CHARTS MAY 10, 2018 WASHINGTON, D.C.

CHARTS MAY 10, 2018 WASHINGTON, D.C.

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2018 Fiscal Summit: Debt Matters As the 2018 campaign gets underway within a rapidly changing policy environment, America s unsustainable fiscal condition remains a transcendent threat to our collective future. Over just the course of the past year, significant tax and spending measures have made our nation s fiscal outlook considerably worse. This recent legislation, coupled with existing structural deficits, makes our rising debt a substantial danger to our economy. Our national debt is at its highest level relative to the size of our economy since shortly after World War II, and is projected to grow rapidly in the years ahead. We face a structural mismatch between revenues and outlays, which is driven by an aging population, rising healthcare costs, and increasing interest payments, combined with insufficient revenue to support existing commitments. Over the last ten years, we have added nearly $10 trillion in new borrowing and nearly tripled the amount of debt outstanding. Under current policies, we will add $15 trillion more debt to the ledger over the upcoming ten years, and the balance will double again. At that point, the amount of debt outstanding would be greater than the size of our entire economy. Rising interest rates and a return to trillion-dollar deficits as early as next year ensure that budgetary pressure will continue to increase. Absent a change in course, we will confront reduced public and private investments, less flexibility to deal with future crises, and diminishing economic opportunities for Americans. Now, while the economy is strong, it is time to face the challenge anew, and reset our priorities to create the conditions for sustained economic growth and prosperity into the future. The 2018 Fiscal Summit: Debt Matters will reiterate the urgent need for a fiscal reset, and examine how we can refocus the nation on building a fiscally sustainable path for America. #FiscalSummit 1

Deficit projections since June 2017 have risen by nearly $4 trillion through 2027, primarily due to recent legislation ANNUAL DEFICITS (BILLIONS OF DOLLARS) $2,000 June 2017 Baseline Revenue Reductions Spending Increases $1,500 $1,000 $500 $0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 SOURCE: Congressional Budget Office, An Update to the Budget and Economic Outlook: 2017 to 2027, June 2017, and The Budget and Economic Outlook: 2018 to 2028, April 2018. Compiled by PGPF. NOTE: Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 3

The deficit is projected to exceed $1 trillion by 2020 and $2 trillion by 2028 $2,500 ANNUAL DEFICITS (BILLIONS OF DOLLARS) Actual Projected $2.1 trillion in 2028 $2,000 $1,500 $1.1 trillion in 2020 $1,000 $500 $0 2007 2012 2017 2022 2027 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018. Compiled by PGPF. NOTE: Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 4

Recent legislation has significantly and quickly damaged our fiscal outlook Then June 2017 Now April 2018 Result Projected 2018 Deficit $563 billion $805 billion $243 billion larger deficit 10-Year Deficit Total (2018 2027) $10.1 trillion $13.7 trillion $3.6 trillion larger deficit Interest Costs Over 10 years Debt-to-GDP Ratio In 2027 $5.6 trillion $6.5 trillion $1 trillion more in interest 91.2% 101.4% 10 percentage points higher 10-Year Revenue Total $43.0 trillion $41.2 trillion Nearly $2 trillion less in revenues 10-Year Spending Total $53.1 trillion $54.8 trillion Nearly $2 trillion more in spending SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018 and PGPF calculations based on CBO data. Compiled by PGPF. NOTE: Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. Numbers may not add due to rounding. #FiscalSummit 5

Federal debt is projected to be twice the size of the U.S. economy by 2050 225% 200% 175% 150% DEBT HELD BY THE PUBLIC (% OF GDP) Actual Projected 125% WWII 100% 75% 50% 25% Civil War Great Depression WWI 0% 1794 1826 1858 1890 1922 1954 1986 2018 2050 SOURCE: Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017,The Budget and Economic Outlook: 2018 to 2028, April 2018, and PGPF calculations based on CBO data. Compiled by PGPF. NOTE: Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 6

The growing debt is caused by a structural mismatch between spending and revenues 35% FEDERAL REVENUES AND SPENDING (% OF GDP) Actual Projected 30% Spending 25% Average Spending (1983 2017) 20% 15% 10% Average Revenues (1983 2017) Revenues 5% 0% 1983 1988 1993 1998 2003 2008 2013 2018 2023 2028 2033 2038 2043 2048 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018 and PGPF calculations based on CBO data. Compiled by PGPF. NOTE: Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 7

Net interest costs are projected to rise sharply BILLIONS OF DOLLARS $1,200 Actual Projected $1,000 $800 $600 $400 $200 Interest Costs 2019 2028: $7.2 trillion $0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018 and PGPF calculations based on CBO data. Compiled by PGPF. NOTE: Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 8

Interest costs are projected to become the third largest category of the budget 30% BUDGET CATEGORIES (% OF GDP) 25% Social Security Medicare 20% Interest 15% 10% Interest Nondefense Discretionary Defense Discretionary 5% Medicaid, CHIP & Exchanges 0% Interest 2018 2026 Other Mandatory SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018 and PGPF calculations based on CBO data. Compiled by PGPF. NOTE: Medicare spending is net of premiums and payments from the states. Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 9

5% By 2022, annual interest costs will exceed what the federal government has historically spent each year on R&D, infrastructure, and education combined FEDERAL SPENDING (% OF GDP) 4% 3% 2.5% 2.8% 2% R&D 1.6% 1% Infrastructure 0% Education Average Spending (1968 2017) Interest Costs 2018 2022 SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2019, February 2018; and Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018. Compiled by PGPF. NOTE: Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 10

Healthcare is the major driver of the projected growth in federal spending 8% FEDERAL SPENDING (% OF GDP) Actual Projected 7% 6% Major Health Programs Social Security 5% 4% 3% 2% Discretionary: Non-defense Defense Other Mandatory 1% 0% 1988 1993 1998 2003 2008 2013 2018 2023 2028 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018. Compiled by PGPF. NOTE: Major health programs include Medicare (net), Medicaid, Children s Health Insurance Program (CHIP), and the health exchanges. Projections reflect a continuation of current policy, rather than current law, and are consistent with CBO s alternative fiscal scenario. #FiscalSummit 11

The elderly population is growing rapidly and living longer 100 90 U.S. POPULATION AGE 65+ (MILLIONS) Baby Boomers Turn 65 80 70 60 50 85+ 75 84 40 30 20 65 74 10 0 1990 2000 2010 2020 2030 2040 2050 2060 SOURCE: U.S. Census Bureau, National Intercensal Estimates, and 2014 National Population Projections, December 2014. Compiled by PGPF. #FiscalSummit 12

Medical spending increases rapidly with age ANNUAL HEALTHCARE SPENDING PER CAPITA (DOLLARS) $35,000 $30,000 $32,411 $25,000 $20,000 $15,000 $16,872 $10,000 $5,000 $0 $9,513 $3,552 $4,458 0 18 19 44 45 64 65 84 85+ SOURCE: Centers for Medicare and Medicaid Services, National Health Expenditures by Age and Gender, August 2016. Data are for 2012. Compiled by PGPF. #FiscalSummit 13

Total U.S. health spending (public and private) is projected to rise to nearly one-fifth of the economy by 2025 NATIONAL HEALTH EXPENDITURES (% OF GDP) 25% Actual Projected 20% 15% 17% 18% 19% 10% 12% 13% 9% 5% 0% 1980 1990 2000 2010 2020 2025 SOURCE: Centers for Medicare and Medicaid Services, National Health Expenditures, January 2018. Compiled by PGPF. #FiscalSummit 14

United States per capita healthcare spending is more than twice the average of other developed countries HEALTHCARE COSTS PER CAPITA (DOLLARS) $10,000 $9,507 $8,000 $7,536 $6,000 $4,000 $3,352 $4,125 $4,269 $4,289 $4,530 $4,613 $5,266 $5,353 $3,851 $2,000 $0 Italy U.K. Japan Australia France Canada Sweden Germany Switzerland United States OECD Average SOURCE: Organization for Economic Cooperation and Development, OECD Health Statistics 2017, November 2017. Compiled by PGPF. NOTE: Data are for 2015 or latest available. Chart uses purchasing power parities to convert data into U.S. dollars. #FiscalSummit 15

Health Status Life Expectancy at Birth Infant Mortality Quality of Primary Care Unmanaged Asthma Unmanaged Diabetes Quality of Acute Care Safety During Childbirth Heart Attack Mortality Although the United States spends more on healthcare than other developed countries, its health outcomes are generally no better WORST SOURCE: Organization for Economic Cooperation and Development, Health at a Glance 2017 OECD Indicators, November 2017. Compiled by PGPF. NOTE: Data are not available for all countries for all metrics. Data are for 2015 or latest available. BEST... U.S. South Africa... U.S. Latvia Italy Japan... U.S. India... U.S. Mexico... U.S. Canada Poland U.S.... Mexico Norway Italy Slovenia #FiscalSummit 16

As the population ages, fewer workers will be paying taxes to support each Social Security beneficiary WORKERS PER BENEFICIARY 5 4 3 3.7 3.4 2.9 2 2.3 1 0 1970 1990 2010 2030 SOURCE: Social Security Administration, The 2017 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, July 2017. Compiled by PGPF. #FiscalSummit 17

The Social Security trust fund will be depleted by 2034 1.0% SOCIAL SECURITY SURPLUSES/DEFICITS (% OF GDP) Actual Projected 0.5% 0.0% -0.5% 2017 2034 Deficit: $2.8 Trillion Trust Fund Depleted in 2034-1.0% -1.5% -2.0% 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 SOURCE: Social Security Administration, The 2017 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, July 2017. Compiled by PGPF. NOTE: Surplus/deficit numbers exclude interest income. The total deficit of $2.8 trillion is the present value of the cash deficits between 2017 and 2034. #FiscalSummit 18

Low-income seniors rely on Social Security benefits for a major share of their retirement income SOCIAL SECURITY BENEFITS (% OF TOTAL INCOME) 90% 80% 70% 81% 81% 60% 50% 61% 40% 30% 39% 20% 10% 0% 15% Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile (Under $13,499) ($13,499 $23,592) ($23,592 $39,298) ($39,298 $72,129) (Over $72,129) SOURCE: Social Security Administration, Income of the Population 55 or Older, 2014, April 2016. Data are for 2014. Compiled by PGPF. NOTE: A quintile is one-fifth of the population. #FiscalSummit 19

Discretionary spending funds a wide range of programs 2017 Discretionary Outlays $1,200 Billion Defense Defense Education Transportation Veterans Benefits and Services Income Security Health (Discretionary Only) International Affairs Administration of Justice Natural Resources and Environment General Science, Space and Technology Community and Regional Development General Government Medicare Administrative Costs Agriculture Social Security Administrative Costs Energy SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2019, February 2018. Compiled by PGPF. NOTE: Data excludes allowances and functions with negative outlays. Health (discretionary only) includes National Institutes of Health, the Centers for Disease Control and Prevention, veterans healthcare, and administrative costs for Medicaid. #FiscalSummit 20

The United States spends more on defense than the next seven countries combined $700 $600 DEFENSE SPENDING (BILLIONS OF DOLLARS) $578 Billion $610 Billion $500 $400 China $300 $200 $100 $0 Russia Saudi Arabia India France United Kingdom Japan United States SOURCE: Stockholm International Peace Research Institute, SIPRI Military Expenditure Database, May 2018. Data are for 2017. Compiled by PGPF. NOTE: Figures are in U.S. dollars, converted from local currencies using market exchange rates. #FiscalSummit 21

Discretionary spending is projected to fall to well below historical averages 100% 90% 80% % OF FEDERAL SPENDING 62% 69% 77% Mandatory Spending and Net Interest Costs 12% 10% % OF GDP Actual Projected 70% 8% 20-Year Average (1998 2017) 60% 50% 6% 40% 30% 20% 38% 31% 23% Discretionary Spending 4% 2% Discretionary Spending 10% 0% 2008 2018 2028 0% 1998 2004 2010 2016 2022 2028 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018. Compiled by PGPF. #FiscalSummit 22

The federal government collects revenue from a variety of sources 2017 Total Revenues $3,316 Billion Estate and Gift Taxes 1% Excise Taxes 3% Other Other 5% 6% Corporate Income Taxes 9% Payroll Taxes 35% Individual Income Taxes 48% SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2019, February 2018. Compiled by PGPF. NOTE: Other includes customs duties and miscellaneous sources. Numbers may not sum to 100% due to rounding. #FiscalSummit 23

The U.S. tax system is progressive, with higher-income taxpayers facing higher tax rates EFFECTIVE FEDERAL TAX RATE BY TYPE (% OF CASH INCOME IN 2016) 40% Excise Tax 30% 20% Estate Tax Corporate Income Tax Payroll Tax Individual Income Tax 17.2% 19.9% 21.7% 24.9% 31.9% 32.7% 13.5% 10% 8.4% 3.9% 0% Lowest Quintile Second Quintile Middle Quintile Fourth Quintile 80 90th Percentile 90 95th Percentile 95 99th Percentile Top 1 Percent Top 0.1 Percent SOURCE: Tax Policy Center, Effective Federal Tax Rates by Expanded Cash Income Percentile, 2016, March 2017. Compiled by PGPF. NOTE: Individual income tax rates for the lowest and second lowest quintiles are negative and are netted against the payroll tax rate. A quintile is onefifth of the population. In 2017 dollars, the income breaks are: 20% $24,600; 40% $47,700; 60% $84,300; 80% $147,700; 90% $214,700; 95% $306,100; 99% $717,900; 99.9% $2,917,600. Includes both filing and non-filing units but excludes those that are dependents of other tax units. #FiscalSummit 24

The top 1 percent of taxpayers generate 40 percent of individual income tax revenue Share of Individual Income Tax Revenue All Other Taxpayers 60% Top 1 Percent 40% SOURCE: Congressional Budget Office, The Distribution of Household Income, 2014, March 2018. Data are for 2014. Compiled by PGPF. NOTE: CBO s income groups account for household size. In 2014, a one-person household was in the top 1 percent if its income was $374,400 or higher. A four-person household was in the top 1 percent if its income was $748,800 or higher. #FiscalSummit 25

The incomes of the wealthy have grown much faster than the incomes of other groups $1,500,000 AVERAGE ANNUAL AFTER-TAX INCOME (2014 DOLLARS) $1,200,000 Top 1%: Increase of $819,100 (+230%) $900,000 $600,000 $300,000 $0 1979 1984 1989 1994 1999 2004 2009 2014 Top 20%: Increase of $102,200 (+100%) Middle 20%: Increase of $16,600 (+38%) Lowest 20%: Increase of $12,700 (+70%) SOURCE: Congressional Budget Office, The Distribution of Household Income 2014, March 2018. Data are for 2014. Compiled by PGPF. NOTE: Increase calculated for 1979 2014. #FiscalSummit 26

Tax expenditures are large in comparison to annual income taxes collected and to the government s major programs BUDGETARY COST IN 2017 (DOLLARS) $2,000 $1,500 $1.7 Trillion $1.9 Trillion $1,000 $939 Billion $500 $591 Billion $590 Billion $0 All Tax Expenditures Individual & Corporate Income Tax Revenues Social Security Medicare Defense SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2019, February 2018. Compiled by PGPF. NOTE: Tax expenditures are deductions, credits, exclusions, and preferential rates. The estimates for tax expenditures include effects on outlays but do not account for any interactive effects of combining various provisions. Medicare spending is net of premiums and payments from the states. Defense represents discretionary defense spending. #FiscalSummit 27

Six popular tax provisions accounted for more than 60 percent of annual tax expenditures Major Individual Tax Expenditures Exclusion of employer contributions for medical insurance and care* Exclusion of pension contributions and earnings** Preferential treatment of dividends and capital gains Deduction for state and local taxes Deduction of mortgage interest on owner-occupied homes with loan values up to $1 million Earned Income Tax Credit (EITC) Total Budgetary Costs (2017) $341 billion $193 billion $175 billion $104 billion $66 billion $64 billion $942 billion SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2019, February 2018. Compiled by PGPF. NOTE: *Includes the exclusion from payroll taxes and income taxes. **Includes employer pension plans, employee and employer contributions to 401k plans, IRAs, the low and moderate income savers credit, and self-employed plans. Changes to some of these tax expenditures were included in the Tax Cuts and Jobs Act of 2017. Numbers may not sum to total because of rounding. #FiscalSummit 28

The top 1 percent of taxpayers receive 28 percent of the benefit from individual income tax expenditures Distribution of Individual Income Tax Expenditures Top 1 Percent 28% All Other Taxpayers 72% SOURCE: Tax Policy Center, Distributional Effects of Individual Income Tax Expenditures: An Update, September 2016. Data are for 2015. Compiled by PGPF. NOTE: Data only includes non-business tax expenditures that are claimed on individual tax returns. TPC s income groups are based on expanded cash income and account for family size. In 2015, a family was in the top 1 percent if its size-adjusted expanded cash income was $391,500 or higher. #FiscalSummit 29

The growing federal debt would reduce family incomes substantially $0 -$2,000 INCOME LOSS FOR A 4-PERSON FAMILY, ON AVERAGE (2017 DOLLARS) -$2,000 -$4,000 -$6,000 -$8,000 -$8,000 -$10,000 -$12,000 -$14,000 -$16,000 -$18,000 -$16,000 2027 2037 2047 SOURCE: Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017. Calculated by PGPF. NOTE: The income measures are based on CBO s projections of real gross national product (GNP) per person. The income loss is the difference between the income level if debt rises as it does under current law and the income level if debt remains near its current share of GDP. #FiscalSummit 30

Waiting 5 years raises the cost of stabilizing the debt by 21 percent SIZE OF ANNUAL BUDGET CHANGES NEEDED TO STABILIZE THE DEBT (% OF GDP) 3.5% 3.0% 2.9% 2.5% 2.0% 21% larger 2.3% 53% larger 1.9% 1.5% 1.0% 0.5% 0.0% If Fiscal Reforms Begin in 2018 2023 2028 SOURCE: Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017. Compiled by PGPF. #FiscalSummit 31

200% Solutions exist: PGPF Solutions Initiative plans from five think tanks showed stable or declining federal debt through 2040 DEBT HELD BY THE PUBLIC (% OF GDP) 175% Current Policy 150% 125% 100% 75% 50% 25% 0% 2015 2020 2025 2030 2035 2040 Bipartisan Policy Center American Enterprise Institute Economic Policy Institute Center for American Progress American Action Forum SOURCE: Peter G. Peterson Foundation, Solutions Initiative III, May 2015. NOTE: Current policy is defined as the alternative fiscal scenario without economic feedback from CBO s 2014 Long-Term Budget Outlook. #FiscalSummit 32