BUILDING

A BETTER
FUTURE
C
CHHART
ART BO
BO O
OKK
AGE
D
EM

&
O

IC S
G

O M
RA

N
ECO IN C M
E
O
PH

The Committee
IC

For A
SO C IAL SEC U RIT Y
S

Responsible
Federal Budget
HEALT H C A RE
T A X REFO RM January 2000
About the Committee for a Responsible Federal Budget
The Committee is a bipartisan, non-profit educational organization committed to educating the public regarding the budget
process and issues that have significant fiscal policy impact. The Committee sponsors analysis and research, conducts educational
symposia, and prepares and distributes educational materials.

Goals

The broad long-range goal is to educate the public on the federal budget process and on the need for discipline and order in
making spending and revenue decisions. The immediate, specific goal is to point out the prospect and consequences of continuing
to delay action to address the longer-term fiscal and social policy challenges facing the nation.
The public must understand that such delay could lead to deficits much larger than the country faced in the last quarter century—
deficits and debt so large as to threaten the very fabric of the country’s economic and political life.

What We Do

The Committee sponsors symposia on budget and economic issues. We provide speakers for civic, academic, and business groups,
and hold Congressional breakfasts for Members of the House and Senate interested in dialogue on the budget and related issues.
Committee staff and Board Members write about the budget and related issues for major media outlets, provide background
information and educational materials, and help explain the budget and the budget process to many audiences.

In the fall of 1982, the Committee launched an ambitious education and outreach program on the problem of the deficit. The
Exercise in Hard Choices is to inform the American people of the nature and magnitude of the deficit and debt problems facing the
country and the limited choices available to solve those problems. The Exercise is updated regularly to reflect the actual choices Congress
and the Administration are considering to reduce the Federal deficit and reorder national priorities. The Committee provides the Exercise
workbook to educational organizations and other interested parties at cost.

The Committee is a 501[c][3] educational organization. All of its activities are funded through tax deductible contributions from
individuals, foundations, corporations, and other interested groups. It accepts no government funding.

The most recent version of The Exercise is called Building a Better Future: An Exercise in Hard Choices. In a joint effort with American Express
Financial Advisors, we adapted The Exercise to address issues raised in the Fraying of America project. Over a-year-and-a-half, from materials
development to completion, we held eight Exercises around the country. Thirty organizations participated and the project contributed greatly to
this report. We thank everyone who played a part in this tremendous information-gathering, public education effort.
 Table of Contents

Economics 1-5

Demographics 6-15

Budget 16-28

Age and Incomes 29-34

Social Security 35-52

Health Care 53-58

Tax Reform 59-60

 Treasury collects payroll taxes
and deposits them into the
general fund and credits
Consumer Outlays amounts not immediately
spending
Consumption required to pay benefits to the
trust funds..

Federal Government
Taxes (income, payroll, etc.) OASDI
Individuals General Trust Fund
Fund
Outlays (Benefits)
HI Trust Fund
Net personal Unified budget
savings takes the surpluses reduce
form of indirect outstanding public debt
investment (bank and add to national
deposits, mutual savings. Unified budget
funds, employer- Personal deficits decrease
sponsored savings Net National national savings.
retirement plans). Savings Public investment
Personal savings (Financial Assets) includes government
add to national Deficits/Borrowing spending for physical
savings. or infrastructure (roads,
Investment Surpluses/Debt reduction buildings, etc).
(Physical
Assets)
Direct investment Outlays
(e.g., homes)
1
 Net National Saving: 1960-1998

12.0% Net Government Saving Net Private Saving Net National Saving
10.5%
10.0% 9.1%

8.0%
7.5%
Percent of Net Nationa Product

6.2%
6.0% 6.5%

4.0% 4.4%

2.0%

0.0%

-2.0%

-4.0%
1960-69 1970-79 1981-89 1990-94 1995-96 1997-98 *
* 1998 is first six months. 2
Source: Committee for Economic Development
 Savings Continue to Decline
(In percentage of NNP)
Govt Savings Private Savings Net Investment

14%

12%

10%
Net National Product

8%

6%

4%

2%

-1%
1960-69 1970-79 1980-89 1990-94 1995-96 1996-97
-3%

Source: Committee for Economic Development, 1998.

Committee for a Responsible Federal Budget 3
Savings Required to Achieve Desired Retirement Goals
(as a percent of salary)
Years to Retirement
Desired Retiree Income
as a Percent of Annual Salary 10 15 20 25 30 35

30% 36% 21% 13% 9% 6% 4%

40% 48% 27% 18% 12% 8% 6%

50% 60% 34% 22% 15% 10% 7%

60% 72% 41% 26% 18% 12% 9%

70% 84% 48% 31% 21% 14% 10%

4
Source: Committee for Economic Development, 1996.
 Standards of Living More Than Doubled
Between 1966-1996 $4,688
in 1996

$5,000

$4,500
Personal Consumption per capita (1996$)

$4,000

$3,500

$3,000
$1,902
$2,500 in 1966

$2,000

$1,500

$1,000
1965 1970 1975 1980 1985 1990 1995

Source: Economic Report of the President, February 1997.

5
Committee for a Responsible Federal Budget
Decline in Working Age Population
1940 to 2050
Projections
400

350
Total Population (millions)

300

250

200

150

100

50

0
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2050

Under 20 20 to 64 65 & Over

6
Source: Bureau of the Census.
Labor Force Participation: 1950-2050*
90%
87%
84%
81%
80% 78%
77%
75%
73%
70% 70%
67% 67% 66% 67% 67% 67%
64% 65%
61% 62%
60% 60% 60% 59%
58% 59% 59%
57%
54%
52% 52% 52% 51%
50%

43%
40%
38%
34%
30%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Overall Men Women

7
* Using midrange SSA actuarial projection from Annual Statistical Supplement, 1996.
 Longer Life Expectancies, Shorter
Working Lives
Age in Years
0 10 20 30 40 50 60 70 80 90

1940 14 55 8

Men
1995 18 45 17

Pre-School/School Active Work Years Retirement

1940 14 54 12

Women
1995 19 45 21

8
Source: Bureau of the Census, 1997.
 Number of Workers per
Beneficiary is Falling
Projections
1960: 5.1 workers
5 per beneficiary
Ratio of Workers per Beenficiary

2000: 3.3 workers

per beneficiary
4

3 2030: 2.0 workers

per beneficiary

1
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Source: Board of Trustees of the Federal OASDI Trust Funds (1998).

9
Committee for a Responsible Federal Budget
 Median Age of the U.S. Population
(in years)
Projections

40

35

30 38 39 39 38
37
36
33
25 30 30 30
29 28
25 27
23 24
20
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

10
Source: Bureau of the Census, 1997.
 Projected Population Trends
U. S. Population: Race, Ethnicity and Age
Under 65 65 and older
by Race and by Race and
Ethnicity Total Population by Age Ethnicity
15%
28%

Under 65 87% 13% 65 and Older

1995 72%
85%

25%
43%
Under 65 80%
2030 20% 65 and Older 75%
57%

34%
51%
2050 Under 65 80% 20% 65 and Older
66%
49%

White, non-Hispanic White, non-Hispanic

Non-White or Hispanic Non-White or Hispanic

Source; U. S. Bureau of the Census, 1998

11
 Percentage of Americans Over
25%
the Age of 65 Projections

20% 20%
20% Percentage of Floridians age 65 and over today: 19%
17%

15% 13%
13% 13%
11%
10%
10% 9%
8%
7%

5%

0%
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

12
Source: Bureau of the Census.
 Life Expectancy at Age 65
22 Projections
Males Females

20

18
Number of Years

16

14

12

10
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Source: Historical Data: Board of Trustees of the Federal OASDI Trust Funds (1997).
Bureau of the Census intermediate assumptions, (September 1996).
13
 Life Expectancy at Birth
85

80

75

70

65

Total Male
60 Total Female
White Male
White Female
55
Black Male
Black Female
50
1950 1960 1970 1980 1990 1995 2000 2010 2020 2030

14
Source: Bureau of the Census, 1997.
 Baby Boom -- Baby Bust
4500 1957 = 4,308 Projections

4000

3500
Total Births (000's)

3000

2500

2000

1500

1000

500

0
1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
15
Source: Bureau of the Census and Office of National Health Statistics, 1997.
 Federal Budget as a Percentage of GDP
30%
36.9%

25% 25.8% 4.0%

Projected Revenues: 19.8%
Percent of GDP

20.1%
4.0% 4.0%
20%
0.4%
5.6% 2.6%
3.0%
15% 3.0%
3.1% 3.0%

10% 3.4% 6.0%

6.0%
1.2%
2.5%
5%
6.0% 7.0%
4.3%
0%
1997 2030 2050
Social Security Medicare Medicaid Defense Net Interest All Other Spending

Source: GAO, January 1999

Committee for a Responsible Federal Budget 16
 Federal Revenues
(Percentage of GDP)

Other
Post-World War II Average: Projections
Social Insurance 18% of GDP 1998-2008
Corporate
20% Individual
Percent of GDP

10%

0%

CBO
1950-1959

1960-1969

1970-1979

1980-1989

1990-1997

Pres. 1999
Budget
Source: CBO January 1999 17
 CBO Unified Deficit/Surplus Projections Continue to Improve

300
January 1999
Deficits(-)/Surpluses(+) in $ bllions

100

-100
Actuals
January 1997

-300

January 1995

-500
January 1993

-700
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Fiscal Years

18
Source: CBO, The Economic and Budget Outlooks for January 1993, January 1995, January 1997 and January 1999.
 Changes in CBO Deficit Projections by Source:
January 1997-January 1999
700

Policy Change Economic Changes Technical Changes

600
Amount of change in $ billions

500 234
209

400 202
185
168 178
300

168 247 270

163
200 156 216
191
146 169
131
100
129 134
115 92 115 107
73 82 64 76
0
-20 -16 10 16

-100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Fiscal Years

Source: CBO, The Economic and Budget Outlooks: January 1997, March 1997, 19
September1997, January 1998, March 1998, July 1998, and January 1999.
 Federal Budget Deficits: 1930 to 2050
10% Improved, but Still Unsustainable, Outlook
5%

0%
Feb. 1998 est.
Percent of GDP

-5%
Actual Projections
-10% under
Deficits
Current Policies
-15%

-20%
Oct. 1997 est.
-25%

-30%

-35%
1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Fiscal Years

Source: CRFB based on OMB historical data (1998), CBO projections (July 1998), and GAO projections 20
(October 1997 and February 1998).
 Recent Improvements Delay, but Do Not Fix, Projected
Deterioration in Long-Term National Debt Situation
1998
250%
Projections

200%
Percent of GDP

150%

World War II
100%
Oct. 1997 est.

January 1999
50%
Civil War World War I

0%
00

50

00

50

00

40
60
18

18

19

19

20

20
20
Source: Historical Data: OMB, 1997. Projections: GAO estimates, 1998 and 21
Congressional Budget Office January 1999.
 Budget Scenarios Under Alternate
Assumptions in 2030
(as a Percentage of GDP)
30

25 Revenue (19%)
5.5
6.9
Percent of GDP

2.6 2.3
20 2 .4
2 .1

2.2 1.6 5.7

2 .0

5.1 4.6
15 5.0 2.6
4.3 0.5 2.0
1.0
10 0.5 6.4
5.7 5.2 4.7
4.9
5
6.8 6.8 6.8 6.8
5.2
0
19% of GDP 23% of GDP 23% of GDP Deficit 26% of GDP 27% of GDP
Balance

Social Security Medicare Net Interest Other Entitlements

Defense Non-Defense Disc. Total Discretionary
22
Source: GAO, 1997.
 Continued Fiscal Discipline Would
Produce Significant Long-Term
$60,000 Economic Benefits
$55,000 Run Surpluses, then
GDP/Person in Constant 1997 Dollars

Permanent Budget Balance

$50,000

Current Policies (run Surpluses,

$45,000 then Run Deficits)

$40,000 Spend the Surplus

$35,000

$30,000

$25,000
$0 2000 2015 2030 2045

Source: GAO, February 1998. 23

Committee for a Responsible Federal Budget
 Federal Outlays: Major Program Categories
1965-2007
Projections
$800
Defense
$700
Social Security
$600 Health Care
Nominal $ in billions

Net Interest
$500

$400

$300

$200

$100 CBO Baseline Projection

$0
1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: Office of Management and Budget, Historical Tables: Budget o f the United States Government,
Fiscal Year 1998, February 1997; Congressional Budget Office, The Economic and 24
Budget Outlook: Fiscal Years 1998-2007, January 1997.
 Entitlement Programs are Taking
Over the Budget
45% Projections

40%

35%
Percent of GDP

30%

25%

20%

15%

10%

5%

0%

1970 1980 1990 2000 2010 2020 2030 2040 2050

Entitlements Net Interest Discretionary Revenue

25
Source: Historical Data: OMB, 1998. Projections: GAO estimates, February 1998.
 Discretionary Spending: Five Year
14%
Averages
12%
President’s
10% 6.3 % in 2004 Request
Percent of GDP

8%

6%

4%

2%

0%
1965-1969 1970-1978 1975-1979 1980-1984 1985-1989 1990-1994 1995-1999 2000-2004

Defense Non-Defense 2004 Spending Level

Sources: President’s Budget for FY 2000 (February 1999).

Committee for a Responsible Federal Budget, February 1999. 26

Major Non-Defense Discretionary Activities: 1998

All Other Non-

Defense
16%
Justice Admin
13%
Educ, Training,
Science & Space Employmt & Soc
6% Svcs
15%
International Affairs
6%

Natural Resources
& Environment
8% Transportation
14%
Health Research &
Public Health Housing & Income
9% Security
13%

27
Source: CBO projections, January 1999.
 Federal Aid to State and Local Governments
(in 1994 dollars)

100%
16% 15%
90% 25% 24% 23%
4% 7%
80% 4%
4% 3% 3%
3%
70% 3% 4% 6% 9% 8%
Other
11% 8% 9%
11% Agriculture, State Child Nutrition
60% 14%
HUD
12% 14%
50% 16% Family Support
16%
17% Transportation
40% Education, Training, Soc Svcs
25% 24% 16%
Medicaid
30%

20% 34%
40%
22% 27%
10% 22%

0%
1975 1980 1985 1990 1994
Source: Health Care Financing Administration, 1996. 28
 Official Poverty Rates: 1960-1997
35%

In 1974, for the first

30%
time, the poverty rate
of children exceeded
25% that of the elderly.
Children under 18

20%

15% Adults 65 and above

10%

Adults 18 to 64
5%
1960 1965 1970 1975 1980 1985 1990 1995
Source: Bureau of the Census, September 1996 and web site October 1998.
29
Committee for a Responsible Federal Budget
 Poverty Rates by Selected Characteristics
1980 & 1997
All Races White African American Hispanic Origin
45% 42%

40% 38%
37% 37%
35% 33%
31%
30%

25%
20% 21% 22%
20% 18%
16% 16%
14% 14%
15%
11%
9%
10%

5%

0%

1980 1997 1980 1997

Children under 18 Adults 65 and older
Source: Bureau of the Census, 1998.
30
Committee for a Responsible Federal Budget
Sources of Income of the Older Population: 1997

2% 3% 2%
100%
2%
5%
90% 17% 2%
25%
80%

70% 20%

60% Other
27%
Assets
50% 20% Earnings
88% Pensions/Annuities
40%
OASDI
25%
30%

20% 41%

10% 21%

0%
Total Lowest fifth Highest fifth
Source: EBRI, April 1999. (under $6,323) (over $22,798)

Committee for a Responsible Federal Budget

31
Composition of Average Elderly
Income: 1994 Earnings
18%

Pensions
19%

Asset Income
18%
Other
3%

Soc. Sec.
42%

Asset Income Soc. Sec. Other Pensions Earnings

32
Source: SSA, Annual Statistical Supplement to the Social Security Bulletin, 1996.
 Composition of Elderly Income
Highest Quintile: 1994 Pension
21%

Earnings
28% Asset Income
24%

Public Assistance
1% Other
3%
Soc. Sec.
23%

Asset Income Soc. Sec. Other Public Assistance Earnings Pension

33
Source: SSA, Annual Statistical Supplement to the Social Security Bulletin, 1996.
 Composition of Elderly Income
Lowest Quintile: 1994 Public Assistance
Other
11%
2% Earnings
0% Pension
3%
Asset Income
3%

Soc. Sec.
81%

Asset Income Soc. Sec. Other Public Assistance Earnings Pension

34
Source: SSA, Annual Statistical Supplement to the Social Security Bulletin, 1996.
 Average Social Security Retirement Age:
1940-1995
74
73
72
Men Women
71 Women
Average Age of Retirement

70
69
68
Men
67
66
65
64
63
62
1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995

35
Source: Social Security Bulletin, Annual Statistical Supplement, 1996.
 Social Security Income & Cost
Rates: 1950-2050
20% Projections
Cost
Percent of Taxable Payroll

15%

Income
10% (payroll taxes only,
does not include
interest income)

5%

0%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Income Cost
36
Source: Social Security Trustees Annual Report, 1997.
 Social Security Retirement Benefits Payable
at Normal Retirement Age
$30,000

$25,000 Projections
1996 Constant Dollars

$20,000

Maximum Wage Earner

$15,000

$10,000 Average Wage Earner

$5,000 Low Wage Earner

$0
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

37
Source: SSA unpublished tables and Board of Trustees of the OASDI Trust Funds, 1996.
 Example 1a. Archer-Shaw Social Security Guarantee (SSG) Plan:
Private SSGAs

New Future Outlays: SSGA funded

OASDI benefits
Federal Government
OASDI payroll taxes: 12.4% Benefits
Individuals General OASDI
Fund 12.4% Trust Fund
Outlays: OASDI benefits, 2%
refundable payroll tax credit, and
additional interest expense

When an individual is eligible for benefits,

SSGA balances go SSGA payments are transferred to the Social
National Future Receipts
to the estate of a Security Trust Fund and “topped up” to equal
Savings
current OASI benefit.
deceased worker
only if there are no
qualified survivors. SSA estimates SSGA
SSGAs balances would exceed
Borrowing increased public borrowing
Personal Savings:
2% refundable payroll National Surpluses, then deficits and by 2005. In 2030, SSGA
tax credit Savings new public borrowing balances estimated to reach
(through 2053) would $13.7 trillion and estimated
Note: Solid lines indicate finance tax credits additional public debt
Investment would be $9.4 trillion.
ongoing flows. Dotted lines
indicate future flows once
(Physical
benefit payments begin. Assets)
38
 Example 1b. Archer-Shaw Social Security Guarantee (SSG) Plan:
Public SSGAs

Federal Government
Benefits
OASDI payroll taxes: 12.4%
OASDI
Outlays: OASDI benefits and General Trust Fund
Individuals additional interest expense
Fund 12.4%

New Future Outlays: SSGA funded

OASDI benefits Benefits
2%
SSGAs
Public borrowing

Surpluses, then deficits and new National

public borrowing (through 2053) Savings
(Financial
would finance tax credits used to Assets)
purchase stock/bonds. Future Receipts: Stock/bond
sales when needed
to pay benefits

National
Note: Solid lines indicate
ongoing flows. Dotted lines
Savings
Outlays: Stock/bond fund purchases
indicate future flows once
benefit payments begin.
Investment
(Physical
Assets)
39
 Example 1c. Archer-Shaw Social Security Guarantee (SSG) Plan:
Public SSGAs, Credit Reform Scoring

Federal Government
Benefits
OASDI payroll taxes: 12.4%
OASDI
Outlays: OASDI benefits and General Trust Fund
Individuals additional interest expense
Fund 12.4%

New Future Outlays: SSGA funded

OASDI benefits Benefits
2%
SSGAs
Public borrowing

Surpluses, then deficits and new National

public borrowing (through 2053) Savings
(Financial
would finance tax credits used to Assets)
purchase stock/bonds.
National
Savings
Note: Solid lines indicate
(Financial
Assets) Stock/bond fund purchases treated as
ongoing flows. Dotted lines non-budgetary. Cash exchanged for
indicate future flows once financial assets. No outlays.
benefit payments begin.
Investment
(Physical
Assets)
40
 Example 2a. Aaron-Reischauer Social Security Reserve Investment Plan

Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals OASDI
Outlays: OASDI benefits, adjusted for General Trust Fund
12.4%
changes, and additional interest expense. Fund

Social Security
Stock and bond fund purchases would be Reserve Board
financed with unified budget surpluses.
Publicly held debt would be higher than
if surpluses were used to reduce public
debt. Surpluses/debt reduction foregone

Outlays: Stock/
bond fund purchases
National
Note: Solid lines indicate Future Receipts: Stock/bond
ongoing flows. Dotted lines
Savings
sales when needed
indicate future flows once to pay benefits
benefit payments begin. Investment
(Physical
Assets)

41
 Example 2b. Aaron-Reischauer Social Security Reserve Investment Plan,
Credit Reform Scoring
Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals OASDI
Outlays: OASDI benefits, adjusted for General Trust Fund
12.4%
changes, and additional interest expense. Fund

Social
Stock and bond fund purchases would be Security
financed with unified budget surpluses. Reserve Board
Publicly held debt would be higher than
if surpluses were used to reduce public
debt. Investment earnings expected to Surpluses/debt reduction foregone
exceed incremental interest cost.

National
Savings
(Financial
Note: Solid lines indicate Stock/bond fund purchases treated as
ongoing flows. Dotted lines
Assets)
non-budgetary. Cash exchanged for
indicate future flows once financial assets. No outlays.
benefit payments begin. Investment
(Physical
Assets)

42
Example 3a. Porter Individual Social Security Retirement Account Plan:
Private ISSRAs
Outlays:
OASDI Benefits
OASDI payroll
taxes: 12.4%
Federal Government
Individuals Benefits
(OASDI) OASDI
General 12.4%
New Outlays: Add’l Trust Fund
interest expense Fund 2%

Individuals OASDI payroll

(0% after
10 yrs.)
(ISSRAs) taxes: 2% Public
(0% after 10 yrs.) borrowing

Employee/Employer National Transition bonds

Contributions: 10% of Savings
payroll (Financial Assets) Surpluses, then deficits and new
public borrowing would finance
National transition costs (loss of payroll tax
Savings revenue and issuance of transition
(Financial bonds).
Future ISSRA Assets)
retirement ISSRAs
benefits Note: Solid lines indicate
ongoing flows. Dotted lines
New Outlays: indicate future flows once
Investment
Annuitized benefit payments begin.
Transition (Physical
Bond Payments Assets)
43
 Example 3b. Porter Individual Social Security Retirement Account Plan:
Public ISSRAs
Outlays:
OASDI Benefits
OASDI payroll
taxes: 12.4%
Federal Government
Individuals Benefits
(OASDI) 12.4% OASDI
New Outlays: Add’l General Trust Fund
interest expense Fund 2%

Individuals (0% after

10 yrs.)
Payroll taxes: 12.4%
(ISSRAs) (10% after 10 yrs.) ISSRAs
10%

New Future Outlays: National

Annuitized Transition Savings Public
borrowing Transition bonds
Bond Payments & (Financial Assets)
Retirement Future receipts: sale of
benefit payments National investments to pay benefits
Savings
(Financial
Assets)
Outlays: purchases of
stocks/bonds
Surpluses, then deficits and new
Note: Solid lines indicate public borrowing would finance
ongoing flows. Dotted lines Investment transition costs (loss of payroll tax
indicate future flows once (Physical revenue and issuance of transition
benefit payments begin. Assets) bonds).
44
 Example 3c. Porter Individual Social Security Retirement Account Plan:
Public ISSRAs, Credit Reform Scoring
Outlays:
OASDI Benefits
OASDI payroll
taxes: 12.4%
Federal Government
Individuals Benefits
(OASDI) 12.4% OASDI
New Outlays: Add’l General Trust Fund
interest expense Fund 2.4%-

Individuals (0% after

10 yrs.)
Payroll taxes: 12.4%
(ISSRAs) (10% after 10 yrs.) ISSRAs
10%

New Future Outlays: National

Annuitized Transition Savings Public
borrowing
Bond Payments & (Financial Assets)
Retirement Transition bonds
benefit payments National
Savings
(Financial
Assets)

Surpluses, then deficits and new

Note: Solid lines indicate public borrowing would finance
ongoing flows. Dotted lines Investment transition costs (loss of payroll tax
indicate future flows once (Physical revenue and issuance of transition
benefit payments begin. Assets) bonds).
45
 Example 4a. President’s Plan,
Private USAs
Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals OASDI
Outlays: OASDI benefits, USA tax credits,
General Trust Fund
12.4%
USA matching payments, and additional Fund
interest.

Future retirement Surpluses/debt

benefits reduction foregone
Stock and bond fund purchases would be
USAs financed with unified budget surpluses.
Personal savings: Contributions Publicly held debt would be higher than
National Savings if surpluses were used to reduce public
to USAs: Tax credit, matching
(Financial
payments, and individual debt.
Assets)
contributions. Note: Solid lines indicate
Investment ongoing flows. Dotted lines
(Physical indicate future flows once
Assets) benefit payments begin.

46
 Example 4b. President’s Plan,
Public USAs
Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals General
OASDI
Outlays: OASDI benefits and additional Trust Fund
Fund 12.4%
interest expense

Tax credits,
matching pmts.
USAs
Individual Contributions
New Future Outlays:
USA retirement benefits
Surpluses/debt reduction foregone
Stock and bond fund purchases would be
financed with unified budget surpluses.
Publicly held debt would be higher than National
if surpluses were used to reduce public Savings
debt. (Financial
Assets) New Outlays for stock/bond purchase

New Future
Note: Solid lines indicate Investment Receipts: Sale of
ongoing flows. Dotted lines (Physical assets as needed
indicate future flows once Assets) for benefits
benefit payments begin.
47
 Example 4c. President’s Plan,
Public USAs, Credit Reform Scoring
Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals General
OASDI
Outlays: OASDI benefits and additional Trust Fund
Fund 12.4%
interest expense

Tax credits,
matching pmts.
USAs
Individual Contributions
New Future Outlays:
USA retirement benefits
Surpluses/debt reduction foregone
Stock and bond fund purchases would be
financed with unified budget surpluses.
Publicly held debt would be higher than National
if surpluses were used to reduce public Savings
debt. (Financial
Stock/bond fund purchases treated as
Assets) non-budgetary. Cash exchanged for
financial assets. No outlays.
Note: Solid lines indicate Investment
ongoing flows. Dotted lines (Physical
indicate future flows once Assets)
benefit payments begin.
48
 Example 5a. Kolbe-Stenholm Plan,
Private ISAs
Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals OASDI
Outlays: OASDI benefits, adjusted for General Trust Fund
10.4%
benefit changes, and additional interest. Fund

Future retirement OASDI benefit costs would be partially

benefits financed with unified budget surpluses
and new borrowing through 2014. After
2014, proposal would generate net
ISAs surpluses.
Personal savings: voluntary ISA
National Savings New Outlays: 2% of payroll transferred to
contributions
(Financial ISAs for stock/bond/Treasury mutual fund
Assets)
purchases
Note: Solid lines indicate
Investment ongoing flows. Dotted lines
(Physical indicate future flows once
Assets) benefit payments begin.

49
 Example 5b. Kolbe-Stenholm Plan,
Public ISAs
Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals General
OASDI
Outlays: OASDI benefits, adjusted for Trust Fund
Fund 10.4%
benefit changes, and additional interest.

2%
ISAs
Voluntary ISA
Contributions
New Future Outlays:
ISA retirement benefits

OASDI benefit costs would be partially

National financed with unified budget surpluses
Savings and new borrowing through 2014. After
2014, proposal would generate net
(Financial surpluses.
Assets)
New Outlays for stock/bond purchase
Note: Solid lines indicate Investment
ongoing flows. Dotted lines (Physical
indicate future flows once Assets)
benefit payments begin.
50
 Example 5c. Kolbe-Stenholm Plan,
Public ISAs, Credit Reform Scoring
Federal Government
Benefits
OASDI payroll taxes: 12.4%
Individuals General
OASDI
Outlays: OASDI benefits, adjusted for Trust Fund
Fund 10.4%
benefit changes, and additional interest.

2%
ISAs
Voluntary ISA Contributions
New Future Outlays:
ISA retirement benefits

Stock and bond fund purchases would be OASDI benefit costs would be partially
financed with unified budget surpluses. financed with unified budget surpluses
Publicly held debt would be higher than National and new borrowing through 2014. After
if surpluses were used to reduce public Savings 2014, proposal would generate net
debt. (Financial surpluses.
Assets)
Note: Solid lines indicate Stock/bond fund purchases treated as
ongoing flows. Dotted lines Investment non-budgetary. Cash exchanged for
indicate future flows once (Physical financial assets. No outlays.
benefit payments begin. Assets)

51
 Social Security & Medicare Costs
(as a Percentage of Taxable Payroll)
Projections
30%

25%

20%

15%

10%

5%

0%
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Social Security Hospital Insurance

52
Source: SSA, Annual Statistical Supplement to the Social Security Bulletin, 1996.
 National Health Care 2007 = 16%

Expenditures Projections
1996 = 14%
15%
Percent of GDP

10%

1965 = 6%

5%

0%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source: CBO, January 1997. 53
Per Capita Health Care Expenditures by Age, 1977 & 1987

$10,000 $9,178

$8,000
Constant 1987 Dollars

$6,000 $5,360
1977
1987
$4,000 $3,481

$1,776
$2,000 $1,535
$1,234 $1,221
$745
$505

$0
All Ages Under 19 19 to 64 65 & over 85 & over

Source: CRFB based upon Health Care Financing Administration data reported in 65+ in the United States, U.S.
Government Printing Office, Washington DC 20402. (This is the most recently published data available.) 54
 Medicare Benefits
By Sources of Financing
350

300

Payroll Taxes Premiums Tax on Soc. Sec. Benefits General Revenues

250
Total Benefits ($ billions)

200

150

100

50

0
1970 1975 1980 1985 1990 1995 2000 2005
Projected
Source: CRFB based upon HCFA Office of the Actuary published data, March 1999. 55
 Medicare Hospital Insurance Expenditures
1965 Estimates versus Actual Expenditures

$70,000 $66,239

$60,000

$47,580
$50,000

$40,000
1965 est.
Actuals
$30,000 $25,064

$20,000
$11,315
$8,797
$10,000 $6,860
$5,124 $4,047 $5,307
$987 $891 $2,860

$0
1966 1970 1975 1980 1985 1990

Source: O’Sullivan and Graves, Congressional Research Service (1993).

56
 Population without Health
35%
Insurance by Age: 1995
Percent of Uninsured Population

30%

25%
National Average = 17%

20%

33%
15%

24%
23%
10%
17%
15% 14% 14%
5%

1%
0%
Under 18 18-20 21-24 25-34 35-44 45-54 55-64 65+

57
Source: Employee Benefit Research Institute Analysis of the March 1995 Current Population Survey.
The Heads of Most Uninsured Families Are Full-time Workers
Uninsured Population By Work Status of Family Head

Non-worker
Other Worker 6.2 million
10.6 million 15%
25%

Full-time Worker
24.6 million
41.4 million uninsured (1996) 60%

Source: Employee Benefit Research Institute estimates of the March 1997 Current Population Survey.
58
 Percent of Total Federal Taxes Paid Compared to
Distribution of Tax Returns by Income Classes
1.2%
100%
4.5%
90% 6.0% 19.1%

80% 13.5%

16.7% $200,000 and over

70% 9.3%
$100,000 to $200,000
$75,000 to $100,000
60% 12.7%
14.2% $50,000 to $75,000
50% $40,000 to $50,000
15.8% $30,000 to $40,000
40% 20.7% $20,000 to $30,000
$10,000 to $20,000
30% 19.7%
9.6% Less than $10,000
20%
9.1%
10% 3.3%
17.4% 6.6%
0.7%
0%
Tax Returns Tax Liability

59
Source: Joint Tax Committee, US Congress, 1997.
 Federal Revenues
(Percentage of GDP)

Other
Post-World War II Average: Projections
Social Insurance 18% of GDP (1999 & 2009)
Corporate
20% Individual
Percent of GDP

10%

0%

1999 (Act)
1950-1959

1960-1969

1970-1979

1980-1989

1990-1997

2009 (Proj)
Source: CBO January 1999 60
 Co-Chairmen
Timothy Penny Bill Frenzel
Directors
Thomas L. Ashley Roy L Ash
James Cooper Nancy Kassebaum Baker
James Exon Willis Gradison
William H. Gray, III James T. Lynn
Jim Hones W. Henson Moore
James T. McIntyre, Jr. June O’Neill
Leon Panetta Peter G. Peterson
Alice M. Rivlin John J. Rhodes
Charles Schultze David A. Stockman
James Slattery Joseph R. Wright, Jr.
Charles Bowsher
Robert S. Kerr, Jr.
Marne Obernauer
Rudolph g. Penner
Robert Reischauer
John W. Snow
Elmer Staats
Paul A. Volcker
Carol Cox Wait
Henry Bellmon
Robert Giaimo
Robert Strauss Carol Cox Wait
Senior Advixors President

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