget Office's Long-Term Budget Outlook (June 2010)." http://www.cbo.gov/ftpdocs/115xx/doc11579/LTBO-2010data.xls

Subset: "Economic Variables Underlying the Long-Term Budget Projections."

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

[47] 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.

[48] "Supplemental Data for the Congressional Budget Office's Long-Term Budget Outlook (June 2010)." http://www.cbo.gov/ftpdocs/115xx/doc11579/LTBO-2010data.xls

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

[49] Report: "The Long-Term Budget Outlook." Congressional Budget Office, June 2010 (Revised August 2010). http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

Pages 53-54:
 

[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.

Page 60:
 

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."

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.

STATEMENT OF ACTUARIAL OPINION …

… 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).

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.

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.

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.]

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.

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.

STATEMENT OF ACTUARIAL OPINION …

… 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).

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"

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"

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.

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.

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.

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).

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.

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]

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.

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.

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.

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.

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.

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. …

Sources of Cost Estimates

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. …

Annualized Estimates

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. …

Accuracy

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.

H.R.2419: Food, Conservation, and Energy Act of 2008*

H.R.6124: Food, Conservation, and Energy Act of 2008*

H.R.6331: Medicare Improvement for Patients and Providers Act of 2008

H.R.1495: Water Resources Development Act of 2007

[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.

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.

Consistent with a small but growing body of research, we find that the vast majority of high debt episodes—23 of the 26— coincide with substantially slower growth. On average across individual countries, debt/GDP levels above 90 percent are associated with an average annual growth rate 1.2 percent lower than in periods with debt below 90 percent debt; the average annual levels are 2.3 percent during the periods of exceptionally high debt versus 3.5 percent otherwise.

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.

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.

Ownership of Federal Debt Held by the Public …

What are Intragovernmental Holdings?

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

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.

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.

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….

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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. …

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.

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.

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.

[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…."

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. …

… the debt increased greatly under Bush.

• 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.

Table 2: Forces Shaping the United States and Its Place in the World

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.

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