CHARTS MAY 23, 2017 WASHINGTON, D.C.

CHARTS MAY 23, 2017 WASHINGTON, D.C.

Peterson Foundation charts are available online and are free to use without modification for educational and editorial use, with credit to the Peter G. Peterson Foundation and appropriate hyperlink. Members of the press with questions about the charts or the data, please contact press@pgpf.org. More materials are available at pgpf.org/press. To include a Peterson Foundation chart in a commercial product, please email copyright@pgpf.org. 2017 Fiscal Summit: Rising Debt in a Changing Economy America faces the dynamic combination of an evolving economy, a crowded legislative agenda, and an unsustainable fiscal outlook. As Congress and a new administration explore major changes in key areas healthcare, taxes, infrastructure, trade, and more our fiscal condition remains as important as ever. With many reforms on the table, one issue impacts all the others: our unsustainable national debt. America s fiscal outlook is connected to all these issues because our growing debt threatens our economy and weakens our ability to address our most important budget priorities. The national debt is already at its highest level since 1950 and is projected to grow rapidly in the years ahead. Over the last eight years, we added $7 trillion to the national debt. Over the next eight years we are set to borrow the same amount another $7 trillion. By 2023, we ll be back to $1 trillion annual deficits under current law. And in just over a decade, interest on the national debt will be our third-largest federal program. All of the major reform proposals will impact, and are impacted by, the national debt. Given that 70 percent of the spending growth in our major entitlement programs is for healthcare, addressing the U.S. healthcare system is essential to improving our fiscal outlook. Tax reform can have a significant and direct effect on our fiscal path making it far better, or far worse. If there is agreement that we need to address our infrastructure, how will we find the resources to pay for it now and in the future if we allow debt and interest costs to grow? How will America s workforce meet the challenges and opportunities presented by globalization if the national debt harms economic growth and America s leadership role in the world? The 2017 Fiscal Summit will convene leading voices and policymakers from across the political spectrum to discuss the legislative agenda, its connection to our growing national debt, and solutions to put us on a better path. The Summit will address the significant fiscal implications of current reform proposals, and examine the opportunities that exist to ensure that policy solutions are sustainable, fiscally responsible, and supportive of economic growth. America s rising debt must be a central part of the 2017 policy discussion, because addressing it is essential for us to meet the most pressing challenges of a changing economy. #FiscalSummit 1

The national debt is on an unsustainable path 15 DEBT HELD BY THE PUBLIC (% OF GDP) Actual Projected 125% 10 World War II 15 in 2047 75% 5 25% 1930 1943 1956 1969 1982 1995 2008 2021 2034 2047 SOURCE: Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017. Compiled by PGPF. #FiscalSummit 3

The growing debt is caused by a structural mismatch between spending and revenues 35% FEDERAL REVENUES AND SPENDING (% OF GDP) Actual Projected 3 Spending 25% Average Spending (1982 2016) 2 15% 1 Average Revenues (1982 2016) Revenues 5% 1982 1987 1992 1997 2002 2007 2012 2017 2022 2027 2032 2037 2042 2047 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027, January 2017, and The 2017 Long-Term Budget Outlook, March 2017. Compiled by PGPF. #FiscalSummit 4 Net interest costs are projected to rise sharply BILLIONS OF DOLLARS $900 Actual Projected $800 $700 $600 $500 $400 $300 $200 10-Year Interest Costs: $5.2 trillion $100 $0 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027, January 2017. Compiled by PGPF. #FiscalSummit 5

Interest costs are projected to become the largest category of the budget BUDGET CATEGORIES (% OF GDP) 35% 3 25% Interest Interest Medicare 2 15% Interest Social Security Medicaid, CHIP & Exchanges 1 Interest Defense Discretionary 5% Nondefense Discretionary Interest 2017 2028 2047 2049 Other Mandatory SOURCE: Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017; and PGPF projections based on CBO data. Compiled by PGPF. NOTE: Medicare spending is net of premiums and payments from the states. #FiscalSummit 6 8% 7% 6% By 2047, interest costs are projected to be more than two times what the federal government has historically spent on R&D, infrastructure, and education combined FEDERAL SPENDING (% OF GDP) 6.2% 5% 4% 4. 3% 2% 1% 2.6% R&D Infrastructure Education Average Spending (1966 2015) 1.4% 2017 2037 2047 Interest Costs SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2017, February 2016; and Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017. Compiled by PGPF. NOTE: Infrastructure excludes defense. #FiscalSummit 7

10 9 8 % OF FEDERAL SPENDING 62% Mandatory spending and interest costs will climb significantly, while discretionary spending will fall to well below historical averages 69% 77% Mandatory Spending and Net Interest Costs 12% 1 % OF GDP Actual Projected 7 6 5 8% 6% 20-Year Average (1997 2016) 4 3 2 38% 31% 23% Discretionary Spending 4% 2% Discretionary Spending 1 2007 2017 2027 1997 2003 2009 2015 2021 2027 SOURCE: Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027, January 2017. Compiled by PGPF. #FiscalSummit 8 Discretionary spending funds a wide range of government programs 2015 Discretionary Outlays $1,169 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 2017, February 2016. 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 9

The United States spends more on defense than the next eight countries combined $700 $600 DEFENSE SPENDING (BILLIONS OF DOLLARS) $595 Billion $611 Billion $500 China $400 $300 $200 $100 $0 Russia Saudi Arabia India France United Kingdom Japan Germany United States SOURCE: Stockholm International Peace Research Institute, SIPRI Military Expenditure Database, April 2017. Data are for 2016. Compiled by PGPF. NOTE: Figures are in U.S. dollars, converted from local currencies using market exchange rates. #FiscalSummit 10 FEDERAL SPENDING (% OF GDP) Healthcare is the major driver of the projected growth in federal spending over the long term 1 9% 8% 7% 6% 5% 4% 3% 2% 1% Actual Projected Major Health Programs Social Security Discretionary: Defense Non-defense Other Mandatory 1982 1987 1992 1997 2002 2007 2012 2017 2022 2027 2032 2037 2042 2047 SOURCE: Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017, and The Budget and Economic Outlook: 2017 to 2027, January 2017; and PGPF projections based on CBO data. Compiled by PGPF. NOTE: Major health programs include Medicare (net), Medicaid, Children s Health Insurance Program (CHIP), and the health exchanges. #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 $35,000 ANNUAL HEALTHCARE SPENDING PER CAPITA (DOLLARS) $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 (both public and private) is projected to rise to one-fifth of the economy by 2025 NATIONAL HEALTH EXPENDITURES (% OF GDP) 25% Actual Projected 2 15% 17% 19% 2 1 12% 13% 9% 5% 1980 1990 2000 2010 2020 2025 SOURCE: Centers for Medicare and Medicaid Services, National Health Expenditures, July 2016. 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 $8,000 $9,024 $6,000 $6,787 $4,000 $2,000 $3,207 $3,971 $4,152 $4,177 $4,367 $4,506 $5,003 $5,119 $3,620 $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 2016, June 2016. Compiled by PGPF. NOTE: Data are for 2014 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 2015 OECD Indicators, November 2015. Compiled by PGPF. NOTE: Data are not available for all countries for all metrics; all published data are shown. Data are for 2013 or latest available. BEST... U.S. South Africa... U.S. Slovak Republic Italy Switzerland... U.S. India... U.S. Hungary... U.S. Switzerland Poland Italy... U.S. Mexico Australia Iceland #FiscalSummit 16 86 84 82 LIFE EXPECTANCY (YEARS) Life expectancy at birth in the United States is lower than in other developed countries, despite higher healthcare costs Italy U.K. Japan France 80 Canada Germany U.S. 78 76 74 72 $0 $2,000 $4,000 $6,000 $8,000 $10,000 HEALTHCARE SPENDING PER CAPITA SOURCE: Organization for Economic Cooperation and Development, OECD Health Statistics 2016, June 2016. Compiled by PGPF. NOTE: Data are for 2014 or latest available. The trend line comes from a logarithmic regression. #FiscalSummit 17

Social Security will run a cumulative cash deficit of $2.8 trillion between now and 2034 1. SOCIAL SECURITY SURPLUSES/DEFICITS (% OF GDP) Actual Projected Trust Fund Depleted 0.5% 0. Total Deficit $2.8 Trillion -0.5% -1. -1.5% -2. 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 SOURCE: Social Security Administration, The 2016 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, June 2016. 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 2016 and 2034. #FiscalSummit 18 As the population ages, fewer workers will be paying taxes to support each Social Security beneficiary 5 WORKERS PER BENEFICIARY 4 3 3.7 3.4 2.9 2 2.3 1 0 1970 1990 2010 2030 SOURCE: Social Security Administration, The 2016 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, June 2016. Compiled by PGPF. #FiscalSummit 19

Low-income seniors rely on Social Security benefits for a major share of their retirement income 9 8 7 6 5 SOCIAL SECURITY BENEFITS (% OF TOTAL INCOME) 81% 81% 61% 4 3 39% 2 1 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. Compiled by PGPF. NOTE: A quintile is one-fifth of the population. #FiscalSummit 20 The government collects revenue from a variety of sources 2015 Total Revenues $3,250 Billion Estate and Gift Taxes 1% Excise Taxes 3% Other Other 6% 6% Corporate Income Taxes 11% Individual Income Taxes 47% Payroll Taxes 33% SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2017, February 2016. Compiled by PGPF. NOTE: Other includes customs duties and miscellaneous sources. Numbers do not sum to 10 due to rounding. #FiscalSummit 21

The U.S. tax system is generally progressive, with higherincome taxpayers facing higher tax rates EFFECTIVE FEDERAL TAX RATE (% OF CASH INCOME IN 2016) 4 Excise Tax 3 2 Estate Tax Corporate Income Tax Payroll Tax Individual Income Tax 17.2% 19.9% 21.7% 24.9% 31.9% 32.7% 13.5% 1 8.4% 3.9% 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. The income breaks (in 2017 dollars) are: 2 $24,600; 4 $47,700; 6 $84,300; 8 $147,700; 9 $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 22 The top 1 percent of taxpayers generate 38 percent of individual income tax revenue Share of Individual Income Tax All Other Taxpayers 62% Top 1 Percent 38% SOURCE: Tax Policy Center, Share of Federal Taxes All Tax Units, by Expanded Cash Income Percentile, March 2017. Data are for 2016. Compiled by PGPF. NOTE: The income break for the top one percent is $717,900 (in 2017 dollars). #FiscalSummit 23

Tax expenditures are large in comparison to annual income taxes collected, as well as to the government s major programs BUDGETARY COST IN 2015 (BILLIONS OF DOLLARS) $2,000 $1,500 $1,000 $1.5 Trillion $1.9 Trillion $500 $882 Billion $583 Billion $540 Billion $0 All Tax Expenditures Individual & Corporate Income Tax Revenues Social Security Defense Medicare SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2017, February 2016. Compiled by PGPF. NOTE: Medicare spending is net of premiums and payments from the states. Those receipts were $94 billion in 2015. Defense represents discretionary defense spending. Tax expenditures are deductions, credits, exclusions, and preferential rates. The estimates for tax expenditures include effects on income, payroll, and excise tax revenues, as well as effects on outlays. #FiscalSummit 24 The top 1 percent of taxpayers receive 17 percent of the total value of major tax expenditures Distribution of Major Individual Income Tax Expenditures Top 1 Percent 17% SOURCE: Congressional Budget Office, The Distribution of Major Tax Expenditures in the Individual Income Tax System, May 2013. Compiled by PGPF. NOTE: In 2013, the top one percent includes a four-person household with income of at least $654,000 annually or a single-person household with income of at least $327,000 annually. #FiscalSummit 25

Six popular tax provisions account for nearly 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 Earned Income Tax Credit (EITC) Deduction of mortgage interest on owner-occupied homes with loan values up to $1 million Total Budgetary Costs (2015) $329 billion $172 billion $169 billion $80 billion $64 billion $59 billion $872 billion SOURCE: Office of Management and Budget, Budget of the United States Government, Fiscal Year 2017, February 2016. 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, and self-employed plans. Numbers may not sum to total because of rounding. #FiscalSummit 26 Although the incomes of the wealthy are volatile, they have grown much faster than the incomes of other groups $1,500,000 AVERAGE ANNUAL AFTER-TAX INCOME (2013 DOLLARS) $1,200,000 $900,000 $600,000 $300,000 $0 1980 1985 1990 1995 2000 2005 2010 Top 1%: Increase of $687,600 (+197%) Top 2: Increase of $94,200 (+93%) Middle 2: Increase of $17,200 (+39%) Lowest 2: Increase of $8,200 (+5) SOURCE: Congressional Budget Office, The Distribution of Household Income and Federal Taxes, 2013, June 2016. Compiled by PGPF. NOTE: Increase calculated for 1980 2013. #FiscalSummit 27

The median real income for families in the United States has seen slow growth for decades MEDIAN FAMILY INCOME (2015 DOLLARS) $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 1955 1965 1975 1985 1995 2005 2015 SOURCE: U.S. Census Bureau, Historical Income Tables, September 2016. Compiled by PGPF. #FiscalSummit 28 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 -$16,000 -$18,000 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 29

Waiting 5 years raises the cost of stabilizing the debt by 21 percent SIZE OF BUDGET CHANGES NEEDED TO STABILIZE THE DEBT (% OF GDP) 3.5% 3. 2.9% 2.5% 2. 21% larger 2.3% 53% larger 1.9% 1.5% 1. 0.5% 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 30 20 Solutions do exist: PGPF Solutions Initiative plans from five think tanks show stable or declining federal debt through 2040 DEBT HELD BY THE PUBLIC (% OF GDP) 175% Current Policy 15 125% 10 75% 5 25% 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 31