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House Armed Services Committee Briefing January 24, 2007 GAO-07-435CG Report Documentation Page Form Approved OMB No. 0704-0188 Public reporting burden for the collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington Headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington VA 22202-4302. Respondents should be aware that notwithstanding any other provision of law, no person shall be subject to a penalty for failing to comply with a collection of information if it does not display a currently valid OMB control number. 1. REPORT DATE 3. DATES COVERED 24 JAN 2007 2. REPORT TYPE 00-00-2007 to 00-00-2007 4. TITLE AND SUBTITLE 5a. CONTRACT NUMBER DOD Budgeted Transformation Challenges and Opportunities 5b. GRANT NUMBER 5c. PROGRAM ELEMENT NUMBER 6. AUTHOR(S) 5d. PROJECT NUMBER 5e. TASK NUMBER 5f. WORK UNIT NUMBER 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) 8. PERFORMING ORGANIZATION U.S. Government Accountability Office,441 G Street REPORT NUMBER NW,Washington,DC,20548 9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES) 10. SPONSOR/MONITOR’S ACRONYM(S) 11. SPONSOR/MONITOR’S REPORT NUMBER(S) 12. DISTRIBUTION/AVAILABILITY STATEMENT Approved for public release; distribution unlimited 13. SUPPLEMENTARY NOTES The original document contains color images. 14. ABSTRACT 15. SUBJECT TERMS 16. SECURITY CLASSIFICATION OF: 17. LIMITATION OF 18. NUMBER 19a. NAME OF ABSTRACT OF PAGES RESPONSIBLE PERSON a. REPORT b. ABSTRACT c. THIS PAGE 36 unclassified unclassified unclassified Standard Form 298 (Rev. 8-98) Prescribed by ANSI Std Z39-18 Composition of Federal Spending 1966 1986 2006a 20% 28% 29% 32% 34% 43% 21% 14% 9% 20% 7% 15% 19% 10% 1% Defense Social Security Medicare & Medicaid Net interest All other spending Sources: Office of Management and Budget and the Department of the Treasury. Note: Numbers may not add to 100 percent due to rounding. aPreliminary. GAO-07-435CG 2 Federal Spending for Mandatory and Discretionary Programs 1965 1985 2005 7% 7% 14% 27% 42% 54% 39% 66% 44% Net Interest Discretionary Mandatory Source: Office of Management and Budget. GAO-07-435CG 3 Surplus or Deficit as a Share of GDP Fiscal Years 1962-2006 3 Percent of GDP 2 1 0 -1 -2 -3 -4 -5 -6 -7 19621965 1970 1975 1980 1985 1990 1995 2000 2006 Fiscal Years On-budget Off-budget Unified Sources: Office of Management and Budget, Department of the Treasury and the Congressional Budget Office. GAO-07-435CG 4 Fiscal Year 2005 and 2006 Deficits and Net Operating Costs Fiscal Year 2005 Fiscal Year 2006 ($ Billion) On-Budget Deficit (494) (434) Unified Deficit (318) (248) Net Operating Cost (760) (450) Sources: The Office of Management and Budget and the Department of the Treasury. Notes: Fiscal year 2005 and 2006 net operating cost figures reflect significant but opposite changes in certain actuarial costs. For example, changes in interest rates and other assumptions used to estimate future veterans’ compensation benefits increased net operating cost by $228 billion in 2005 and reduced net operating cost by $167 billion in 2006. GAO-07-435CG 5 Major Reported Long-Term Fiscal Exposures ($ trillions) 2000 2006 % Increase (cid:127) Explicit liabilities $6.9 $10.4 52 (cid:127) Publicly held debt (cid:127) Military & civilian pensions & retiree health (cid:127) Other (cid:127) Commitments & contingencies 0.5 1.3 140 (cid:127) E.g., PBGC, undelivered orders (cid:127) Implicit exposures 13.0 38.8 197 (cid:127) Future Social Security benefits 3.8 6.4 (cid:127) Future Medicare Part A benefits 2.7 11.3 (cid:127) Future Medicare Part B benefits 6.5 13.1 (cid:127) Future Medicare Part D benefits -- 7.9 Total $20.4 $50.5 147 Source: 2000 and 2006 Financial Report of the United States Government. Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year and all other data are as of September 30. Totals may not add due to rounding. Percentage increases are based on actual data and may differ from increases calculated from rounded data shown in table. GAO-07-435CG 6 Understanding the Size of Major Reported Fiscal Exposures Our fiscal burden can be translated and compared as follows: 2006 Major reported fiscal exposures $50.5 trillion Total household net worth $53.3 trillion Ratio of fiscal exposures to net worth 95 percent Burden Per person $170,000 Per full-time worker $400,000 Per household $440,000 Income Median household income $46,326 Disposable personal income per capita $31,519 Ratio of household burden to median income 9.5 Sources: GAO analysis of data from the Department of the Treasury, Federal Reserve Board, U.S. Census Bureau and Bureau of Economic Analysis GAO-07-435CG 7 Unified Surpluses and Deficits as a Share of GDP Under Alternative Fiscal Policy Simulations Percent of GDP 5 0 -5 -10 Baseline Discretionary spending Extended -15 grows with the economy and all expiring tax provisions extended -20 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Fiscal year Source: GAO’s January 2006 analysis. Note: Assume currently scheduled Social Security benefits are paid in full throughout the simulation period. GAO-07-435CG 8 Composition of Spending as a Share of GDP Under Baseline Extended (January 2001) Percent of GDP 50 40 Revenue 30 20 10 0 a a a 2005 2015 2030 2040 Fiscal year Net interest Social Security Medicare & Medicaid All other spending Source: GAO’s January 2001 analysis. aAll other spending is net of offsetting interest receipts. GAO-07-435CG 9