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

2. 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 2022. January 2012. Office of Management and Budget: FY 2013 Budget of the United States. February 2012. “The Past, Present & Future” Total Budget Surplus/Deficit CBO Baseline. Alternative Baseline & The President’s Projections: January 2012 FY 1965 - 2022 22

3. 3 “The Past” Changes in Projections of Surplus Since January 2001 ( $ in billions) 2001-2011 % of Swing Surplus Projected in January 2001: $ 5,610 NA Legislative Changes: Revenues Outlays (Afghan/Iraq/Related Activities) Total - 2,808 + 5,712 (+ 1,263) - 8,520 23% 48% (11%) (71%) Economic/Technical Changes: Revenues Outlays Total - 3,412 -83 - 3,329 28% 1% (29%) Total Swing Actual Deficit $11,849 - $ 6,239 100% NA Source: Congressional Budget Office; Joint Committee on Taxation

4. 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 → 2014201520162017 % ∆ annual 2012-2017 Receipts2,3022,4692,9023,2153,4503,6803,919 + 9.6% Spending3,6033,7963,8033,8834,0604,3294,532 + 3.6% Deficits % of GDP 1,300 8.7% 1,327 8.5% 901 5.5% 668 3.9% 610 3.4% 649 3.4% 612 3.0% NA Public Debt % GDP Debt Subject Limit* % GDP 10,128 68% 14,747 98% 11,578 74% 16,334 104% 12,637 77% 17,532 106% 13,445 78% 18,485 106% 14,198 78% 19,412 105% 14,980 78% 20,379 104% 15,713 77% 21,315 103% + 9.1% +5.4% Source: Office of Management and Budget, Fiscal Year 2013 Budget of the U.S. Government. February 2012. Nominal GDP estimated to increase 5.5 % annually 2012-2017: Real GDP estimated to increase 4.3% annually 2012-2017.

5. 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 2012. President’s Budget estimates from FY 2013 Federal Budget, OMB, February 2012. % President’s Budget Avg. 2012-22: 77% Avg. 2012-22: 84.4% Avg. 2012-22: 68.6% 62.0% 94.2% 76.5% 72.5%

6. 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 2012. President’s Budget: FY 2013 Federal Budget, OMB; February 2012. President’s Budget Avg. 22.7%

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 2012. President’s Budget: FY 2013 Federal Budget, OMB; February 2012. President’s Budget Avg. 20.8%

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 2022. January 2012.

9. 9 Major Components of Federal Expenditures % of GDP 2011-2051 Source: Congressional Budget Office. Other Mandatory Spending Healthcare Social Security Discretionary Spending 0% 2% 4% 6% 8% 10% 12% 14% 20112021203120412051 % of GDP

10. 10 Alternative Medicare Spending Paths Spending Relative to GDP 8 14 12 10 The unstainable path we are on 6 2 0 4 201020152020202520302035204020452050205520602065207020752080 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. 11 Health Benefit Costs as a Share of Wages for Full-Time, Full-Year Workers Receiving Health Care Benefits through Their Own Employer Deciles1980199020002009 115.4%30.9%38.1% 2 9.518.722.930.9 3 8.015.318.625.5 4 7.213.316.022.3 5 6.311.614.019.4 6 5.8 9.912.116.8 7 5.4 9.210.814.8 8 4.9 8.2 9.212.5 9 4.3 6.9 7.810.2 10 3.2 4.9 4.7 6.3 Source: Steven A. Nyce and Sylvester Schieber, “Treating Our Ills and Killing Our Prospects” paper prepared for the Coalition for Affordable Health Care, July 2011. 49.5%

12. 12 1879 1887 1895 1903 1911 1919 1927 1935 1943 1951 1959 1967 1975 1983 1991 1999 2006 Party Polarization 1879-2006 Distance Between the Parties First Dimension 1.0 0.9 0.8 0.7 0.6 0.5 0.4 Distance Between the Parties Source: Polarized America, The Dance of Ideology and Unequal Riches. McCarty, Poole, and Rosenthal. MIT Press, June 2006

13. 13 It could be worse.