1 The Federal Budget Past – Present – Uncertain Future Stanford Institute for Economic Policy Research G. William Hoagland March 9, 2012

2 Recession as announced by National Bureau of Economic Research Surplus Deficit Trend ActualAlternative Projections Source: Congressional Budget Office; The Budget and Economic Outlook: Fiscal Years 2012 to January Office of Management and Budget: FY 2013 Budget of the United States. February “The Past, Present & Future” Total Budget Surplus/Deficit CBO Baseline. Alternative Baseline & The President’s Projections: January 2012 FY

3 “The Past” Changes in Projections of Surplus Since January 2001 ( $ in billions) % of Swing Surplus Projected in January 2001: $ 5,610 NA Legislative Changes: Revenues Outlays (Afghan/Iraq/Related Activities) Total - 2, ,712 (+ 1,263) - 8,520 23% 48% (11%) (71%) Economic/Technical Changes: Revenues Outlays Total - 3, ,329 28% 1% (29%) Total Swing Actual Deficit $11,849 - $ 6, % NA Source: Congressional Budget Office; Joint Committee on Taxation

4 “The Future” Budget Outlook FY 2011 – 2017 (In Billions of Dollars – % of GDP) President’s FY 2013 Budget 2011 Actual 2012 Est 2013 Proj → % ∆ annual Receipts2,3022,4692,9023,2153,4503,6803, % Spending3,6033,7963,8033,8834,0604,3294, % Deficits % of GDP 1, % 1, % % % % % % NA Public Debt % GDP Debt Subject Limit* % GDP 10,128 68% 14,747 98% 11,578 74% 16, % 12,637 77% 17, % 13,445 78% 18, % 14,198 78% 19, % 14,980 78% 20, % 15,713 77% 21, % + 9.1% +5.4% Source: Office of Management and Budget, Fiscal Year 2013 Budget of the U.S. Government. February Nominal GDP estimated to increase 5.5 % annually : Real GDP estimated to increase 4.3% annually

5 Federal Debt Held by the Public Baseline, Alternative Fiscal Scenario, President’s Budget % of GDP CBO’s Alternative Fiscal Scenario assumes expiring tax provisions (other than the payroll tax reduction) are extended, the AMT is indexed for inflation after 2011, Medicare’s payment rates for physicians’ services are held constant at their current level, and automatic spending reductions required by the Budget Control Act do not take effect. CBO January President’s Budget estimates from FY 2013 Federal Budget, OMB, February % President’s Budget Avg : 77% Avg : 84.4% Avg : 68.6% 62.0% 94.2% 76.5% 72.5%

6 Spending Baseline & Alternative Fiscal Scenario % of GDP CBO’s Alternative Fiscal Scenario assumes expiring tax provisions (other than the payroll tax reduction) are extended, the AMT is indexed for inflation after 2011, Medicare’s payment rates for physicians’ services are held constant at their current level, and automatic spending reductions required by the Budget Control Act do not take effect. CBO January President’s Budget: FY 2013 Federal Budget, OMB; February President’s Budget Avg. 22.7%

7 Revenues Baseline & Alternative Fiscal Scenario % of GDP CBO’s Alternative Fiscal Scenario assumes expiring tax provisions (other than the payroll tax reduction) are extended, the AMT is indexed for inflation after 2011, Medicare’s payment rates for physicians’ services are held constant at their current level, and automatic spending reductions required by the Budget Control Act do not take effect. CBO January President’s Budget: FY 2013 Federal Budget, OMB; February President’s Budget Avg. 20.8%

8 Federal Spending Projected for 2021 “Other Health Programs” includes: Health insurance subsidies, exchanges, and related spending; Department of Defense Medicare-Eligible Retiree Health Care Fund (including TRICARE for Life); Children’s Health Insurance Program, and other programs. Medicare (15%) Medicare (15%) Defense (14%) Defense (14%) Medicaid (11%) Medicaid (11%) Social Security (24%) Social Security (24%) Other Mandatory Spending (9%) Domestic Discretionary (12%) Other Mandatory Spending (9%) Domestic Discretionary (12%) Net Interest (11%) Net Interest (11%) Other Health Programs (3%) Other Health Programs (3%) Source: The Congressional Budget Office. The Budget and Economic Outlook: Fiscal Years 2012 to January 2012.

9 Major Components of Federal Expenditures % of GDP Source: Congressional Budget Office. Other Mandatory Spending Healthcare Social Security Discretionary Spending 0% 2% 4% 6% 8% 10% 12% 14% % of GDP

10 Alternative Medicare Spending Paths Spending Relative to GDP The unstainable path we are on GDP+2% Goal of: Bowles/Simpson, Rivlin/Ryan, Domenici/Rivlin, Ryan/Wyden, and Obama/CBO GDP+1% Medicare Trustees Report Estimate of PPACA Ryan (House Republican) GDP+0% Year % GDP

11 Health Benefit Costs as a Share of Wages for Full-Time, Full-Year Workers Receiving Health Care Benefits through Their Own Employer Deciles %30.9%38.1% Source: Steven A. Nyce and Sylvester Schieber, “Treating Our Ills and Killing Our Prospects” paper prepared for the Coalition for Affordable Health Care, July %

Party Polarization Distance Between the Parties First Dimension Distance Between the Parties Source: Polarized America, The Dance of Ideology and Unequal Riches. McCarty, Poole, and Rosenthal. MIT Press, June 2006

13 It could be worse.