National Debt Basics

In keeping with Just Facts' Standards of Credibility, all graphs show the full range of available data, and all facts are cited based upon availability and relevance, not to slant results by singling out specific years that are different from others.

In keeping with the practice of the Congressional Budget Office and other federal agencies that attend to budget policy, many of the federal debt, spending and revenue figures in this research are expressed as a percentage of gross domestic product (GDP). This is because debates about the size of government and the effects of its debt are frequently centered upon how much of a nation's economy is consumed by government. This measure also accounts for population growth, some of the effects of inflation, and the relative capacity of government to service the debt.

* As of June 3, 2013, the official debt of the United States government is $16.7 trillion.[1] This amounts to $53,009 for every person living in the U.S.[2] or $138,241 per household.[3]

* Publicly traded companies are legally required to account for "explicit" and "implicit" future obligations such as employee pensions and retirement benefits.[4] [5] [6] The federal budget is not bound by this rule.[7] [8]

* Using accounting principles that approximate how publicly traded companies are required to calculate their obligations,[9] at the close of its 2012 fiscal year, the federal government had about $67.7 trillion in debts, liabilities, and unfinanced obligations for current Social Security and Medicare participants.[10]

* This $67.7 trillion shortfall is more than the combined net worth of all U.S. households and nonprofit organizations, including all assets in savings, real estate, corporate stocks, private businesses, and consumer durable goods such as automobiles.[11] [12]

* This shortfall equates to $215,311 for every person living in the U.S.[13] or $559,331 per household.[14]

* These figures depend upon "a wide range of complex assumptions" made by federal agencies.[15]

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

‡ National defense includes military spending and veterans' benefits.

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

# Economic affairs includes transportation, general economic & labor affairs, agriculture, natural resources, energy, and space.

£ Public order and safety includes police, fire, law courts, and prisons.[17]

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

• passed by majorities in both houses of Congress and approved by the President, or

• passed by two-thirds of both houses of Congress if the President vetoes the bill.[19]

* Other factors impacting the national debt include but are not limited to legislation passed by previous Congresses and Presidents,[20] economic cycles, terrorist attacks, natural disasters, demographics, and the actions of U.S. citizens and foreign governments.[21]

* In 2010, the Congressional Budget Office (CBO) projected the debt that the U.S. government would accumulate under "current policy" with a sustained economic recovery.[22] Combining these projections with historical data yields the following results:

† To measure the entirety of the national debt, it would be preferable to chart "gross" instead of "publicly held" debt, but this data is not presented in this report. Nonetheless, it would make little difference because the excluded debt primarily resides in federal government trust funds that dwindle and become insolvent during the projection period.[24] 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."[25]

• "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."[26]

• "indicate that postponing action would substantially increase the size of the policy adjustments needed to put the budget on a sustainable course."[27]

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

• Federal taxes (as a percent of GDP) will rise by 2020 to be higher "than ever recorded in the nation's history" and then progressively increase through 2084 to be 67% higher than the average of the past 40 years (1970-2009).[29] [30] [31] [32]

• Medicare will undergo "unsustainable reductions in physician payment rates" and price cuts for other healthcare services that cause "severe problems with beneficiary access to care."[33] [34]

• Federal taxes (as a percent of GDP) will progressively increase by 2030 to be 5% higher than the average of the past 40 years and then remain constant thereafter.[36] [37]

• Social Security spending will be higher than projected under current law until 2063 and lower thereafter.[38] Workers and beneficiaries who are age 56 or older in 2011 will experience no change in benefits.[39] Younger workers will have the option to invest a portion of their payroll taxes in personal accounts.[40] Lower-income workers will receive more money in standard benefits, and higher-income workers will receive less.[41] [42] After 2026, the full retirement age will be indexed to increases in life expectancy.[43]

• 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.[44] Lower-income beneficiaries will receive more money, and higher-income beneficiaries will receive less.[45] Medicare beneficiaries who are age 65 or older in 2020 will stay in the current Medicare system.[46] From 2021 to 2091, the eligibility age for Medicare benefits will progressively rise from 65 to 69.5.[47]

• Healthcare vouchers, subsidies, and tax credits will grow at a rate halfway between the general rate of inflation and the rate of medical inflation (which is typically higher).[48] 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."[49]

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

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

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

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

• when asked to choose between two options to balance the budget, 59% prefer to cut unspecified government services, while 30% prefer to raise unspecified taxes.[51]

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

• 22% of Americans 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.[52]

* Other than interest on the national debt, all of the long-term growth in federal spending (as a percent of GDP) under the CBO's "current policy" and "current law" scenarios stems from Social Security, Medicare, Medicaid, and "to a lesser extent" Affordable Care Act (a.k.a. Obamacare) subsidies.[53]

* During the 111th Congress (2009-2010), U.S. Representatives and Senators introduced 176 bills that would have reduced spending and 2,480 bills that would have raised spending.[54]

* The table below shows the effect on spending of these bills by political party. This data is provided by the National Taxpayers Union Foundation and represents the annual net effects of these bills (omitting inflation).[55]

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

Many of you have talked about the need to pay down our national debt. I listened, and I agree. We owe it to our children and grandchildren to act now, and I hope you will join me to pay down $2 trillion in debt during the next 10 years. At the end of those 10 years, we will have paid down all the debt that is available to retire. That is more debt, repaid more quickly than has ever been repaid by any nation at any time in history.[57]

* From the time that Congress enacted Bush's first major economic proposal (June 2001[58]) until the time that he left office (January 2009), the national debt rose from 55% of GDP to 76%, or an average of 2.8 percentage points per year.[59]

* During eight years in office, President Bush vetoed 12 bills, four of which were overridden by Congress and thus enacted without his approval.[63] These bills were projected by the Congressional Budget Office to increase the deficit by $26 billion during 2008-2022.[64]

* From the time that Congress enacted Obama's first major economic proposal (February 2009[66]) until September 27, 2012, the national debt rose from 77% of GDP to 102%, or an average of 7.0 percentage points per year.[67]

* As of October 29, 2012, President Obama has vetoed two bills, none of which have been overridden by Congress and thus enacted without his approval.[71]

* As detailed in publications of the Congressional Budget Office, a Brooking Institution paper authored by Alan J. Auerbach (University of California, Berkeley) & William G. Gale (Brookings Institution), and a Princeton University Press book authored by Carmen M. Reinhart (University of Maryland) & Kenneth S. Rogoff (Harvard University),[72] the following are some potential consequences of unchecked government debt:

• "higher inflation" that increases "the size of future budget deficits" and decreases the "the purchasing power" of citizens' savings and income"[78] [79];

• restricted "ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises"[80];

• "losses for mutual funds, pension funds, insurance companies, banks, and other holders of federal debt"[81]; 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."[82] [83]

* Some federal programs (such as Social Security) have "trust funds" that are legally separated from the rest of the federal government.[84]

* 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.[85] [86] [87] [88] [89]

* The federal government divides the national debt into two main categories[90] [91]:

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.[92] Also, money owed to the Federal Reserve is classified under this category, even though the Federal Reserve is a federal entity.[93] [94]

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

(b) Portion of the national debt owed to federal entities: debt held by government accounts, government-held debt, intragovernmental holdings[96] [97] [98]

* 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.[102]

* The White House Office,[103] [104] Congressional Budget Office,[105] and other federal agencies[106] 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.[107] [108] [109]

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

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

• "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[114]

• "Congress Sends Budget Cut Bill to Obama"; "cutting a record $38 billion from domestic spending" - Associated Press[115]

• "Budget Deal to Cut $38 Billion Averts Shutdown"; "Republicans were able to force significant spending concessions from Democrats…." – New York Times[116]

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

* As of April 11, 2011, the federal government has not published a hindsight estimate of the Bush tax cuts with figures for 2010.[119] 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.[120] This equates to 22% of the reported budget deficit or 8% of the budget.[121]

* Without mentioning the role of Congress in taxes, spending, or the national debt,[122] [123] PolitiFact, a Pulitzer Prize-winning project of the St. Petersburg Times to "help you find the truth in politics," 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."[124]

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

Political Power	Dates	Average Annual Change in National Debt (Percentage Points of GDP)
Bill Clinton with Democratic House and Senate	1/20/93 - 1/4/95	0.9
Bill Clinton with Republican House and Senate	1/4/95 - 1/19/01	-1.5
George W. Bush with Republican House and Senate	1/19/01 - 6/6/01, 11/12/02 - 1/4/07	0.8
George W. Bush with Republican House and Democratic Senate	6/6/01 - 11/12/02	2.2
George W. Bush with Democratic House and Senate	1/4/07 - 1/20/09	6.5
Barack Obama with Democratic House and Senate	1/20/09 - 1/4/11	9.3

* Other factors impacting the national debt include but are not limited to legislation passed by previous Congresses and Presidents,[126] economic cycles, terrorist attacks, natural disasters, demographics, and the actions of U.S. citizens and foreign governments.[127]

CALCULATION: $16,738,788,832,145 debt / 315,773,955 people = $53,009 debt/person

[3] Dataset: "Average Number of People per Household, by Race and Hispanic Origin, Marital Status, Age, and Education of Householder: 2012." U.S. Census Bureau, November 2012. http://www.census.gov/hhes/families/data/cps2012.html

Total households = 121,084,000

CALCULATION: $16,738,788,832,145 debt / 121,084,000 households = $138,241 debt/household

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

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

[5] Summary of Statement No. 106: "Employers' Accounting for Postretirement Benefits Other Than Pensions." Financial Accounting Standards Board, December 1990. http://www.fasb.org/st/summary/stsum106.shtml

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.

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

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

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

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'

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

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

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

Federal Debt, Liabilities, Obligations, and Assets at Close of the 2012 Fiscal Year
Category	(Billions $)
Publicly Held Debt^{a b}	11,332
Liabilities^c	7,517
Social Security Future Expenditures in Excess of Future Dedicated Revenues^{d b}	24,300
Medicare Future Expenditures in Excess of Future Dedicated Revenues^{e b}	27,325
Assets^f	-2,748
Total	67,726

a) "Fiscal Year 2011 Financial Report of the United States Government." U.S. Department of the Treasury, December 23, 2011. http://www.gao.gov/financial/fy2011/11frusg.pdf. Page 45: "United States Government Balance Sheets as of September 30, 2011 (In billions of dollars) … Federal debt securities held by the public and accrued interest [=] 10,174.1"

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 with data from the "2012 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, April 25, 2012. http://www.ssa.gov/oact/tr/2012/tr2012.pdf. Page 67: "Table IV.B7.—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, 2012; dollar amounts in trillions] … [P]resent value of future cost for current participants [=] 47.9 … [P]resent value of future dedicated tax income for current participants [=] 23.5 … [P]resent value of future general fund reimbursements over the infinite horizon [=] 0.1
CALCULATION: $47.9 present value of future cost for current participants - $23.5 present value of future dedicated tax income for current participants - $0.1 present value of future general fund reimbursements over the infinite horizon = $24.3 present value of future cost in excess of future non-interest income for all current participants

e) Calculated by adding the closed group Medicare shortfall of $27.0 trillion (see here) to the Medicare program's trust fund assets. Page 10: "Table II.B1.—Medicare Data for Calendar Year 2011 … Assets at end of 2011 … Total [=] $324.9." ["2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, April 23, 2012. https://www.cms.gov/...] The sum of these figures equals $27,325 billion.

f) "Fiscal Year 2012 Financial Report of the United States Government." U.S. Department of the Treasury, January, 17, 2013. http://fms.treas.gov/fr/12frusg/12frusg.pdf. Page 45: "United States Government Balance Sheets as of September 30, 2012 (In billions of dollars)"

[11] Calculation performed with data from the footnote above and the report: "Flow of Funds Accounts of the United States, Flows and Outstandings, Third Quarter 2012." Board of Governors of the Federal Reserve System, December 6, 2012. http://www.federalreserve.gov/releases/z1/current/z1.pdf

Page 113: "Table B.100 Balance Sheet of Households and Nonprofit Organizations … Billions of dollars; amounts outstanding end of period, not seasonally adjusted … [Line] 42 Net worth … 2012 Q3 [=] 64,768.8"

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: $67,726 in federal debts, liabilities, and Social Security/Medicare obligations / $64,768.8 net worth of households and nonprofit organizations = 105%

[12] 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."

[13] Dataset: "Monthly Population Estimates for the United States: April 1, 2010 to November 1, 2012." U.S. Census Bureau, Population Division, April 2013. http://www.census.gov/popest/data/national/totals/2012/index.html

"Resident Population … October 1, 2012 [=] 314,549,418"

CALCULATION: $67,726,000,000,000 / 314,549,418 people = $215,311/person

[14] Dataset: "Average Number of People per Household, by Race and Hispanic Origin, Marital Status, Age, and Education of Householder: 2012." U.S. Census Bureau, November 2012. http://www.census.gov/hhes/families/data/cps2012.html

Total households = 121,084,000

CALCULATION: $67,726,000,000,000 / 121,084,000 households = $559,331/household

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."

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 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 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.

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

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

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

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 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:

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.

Page 20: "CBO's new treatment of government-provided health insurance is consistent with CBO's long-standing treatment of employers' contributions to health insurance, for which the full cost is included in before-tax income."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

[34] "2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." Centers for Medicare & Medicaid Services, August 5, 2010. https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"Total Public Debt Outstanding … 06/07/2001 [=] 5,672,373,164,658 … 01/20/2009 [=] 10,626,877,048,913"

"Gross Domestic Product (billions $) … 2001Q3 [=] 10,305.2 … 2009 Q1 [=] 13,923.4"

"From and including: Thursday, June 7, 2001 … To, but not including : Tuesday, January 20, 2009 … It is 2784 days from the start date to the end date, but not including the end date"

$5,672,373,164,658 debt on June 7, 2001 / $10,305,200,000,000 GDP in 2001Q3 = 55.0%

$10,626,877,048,913 debt on January 30, 2009 / $13,923,400,000,000 GDP in 2009Q1 = 76.3%

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

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

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

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

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

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

"Total Public Debt Outstanding … 01/20/2009 [=] 10,626,877,048,913 … 09/27/2012 [=] 16,015,131,024,563"

"Gross Domestic Product (billions $) … 2009 Q1 [=] 13,923.4 … 2012Q1 [=] 15,478.3 … 2012Q2 [=] 15,585.6

NOTE: GDP data from the third quarter of 2012 was not yet available. Thus, this figure was linearly extrapolated to be 15,693.6 based upon GDP growth between the previous two quarters as follows: p + [p * ([p-s] / s)] = estimated GDP in the third quarter of 2012, where: p = GDP in the previous quarter, and s = GDP in the second previous quarter.

"From and including: Tuesday, January 20, 2009 … To, but not including : Thursday, September 27, 2012 … It is 1346 days from the start date to the end date, but not including the end date"

$10,626,877,048,913 debt on January 30, 2009 / $13,923,400,000,000 GDP in 2009Q1 = 76.3%

$16,015,131,024,563 debt on September 27, 2012 / $15,693,600,000,000 GDP in 2012Q3 = 102.0%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[84] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." United States Social Security Administration, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

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

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

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

[87] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." Board of Trustees of the Federal OASDI Trust Funds, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[107] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." United States Social Security Administration, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE: Credit for bringing this fact to our attention belongs to NewsBusters ["Fareed Zakaria: Bush Tax Cuts Are Largest Cause Of Budget Deficit." By Noel Sheppard. February 14, 2010. http://www.newsbusters.org/blogs/noel-sheppard/2010/02/...].

[119] Just Facts conducted a search of all federal agencies for this data and found nothing. On April 11, 2011, Just Facts sent correspondence to the Congressional Budget Office, White House Office of Management and Budget, and Joint Committee on Taxation asking if they had "published research that quantifies the actual (not projected) revenue effects of EGTRRA and JGTRRA during 2010." These acronyms collectively refer to the "Bush tax cuts" and stand for the "Economic Growth and Taxpayer Relief Act of 2001" and the "Jobs and Growth Tax Relief Reconciliation Act of 2003." The Joint Committee on Taxation and White House Office of Management and Budget replied negatively. The Congressional Budget Office did not respond. Just Facts located several estimates by nonprofit organizations but found the methodologies questionable.

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

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

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

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

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

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

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

[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.

[123] Report: "The Debt Limit: History and Recent Increases." By D. Andrew Austin. Congressional Research Service. Updated April 29, 2008.

Page 2: "The debt limit also provides Congress with the strings to control the federal purse, allowing Congress to assert its constitutional prerogatives to control spending. The debt limit also imposes a form of fiscal accountability, which compels Congress and the President to take visible action to allow further federal borrowing when the federal government spends more than it collects in revenues."

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. …

e) Web Page: "Party Division in the Senate, 1789-Present." U.S. Senate Historical Office. Accessed April 6, 2011 at

- Debt/GDP calculations are performed with seasonally adjusted GDP figures from the quarters in which Presidential and Congressional power shifts occurred.

- In cases where a Congressional and Presidential power shift occur in the same quarter, the date of the presidential power shift is used as the milestone for the debt.