America’s National Debt
An Overview of
the Challenge
and the
Implications for
Young People
175,000 in Debt
That’s every baby’s burden –
and unless we do something
about growing debt now, it
will only get worse.
Overview of Federal Budget Challenge
2
Important Concepts
• What’s the difference between deficits and debt?
– Deficits: The annual imbalance between revenues and
spending
– Debt: The accumulation of deficits over time
• Public debt: Federal government securities held by
Americans and foreigners
• Intragovernmental debt: Held by government trust funds
(e.g., Social Security) and other accounts
• What are “unfunded liabilities”?
– Benefits (e.g., Social Security or Medicare) that have been
promised to be paid in the future, with no dedicated source
of revenue to fund them
Overview of Federal Budget Challenge
3
Projecting the Future?
• Projections of future deficits and debt are based on
assumptions about the future
• Examples of assumptions that could affect
projections
– Changes to current spending and tax policies
– Population trends
– Workforce participation rates
• Projections can be wrong—too low or too high:
– Spending and tax policies may or may not change
– Health care breakthroughs could change birth or death
rates
– Immigration policy changes could affect the age mix of the
population
– People may decide to work longer and retire later
Overview of Federal Budget Challenge
4
U.S. Budget Deficits or Surpluses, 1961-2008
Deficits rise from 0
in 1969 to $340
billion in 1992.
The budget attains
an $86 billion
surplus in 2000.
Deficits rise to $568
billion in 2004, and
are projected to be
about $500 billion in
2008.
Overview of Federal Budget Challenge
5
Current Policy Trends Lead to Large Sustained Deficits
Fiscal Years 2009-2018
$400
Billions of Dollars
$200
$0
-$200
-$400
-$600
-$800
-$1,000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2 018
Fiscal Year
Source: Congressional
Budget Office, March 2008
and Concord Coalition
analysis.
CBO March 2008 Baseline
The Concord Coalition Plausible Baseline assumes that discretionary spending
grows at the rate of nominal GDP, that war costs slow gradually, and that all
expiring tax provisions are extended with AMT relief.
Overview of Federal Budget Challenge
6
National Debt, 1940-2007
(in non-inflation adjusted dollars)
Overview of Federal Budget Challenge
7
Unless Changes are Made, the National
Debt Will Grow Even Faster
$400
$350
Trillions of Dollars
$300
$250
$200
$150
$100
$50
$0
Source: Heritage Foundation;
CBO data
1962 ‘72
‘82
‘92
2002
‘12
‘22
Overview of Federal Budget Challenge
‘32
‘42
‘50
8
Public Debt Projected to Soar
Overview of Federal Budget Challenge
9
Entitlement Spending is Consuming an
Ever Larger Share of the Federal Budget
1966
34%
7%
43%
1986
28%
29%
20%
32%
21%
14%
15%
2007
2006
20%
9%
10%
19%
1%
Defense
Social Security
Net interest
All other spending
Medicare & Medicaid
Sources: Office of Management and Budget and the Department of the Treasury.
Note: Numbers may not add to 100 percent due to rounding.
Overview of Federal Budget Challenge
10
Selected Federal Discretionary Spending
(FY 2008 Projected)
$90
$80
$70
$ Billions
$60
$50
$40
$30
$20
$10
$0
Education
Source: Congressional Budget Office,
January 2008
Transportation
Income
Security
Natural
Resources
& Env.
Veterans
Foreign Aid Homeland
Security
Science,
Space, &
Technology
*includes ground, air, and water
Overview of Federal Budget Challenge
11
Composition of Actual FY 2007 Federal Government
Revenues and Outlays
(Deficit: $163 Billion)
2,750
2,500
2,250
Interest
238
Domestic*
493
Defense
549
Other
Entitlements
309
Medicare
& Medicaid
561
26
138
370
Billions of Dollars
2,000
1,750
1,500
1,250
1,000
750
1163
500
250
870
Social
Security
Estate & Gift Taxes
Other Taxes
Corporate
Taxes
Social
Insurance
Taxes
Individual
Income
Taxes
581
0
Outlays: $2.73 trillion
Revenue: $2.57 trillion
*Includes all appropriated domestic spending such as education, transportation, homeland
security, housing assistance, and foreign aid. Source: CBO 2008.
Overview of Federal Budget Challenge
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Current fiscal policy is on an
unsustainable path
Interest
All Other
Average tax revenue
Medicaid
Medicare
Social Security
Source: Government Accountability
Office, March 2008
Overview of Federal Budget Challenge
13
Social Security and Medicare Part A
Cumulative Cash
Surpluses and Deficits in Constant 2008 Dollars, 2008 through 2085
In Billions of Constant 2008 Dollars
$500
$496 Billion: Cumulative
Social Security Cash Surplus
$0
-$27 Trillion: Cumulative
Social Security Cash Deficits
-$500
-$55 Trillion: Cumulative
Medicare Part A Cash Deficits
-$1,000
-$1,500
-$2,000
-82.6 Trillion: Cumulative Social Security
and Medicare Part A Cash Deficits
-$2,500
-$3,000
2008 2010
2020
2030
2040
2050
2060
2070
2080
Calendar Year
Source: Social Security Trustees’
Report—March 2008 (Intermediate
Projections)
Overview of Federal Budget Challenge
14
Health Care Costs Rising Faster
Than Economic Growth
Key Aspect of
Rising Federal
Spending and
Debt
Overview of Federal Budget Challenge
15
Medicare Obligations Will Explode as
Health Care Costs Rise
15
10
5
0
2006
2010
2020
2030
2040
2050
2060
2070
2080
Calendar Year
General Revenues required to fund the program
Income from dedicated taxes, premiums, and state transfers
Source: Medicare Trustees’
Report, 2007
Overview of Federal Budget Challenge
16
State and Local Government Deficits
Add to Federal Fiscal Challenges
Percent of GDP
5
0
Federal
Surplus/Deficit
-5
-10
Combined State,
Local, and Federal
Surplus/Deficit
-15
-20
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Fiscal year
Source: Historical data from National Income and Product Accounts, GAO Analysis.
Note: Historical data from 2000 – 2006, projections from 2007 – 2050; state and local balance measure is similar to the federal unified budget
measure. Federal Simulation Assumptions: Discretionary spending grows with GDP after 2007. AMT exemption amount is retained at the
2006 level through 2017 and expiring tax provisions are extended. After 2017, revenue as a share of GDP returns to its historical level of
18.3 percent of GDP plus expected revenues from deferred taxes, i.e. taxes on withdrawals from retirement accounts. Medicare spending is
based on the Trustees’ April 2007 projections adjusted for the Centers for Medicare and Medicaid Services’ alternative assumption that
physician payments are not reduced as specified under current law.
Overview of Federal Budget Challenge
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State Governments Face Growing Medicaid
Costs, Squeezing Other Spending
Source: National Association
of State Budget Officers, State
Expenditure Report 2006
Overview of Federal Budget Challenge
18
Consequences of Declining Personal
Savings
We No Longer Owe National Debt to Ourselves
We Have Less to Supplement Social Security and Medicare
•
•
•
•
Overview of Federal Budget Challenge
Americans are saving at the
lowest rate since the Great
Depression, according to
Commerce Dept.
About 40% of Americans say
they are saving nothing for
retirement.
One in four Americans told
the Employee Benefit
Research Institute that they
have no savings at all.
Debt payments consume
15% of the average U.S.
family’s income, and 40% of
low-income families’; 1 in 7
families is dealing with a debt
collector
19
Percent of Debt Held by the Public
Owned by Foreigners
(1980-2007)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1987
1990
1993
1996
1999
2002
2005
Source: United States Treasury
Department
Overview of Federal Budget Challenge
20
Current Fiscal Policy Is Unsustainable
• The “Status Quo” is Not an Option
– We face large and growing structural deficits largely due to
rising health care costs and demographic trends
– GAO simulations show that balancing the budget in 2040 could
require actions as large as cutting total spending by 60 percent
or raising federal taxes to double today's level.
• Faster Economic Growth Can Help, Cannot Solve the
Problem
– Closing the current long-term fiscal gap based on reasonable
assumptions would require real average annual economic
growth in the double digit range every year for the next 75 years
– During the 1990s, the economy grew at an average of only 3.2
percent per year
• Tough choices will be required
Overview of Federal Budget Challenge
21
The Sooner We Get Started, the Better
• Compound interest is currently working against
us
• Less change would be needed, and there would
be more time to make adjustments
• Demographic changes will make reform even
more difficult over time
Overview of Federal Budget Challenge
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Framing the Discussion
– Which Federal programs and policies should be
changed and how?
• Entitlement programs
• Other spending
• Tax policy
– How can budget processes and controls be reformed?
– What should be the roles of government, business and
individuals in ensuring economic well-being in 21stcentury America?
• Investing in the future (education, infrastructure, science,
environment, etc.)
• Providing income security and good living standards
• Providing health care for all Americans
Overview of Federal Budget Challenge
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Overview of Federal Budget Challenge
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