Our Fiscal Future (NPF)
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Transcript of Our Fiscal Future (NPF)
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Why Deficits MatterWhy Deficits MatterAnd What We Could Do About ThemAnd What We Could Do About Them
Isabel Sawhill, Senior Fellow, Brookings InstitutionJune 2008
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The ProblemThe Problem Current Deficit (FY 2007): $162 BCurrent Deficit (FY 2007): $162 B
Projected by 2017: $678 BProjected by 2017: $678 B
Over longerOver longer--run totally unsustainable because ofrun totally unsustainable because ofrising costs of entitlementsrising costs of entitlements
By about 2040, three major programs absorb allBy about 2040, three major programs absorb all
revenues under current lawrevenues under current law
Need to reform both revenues and entitlementsNeed to reform both revenues and entitlements
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Budget ProjectionsBudget Projections
2Source: Authors calculations from Brookings-Urban Tax Policy Center, Budget OutlookTables, August 2007, Appendix 2
-$678 billion
$
09 billion
.
.
.
.
.
.
.
3
5
9
3
5
Surplus(Deficit),$B
illions
djusted B se
ine
B Uni ied Budget B se
ine
ugust
ctu
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Federal Revenue and OutlaysFederal Revenue and Outlays
3
Source: FY 2007 Budget of the United States Government, Historical Table 1.2; Authors
calculations from Brookings-Urban Tax Policy Center, Budget Outlook Tables, March2007, Appendix 3a
Revenues
Outlays
Average
Revenues,!1
" #5-
200#
$
Average Outlays,
! 1 " # 5-200 #$
15.0
1 .0
17.0
1 .0
1 .0
20.0
21.0
22.0
23.0
24.0
25.0
1
5
1
7
1 1
71
1
73
1
75
1
77
1
7
1
1
1
3
1
5
1
7
1 1
1
1
3
1
5
1
7
1 2001
2003
2005
2007
200
2011
2013
2015
2017
PercentageofG
PredictedActual
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Why Deficits MatterWhy Deficits Matter Dependence on foreign lendersDependence on foreign lenders
Rapidly rising debt service costsRapidly rising debt service costs Burden on future generationsBurden on future generations
Weakened ability to meet contingenciesWeakened ability to meet contingencies
or invest in futureor invest in future
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Rapidly Rising Interest CostsRapidly Rising Interest Costs
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Projected Debt Service Payments
0
100
200
00
00
500
600
2007 2008 2009 2010 2011 2012 201 201 2015 2016 2017Billionsofcurrentdollars
Source :Authors calculations from Congressional Bu dget Office, Budget andEconomic Outlook:An Update,August 2007 ,Current Budget Projections Data
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The Burden on Future GenerationsThe Burden on Future Generations
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Dealing with an Aging PopulationDealing with an Aging Population
8
0
0.0
0.10.1
0.2
0.2
0.3
0.3
0.4
1
0
1 1
60
1
6
1
70
1
7
1
80
1
85
1
0
1
5
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
Ratio of Population Aged 65+
to Working Age Population 20-64), 1 50-2045
Source: Concord Coalition
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Prerequisites for a CompromisePrerequisites for a Compromise Balance of spending cuts and revenue increasesBalance of spending cuts and revenue increases
Spending cuts can come from holding the line onSpending cuts can come from holding the line on
increased spending and from reformingincreased spending and from reformingentitlements, health care in particularentitlements, health care in particular
Revenue increases can come from not extending allRevenue increases can come from not extending all
of the Bush tax cuts, from closing loopholes, orof the Bush tax cuts, from closing loopholes, orfrom new taxes (e g , on energy consumption)from new taxes (e g , on energy consumption)
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Social Security Reform OptionsSocial Security Reform Options Adjust age of retirement or index to longevityAdjust age of retirement or index to longevity
Encourage people to work longerEncourage people to work longer
Reduce future benefits for betterReduce future benefits for better--off whileoff whilemaintaining for less wellmaintaining for less well--offoff
MandateMandate additionaladditionalsavings for retirement insavings for retirement in
personal accountspersonal accounts
Raise payroll tax capRaise payroll tax cap
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Tax Reform OptionsTax Reform Options Fix the AMTFix the AMT
Do not extend all of the Bush tax cutsDo not extend all of the Bush tax cuts
Eliminate or reform existing deductions,Eliminate or reform existing deductions,credits, and other preferencescredits, and other preferences
Increase complianceIncrease compliance
Enact new taxes (e g on energy and/or onEnact new taxes (e g on energy and/or on
consumption)consumption)
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What Needs To HappenWhat Needs To Happen First and foremost, public recognition that deficitsFirst and foremost, public recognition that deficits
are a problemare a problem
Public willingness to forgo tax cuts or acceptPublic willingness to forgo tax cuts or acceptspending cutbacksspending cutbacks
The sooner this is done, the less costly it will beThe sooner this is done, the less costly it will be
Bipartisanship to make the tough choicesBipartisanship to make the tough choices Rules to help politicians stay fiscally responsibleRules to help politicians stay fiscally responsible
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The CandidatesThe Candidates They are making promises that are notThey are making promises that are not
affordable Digging the hole deeperaffordable Digging the hole deeper
They are pretending that a war dividendThey are pretending that a war dividendor faster growth or ending earmarks oror faster growth or ending earmarks orrolling back tax cuts for the wealthy willrolling back tax cuts for the wealthy willsolve the problemsolve the problem
Result: the public remains uneducated andResult: the public remains uneducated andthe candidates have no mandate to make thethe candidates have no mandate to make thetough choices after the electiontough choices after the election
The big loser: the nationThe big loser: the nation14
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www brookings edu/budgetwww brookings edu/budget
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