Budget Briefing Book: Super Committee Edition

budget Briefing Booklet super committee edition — October 19, 2011 —

WHAT’S INSIDE 04

BUDGET BRIEFING BOOK

05

A LOOK BACK

07

SUPER COMMITTEE

super committee edition

fiscal year 2011

who are they?

8 // INFOGRAPHIC

15

ENTITLEMENT PROGRAMS

18

IN THE SPOTLIGHT

medicare, medicaid & social security

medicare

20 // INFOGRAPHIC

28

IN THE SPOTLIGHT social security

30 // INFOGRAPHIC

36

DEFENSE SPENDING

how bloated spending is hurting our nation’s security

38 // INFOGRAPHIC

04 BUDGET BRIEFING BOOK super committee edition The economy is still struggling, due, in part, to uncertainty surrounding Washington’s fiscal situation. Many scholars agree the federal debt, which is nearly $15 trillion, is a significant roadblock to job creation. In the coming weeks, the Joint Committee on Deficit Reduction (also known as the Super Committee) has been tasked with finding ways to reduce the deficit. Where should they look?

In this briefing book, we look at where the federal government gets its money and how it spends it; we introduce you to each Super Committee member; and we explore in detail the largest federal government expenditures.

A LOOK BACK fiscal year 2011 spending WHERE DOES THE MONEY GO? Ka-ching! American families have learned how to tighten their belts in the turbulent economic climate. Congress, it seems, has refused to practice the same discipline. Fiscal Year 2011 (FY11) just came to an end (it ran from October 1, 2010 – September 30, 2011). Where did all the money go?

HOW DID WASHINGTON DO? [1]

A Year in Review

[2]

Spotlight on Revenues

[3]

Spotlight on Expenditures

A YEAR IN REVIEW1 Fiscal Year 2011 was marked by public scrutiny of the federal government’s runaway excessive spending. After all the debate, how did the nation’s checkbook fare? The Congressional Budget Office (CBO) recently reported preliminary revenue and spending totals for FY11. Despite a year marked by spending “cuts” and record low interest rates, spending still grew.

Total Revenue – $2.303 trillion (6.5% increase from FY10) Total Spending – $3.6 trillion (4.2% increase from FY10) Interest Payments – $266 billion (16.7% increase from FY10) FY11 Projected Deficit (spending minus revenue) – $1.298 trillion FY10 Deficit – $1.294 trillion

06

SPOTLIGHT ON REVENUES Where did Washington get its $2.303 trillion in revenue this year?

Individual Income Taxes – $1.093 trillion (47% of FY11 revenue) Social Insurance Taxes – $819 billion (36% of FY11 revenue) Corporate Income Taxes – $180 billion (8% of FY11 revenue) Other (tariffs, excise taxes, fees, etc.) – $210 billion (9% of FY11 revenue) SPOTLIGHT ON EXPENDITURES Where did the government spend all of our money?

Social Security Benefits – $720 billion (20% of FY11 spending) Defense – $679 billion (19% of FY11 spending) Medicare – $483 billion (13% of FY11 spending) Medicaid – $275 billion (8% of FY11 spending) Net Interest on Public Debt – $266 billion (7% of FY11 spending) Unemployment Benefits – $123 billion (3% of FY11 spending) Other Activities2 – $1.088 trillion (30% of FY11 spending)3

SUPER COMMITTEE who are they?

[1]

Legal Establishment

[2]

Super Committee Members

[3]

Members’ Key Votes

LEGAL ESTABLISHMENT The additional deficit reduction called for in the Budget Control Act (BCA) required the details be worked out by a Joint Selection Committee on Deficit Reduction made up of equal representation of Republicans and Democrats from the Senate and House. This committee is the so-called Super Committee.

The committee is tasked with finding a targeted $1.5 trillion in savings over ten years4.

If no savings from the committee’s recommendations become law, automatic across-the-board spending cuts take effect for both defense and non-defense spending. Entitlement spending is protected somewhat from these cuts. These automatic cuts must equal an estimated $1.2 trillion5.

THE SUPER COMMITTEE Six Democrats and six Republicans (three each from the House and Senate) were appointed to the committee. Who are they, and what are their backgrounds?

superher the super

HOUSE

suppo key b

‘10 b tax c

fred upton (mi)

jeb hensarling (TX)

dave camp (mi)

CASH CLUN

‘09 ob stim

TA

fann fred bail

‘06 ta exten

James Clyburn (SC) *

No recent key votes

xavier bEcerra (ca)

CHRIS VON HOLLEN (MD)

far subs

roes of committee

SENATE

ort of bills

bush cuts

H FOR KERS

pat toomey * (PA)

jon kyl (AZ)

rob portman * (oh)

max baucus (mt)

john kerry (ma)

bama ulus

RP

nie/ ddie lout

ax cut nsion

rm idies

patty murray (wa)

10

HOUSE OF REPRESENTATIVES DEMOCRATS Xavier Becerra (CA-31) Member of the Committee on Ways and Means; Democratic Caucus Vice Chair; member of the National Commission on Fiscal Responsibility and Reform Becerra tends to align with House Minority Leader Nancy Pelosi and is a leader in setting Democrat policy stances. Additionally, he is an advocate for lower taxes on the poor, a public option for health care, and immediate withdrawal from Iraq and Afghanistan.6 James Clyburn (SC-6) Assistant Democratic Leader; former member of the Appropriations Committee; no current committee assignments As the third-ranking Democrat in the House, Clyburn unites urban liberals and rural blue-dog Democrats. He frequently counsels President Barack Obama.6 Chris Van Hollen (MD-8) Ranking Member of the Budget Committee; former Democratic Congressional Campaign Committee Chairman; former member of the Committee on Ways and Means

After serving as the man in charge of getting Democrats elected to Congress several years ago, Van Hollen has quickly become a leader in Democratic policy. He is an advocate for tax credits to advanced biofuel producers and addressing the Alternative Minimum Tax (AMT), a tax that could potentially impact many of his constituents.6 REPUBLICANS Jeb Hensarling (TX-5) (Co-Chair of Joint Committee) Vice Chairman of the Financial Services Committee; Republican Conference Chairman; member of the National Commission on Fiscal Responsibility and Reform As the number four Republican in the House, Hensarling rarely strays from the party line. When he does, it is because he is even more conservative than the leadership.6 David Camp (MI-4) Chairman of the Committee on Ways and Means; member of the National Commission on Fiscal Responsibility and Reform Camp, an expert in tax issues, is an advocate of cutting spending rather than raising taxes to get the nation’s debt under control.6 Fred Upton (MI-6) Chairman of the Committee on Energy and Commerce Upton is known as a moderate Republican. During President George W. Bush’s tenure, few Republican representatives broke from the White House agenda more than Upton.6

12

SENATE DEMOCRATS Patty Murray (WA) Up for reelection in 2016 (Co-Chair of Joint Committee) Member of the Budget and Appropriations Committees; Chair of the Veterans Committee; Democratic Senatorial Campaign Committee Chair; Democratic Conference Secretary Murray is a liberal voice in Congress for government involvement in the economy. She is an advocate for infrastructure spending.6 Max Baucus (MT) Up for reelection in 2014 Chairman of the Committee on Finance; member of the National Commission on Fiscal Responsibility and Reform Baucus has a history of working in a bipartisan fashion, including being one of a select few of Democrats to work on the Republicans’ Medicare Part D bill. He also supported President Bush’s 2001 tax cuts.6 John Kerry (MA) Up for reelection in 2014

Chairman of the Senate Committee on Foreign Relations Kerry is a social liberal and foreign relations leader. He has experience building consensus and moving bills through the Senate, such as the U.S.Russia Nuclear Arms Treaty.6 REPUBLICANS Jon Kyl (AZ) Retiring at the end of this Congress.

Republican Whip; member of the Committee on Finance A leader in Republican thought, Kyl’s positions on foreign policy and tax matters usually become the GOP position.6 Pat Toomey (PA) Up for reelection in 2016 Member of the Budget and Banking Committees (joined the Senate in 2010) A senator who enjoys Tea Party support, Toomey is a strong believer in free markets and limited government. He was once an investment banker.6 Rob Portman (OH) Up for reelection in 2016 Member of the Budget Committee (joined the Senate in 2010) Portman brings true policy experience and expertise to the deficit negotiations.

He served both as U.S. Trade Representative and as director of the Office of Management and Budget, both cabinet-level positions under President Bush.6

14

The Super Committee) has a responsibility to examine federal expenditures and determine opportunities for cuts and reform. Social Security, Medicare, Medicaid and the Department of Defense are the largest federal expenditures.

In Fiscal Year 2011, Social Security, Medicare and Medicaid alone consumed 41 percent of all federal spending9. In Fiscal Year 2011, defense spending alone consumed approximately 19 percent of all federal spending10.

ENTITLEMENT PROGRAMS medicare, medicaid & social security On May 13, 2011, the Medicare and Social Security Boards of Trustees released their annual reports on the financial status of both programs. These reports made it clear that federal lawmakers must address the growing costs associated with the two largest federal programs.

With Americans living longer lives, 10,000 baby boomers retiring a day11, lower birthrates, and the ever-increasing cost of health care, the costs of these programs will continue to grow.

Medicare and Social Security face an unfunded liability of $38.3 trillion over the next 75 years. To put this number in perspective, in Fiscal Year 2010 the federal government collected $2.2 trillion in taxes12.

TRUSTEES LEAN TOWARDS REFORM13 As the nation’s financial condition continues to deteriorate, government programs, such as Medicare and Social Security, does too. According to the trustees, these programs are now challenged with costs that are not sustainable under current government financing; thus, in order to avoid an added burden to both beneficiaries and taxpayers, or disruptions in the program, modifications are needed.

16

WHAT ARE THE DRIVERS OF DEBT FOR THESE PROGRAMS? + The growing number of baby boomers entering retirement in comparison with the lower birth-rate of younger generations. +The rapid increase in health care costs per person.

Medicare and Social Security worked fine in previous years when there were many more workers on the bottom of the pyramid than retirees on top. Given the flip in the pyramid, overall increased health care costs and the impact of longer life expectancies when the programs were created, it’s easy to see why there are problems.

MEDICAID’S FISCAL HEALTH Created in 1965, Medicaid is a federal and state partnership that provides health benefits for poor individuals and persons with disabilities14. + In Fiscal Year 2010, 68.2 million Americans were on Medicaid15. + In Fiscal Year 2009, Medicaid spent $380.6 billion, of which $250.9 billion funded by the federal government16. + Individuals with disabilities make up 15 percent of Medicaid enrollees and 40 percent of all Medicaid expenditures17. + By Fiscal Year 2019, it is estimated Medicaid will spend $840 billion18.

Unlike Social Security and certain aspects of Medicare, there is no Medicaid trust fund. Instead, its funds come from general revenue from the state and federal government “on an as-needed basis19.” + Each state creates its own program, but federal rules require certain benefits. + Each state sets its own payment rates for providers20. + What the states pay for Medicaid and what the federal government pays “is determined by a formula set in law that establishes higher federal shares for states with per capita personal income levels lower than the national average21.” Currently, the federal share runs from 50 percent to 75 percent22. + Medicaid is allowed to establish “nominal” service-related costs, however, some types of Medicaid beneficiaries do not pay for anything23. + Nominal costs ranged from $.60 to $3.40 in Fiscal Year 2009.

18 IN THE SPOTLIGHT medicare [1]

Just the Facts: A Summery of Findings

[2]

Medicare 101: What is Medicare

[3]

Medicare Hospital Coverage Going Broke

[4]

Medicare 201: What’s the Real Story with Medicare’s Other Finances

JUST THE FACTS: A SUMMARY OF FINDINGS Medicare’s primary trust fund, which collects Medicare payroll taxes and only funds in-patient hospital care and related hospital costs, will run out of funds in 13 years - five years sooner than was projected in last year’s trustees report. Additionally, the Congressional Budget Office estimates it will happen even soon – in just nine years. Over the next 75 years, this trust fund faces an unfunded liability of $3 trillion -meaning money will not in the trust fund to cover benefits at this time.

Medicare’s other services, such as general doctor visits and prescription drug coverage, are primarily funded by the general revenues collected by the U.S. government. To be clear, they are not financed by the Medicare payroll tax. + Since this percentage of federal funding happens automatically each year, the trustees found these parts of Medicare to be actuarially sound. + However, this assertion is misleading when put in context because over the

next 75 years these parts of Medicare face an unfunded liability of $28.8 trillion – meaning the federal government will have to find $28.8 trillion in general revenues over the next 75 years to pay for the program.

MEDICARE 101: WHAT IS MEDICARE?24 + Medicare, which was created in 1965, provides health care coverage for individuals in the United States who are 65 and older until their death. + In 1972, Medicare was expanded to provide health care for disabled Americans who are under 65 years old. + In 2006, the program was expanded for a third time to provide prescription drug coverage for eligible participants (Pp. 249-250).

In 2010, 47.5 million individuals were covered by Medicare (P. 4).

According to the 2010 Census, the U.S. population stands at 308 million25.

This means that more than 15 percent of the U.S. population is currently covered by Medicare.

MEDICARE IN NEED OF A FISCAL CHECK-UP

MED

SURGEON GENERAL’S WARNING: THE RAPID INCREASE IN HEALTHCARE COSTS COUPLED WITH THE NUMBER OF BABY BOOMERS ENTERING INTO RETIREMENT WILL CAUSE TRILLIONS IN UNFUNDED MEDICARE LIABILITIES.* *NOTE – OKAY, NOT AN ACTUAL SURGEON GENERAL’S WARNING. BUT REALLY, THIS IS SERIOUS.

CURRENTLY, 15% OF THE POPULATION IS COVERED

BY MEDICARE (47.5 MILLION INDIVIDUALS)

+++++++++++++++++++++++++++++++++

FY 2011 SPENDING 13%

= MEDICARE ($483 BILLION)

MEDICARE PART D

pays private plans to provide prescription drug coverage funded by: healthcare premiums & government money of the $ outside tax r medica e

DICARE PART C

provides private insurance approved by medicare funded by: money from parts a & b

MEDICARE PART B

covers doctor appointment costs & other related services funded by: healthcare premiums & government money

e of again, $ outsid tax re ca di the me

MEDICARE PART A

covers in-patient hospital care & other related services funded by: trust from medicare taxes on earnings* *note – the congressional budget office estimates that part a will run out of money in 9 years. why? one reason is the projected beneficiary : worker ratios...

:

: (year - 2010)

medicare beneficiary :

(year - 2030)

: (year - 2085)

workers paying into medicare

SOURCES: MEDICARE BOARD OF TRUSTEES // 2010 GOVT CENSUS // CBO

22

MEDICARE IS MADE UP OF FOUR KEY PARTS MEDICARE PART A Funded by federal payroll taxes26 on earnings, Medicare Part A provides inpatient hospital care and other related services. + Funds collected from payroll taxes go into the Medicare Hospital Trust Fund. + For retired individuals who paid into the system27, there are no premium costs for this service. + Currently, the Medicare payroll tax taxes earnings at “…1.45 percent for employees and employers, each. The self-employed pay 2.9 percent “(P. 257). + “According to the trustees, this “…fund is not adequately financed over the next 10 years” (P. 4).

MEDICARE PART B Funded by health care premiums - monthly payments of the individuals enrolled in the program - and federal revenue (in 2010, nearly 73 percent of the total funding came from government money collected from general revenues). + Covers doctor appointment costs and other related services. + In 2011, the Part B monthly premium for most beneficiaries is

approximately $10028.

Medicare Parts A and B are considered “traditional” and “fee-for-service” Medicare.

MEDICARE PART C (I.E. “MEDICARE ADVANTAGE”) Funded by money from Medicare Parts A and B, Medicare Part C is private insurance approved by Medicare that is contracted “…to provide Part A and Part B health services” (P. 4). + These plans may include prescription drug coverage as well. + The premiums vary greatly based upon the plan selected. There are many different options to choose from. + For example, some Medicare Advantage plans may have the cost of a gym membership included while others may not. In general, such features are reflected in the price29.

If you have Medicare Part C, you do not have Medicare Part A or B, but you may have Medicare Part D. MEDICARE PART D Funded by health care premiums and general revenue (in 2010, nearly 83 percent of the total funding came from government money collected from general federal taxes). + The plan “pays private plans to provide prescription drug coverage” (P. 253). + Like Medicare Part C, there are many different options from which to choose. + In 2011, the average Part D monthly premium is approximately $4030.

24

MEDICARE HOSPITAL COVERAGE IS GOING BROKE31 Medicare Hospital Coverage is Medicare Part A. It receives funds from the Medicare payroll tax (and trust fund reserves), which are used to pay for inpatient hospital care and other related services (P. 252). + For the Medicare Trust Fund, money that is not used for current benefits and administrative costs are invested in basic government bonds, which earn interest for the trust fund (P. 259).

If changes are not made to Medicare Part A, there will be significant disruptions in care because not enough money will exist in the program. + According to the trustees, this “…fund is not adequately financed over the next 10 years” (P. 4). + The trustees now estimate that this trust fund will run out of funds in 13 years, five years earlier than was projected in last year’s report (P. 4). + The Congressional Budget Office projects it will run out of funds even sooner – in just nine years32.

Great changes in the number of taxpayers supporting beneficiaries have led to the fund’s fiscal situation. + In 2010, there were about 3.4 workers paying into the Medicare Part A system for every beneficiary.

+ In 2030, it is projected there will be 2.3 workers paying into the system for every beneficiary. + By 2085, there is expected to be only two workers per beneficiary (P. 80).

What happens if the fund goes insolvent? No one knows for sure. “Neither the Social Security Trust Fund nor the Medicare Trust Fund has ever run out of money and there are no provisions…governing what would happen in such event33.” According to the trustees, the current unfunded obligation for Medicare Part A over the next 75-years is $3 trillion (P. 83). + Currently, the trust fund has $272 billion in funds (P. 4). + In 2010, since less was taken in from Medicare taxes than was paid in benefits, Medicare was forced to take $32.3 billion from its trust fund. + In past years, when there were Medicare taxes exceeded the amount paid in benefits, the remaining funds were invested in special U.S. government bonds. Like the Social Security Trust Fund, the money from the Medicare Trust Fund was used by the government for whatever expenses it had at the time. + In other words, this means that the government spent the “surplus” money on general government operations while Medicare, in return, received a U.S. government bond that earns interest.

MEDICARE 201: WHAT’S THE REAL STORY WITH MEDICARE’S OTHER FINANCES34 According to the trustees, Medicare Parts B and D are “…adequately financed over the next 10 years and beyond…” (Pp. 4–5). However, this statement is misleading when put in context.

26

+ In 2010, 73 percent of the costs of Part B came directly from funds the U.S. collects in general taxes (109). + Likewise in 2010, 83 percent of the costs of Part D came directly from funds the U.S. collects in general taxes (P. 134). + Exactly how the government funds Parts B and D reflect complex formulas; however, the federal government is the primary contributor for the costs and will continue to be so in the future if the law remains unchanged.

Therefore, to conclude that Parts B and D are actuarially strong would be a grave mistake. Unlike Medicare Part A, which collects the Medicare payroll tax and has a trust fund for the excess funds it does not spend on benefits, Medicare Parts B and D rely every year on general federal government funding, which is not tied to the Medicare payroll tax. + In 2010, general revenue contributed $153.5 billion for Part B (Pp. 109).

According to the trustees, the current cost for Part B for the next 75 years will be $18.9 trillion (P. 130). In its calculation, the trustees assumed that 73 percent of Part B will be paid for by the federal government for the indefinite future. + In 2010, general government revenue contributed $51.1 billion for Part D (Pp. 134). According to the trustees, the current cost for Part D over the next 75 years will be $9.9 trillion (P. 146). In its calculation, the trustees assumed that 75 percent of Part D will be paid for by the federal government for the indefinite future.

+ This equals $24.2 trillion in unfunded federal government liabilities for Medicare over the next 75 years.

Additionally, the Trustees report is flawed because it does not take into account the blocking of the sustainable growth rate (“SGR”) formula. + The SGR formula was put in place to control Medicare spending by the Balanced Budget Act of 1997. If fully implemented, SGR would ‘control’ Medicare spending by mandating what doctors are paid for certain Medicare services (Pp. 212-213). + Congress routinely blocks the SGR formula on a “temporary basis.” The current block lasts until January 1, 2012. Why temporary? Because it “costs” too much to eliminate the SGR on a permanent basis. Therefore, Congress prefers blocking it on a short-term basis.

If enacted in 2012, payments to doctors for certain Medicare services would immediately fall by 29.4 percent (P. 213). If this were to happen, many believe that a large amount of doctors would stop seeing Medicare patients altogether. Because it is almost certain to be “temporarily extended” beyond January 1, 2012, the trustees note that the future costs for Medicare are likely to surpass those shown by the current estimates in the report (P. 17).

Medicare Part C is funded by Part A and Part B trust funds (P. 192). Medicare Part C is private insurance that is contracted “…to provide Part A and Part B health services” (P. 4). Of the 47.5 million individuals were covered by Medicare in 2010, 25 percent, chose Part C (P. 4). In 2010, Part A paid $60.7 billion and Part B paid $55.2 for Medicare Part C (P. 199).

28 IN THE SPOTLIGHT: social security [1]

Just the Facts: A Summary of Findings

[2]

Social Security 101: What is Social Security

[3]

Social Security 201: The Truth about its Finances

[4]

Two Prominent Views on the State of Social Security

JUST THE FACTS: A SUMMARY OF FINDINGS The recent Social Security recent trustees report outlined the program’s fiscal health: + Social Security’s retiree income trust fund, which collects Social Security payroll taxes35 and pays for retirees’ income, will run out of funds in 2036, one year earlier than was projected in the previous year’s trustees report. + Social Security’s disability income trust fund, which pays disabled workers a supplemental income, will run out of funds in seven years. + According to the trustees, the current unfunded obligation for Social Security over the next 75 years is $6.5 trillion.

SOCIAL SECURITY 101: WHAT IS SOCIAL SECURITY36 Social Security was created in 1935 to create a “basic level of monthly income” for individuals from normal retirement age until their death. + In 1939, the program was extended to give certain benefits to family members when a parent or spouse who works dies.

+ In 1956, the program was extended again to provide income for workers (and their dependents) who are unable, or partly unable, to work due to a disability. + In 2011, the average Social Security payment for a retired person is $1,177 per month37.

In 2010, 54 million individuals were covered by Social Security38. According to the 2010 Census, the U.S. population stands at 308 million39, which means that nearly 18 percent of the U.S. population is currently covered by Social Security. Since the program has more retirees being added to the system and fewer and fewer workers paying into it, legislative changes are required to keep Social Security operating without substantial disruptions to the program40.

†°¢

SOCIAL SECURIT Y

a snapshot of its finances

† OUT OF FUN ( surplus $ in billions)

Currently, 54 million people are covered by Social Security. The funds wil $100 $80 $60 $40 $20 $0

‘84 ‘85 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘9

}#

That surplus money was spent on other general gove Not cash, but bonds – that the government borr

WHEN YOU’RE TRILLIONS OF DOLLARS IN DEBT,

SOURCES: CRS // THE BOARD OF TRUSTEES OF THE FEDERAL OLD-AGE AND SURV

LAST YEAR’S SPENDING

20%

Social Security = $720 billion

NDS IN 2036 ¢

ll run out in 2036, despite a 1.2 trillion dollar surplus from 1984-2009.

95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09

ernment expenses. So what’s sitting in the “lockbox”? rowed against itself. Which begs the question –

#}

SHOULD YOU BE BORROWING FROM YOURSELF?

VIVORS INSURANCE AND FEDERAL DISABILITY INSURANCE TRUST FUND // CBO

32

HERE ARE THE FACTS: + From 1974 to 2008, there were between 3.2 and 3.4 workers paying Social Security taxes for every beneficiary. + In 2010, there were 2.9 workers paying Social Security taxes for every beneficiary 41. + By 2035, it is projected there will be 2.1 workers for every beneficiary. With individuals living longer lives than they did in 1935, and with fewer workers paying into the system due to lower birthrates, the system is going broke.

An individual qualifies for Social Security retirement benefits if they work at least 10 years and contribute to the program with payroll taxes. Currently, the Social Security taxes earnings at 6.2 percent for employees and employers, each. The self-employed pay 12.4 percent42. The Social Security payroll tax only applies earnings up to $106,80043. Social Security also is financed by income taxes on Social Security benefits and interest income earned from the trust fund.

To get full Social Security benefits, an individual must have reached normal retirement age: + For those born in 1937 or earlier, the normal retirement age in 65. This age is gradually increasing over time to 67. Those born in 1960 and after will have to wait until 67 to receive full benefits.

+ Individuals can opt to get early retirement benefits at 62; however, their benefits are permanently reduced. Exact benefits are calculated by using a complex formula. The benefit formula provides more benefits relative to wages for low-income earners while providing high-income earners a degree of equity since they have higher lifetime earning.

SOCIAL SECURITY 201: THE TRUTH ABOUT ITS FINANCES44 Social Security receives its funding from the Social Security payroll tax. These payroll taxes are deposited into separate trust fund accounts in the Department of Treasury. + Excess funds not immediately spent to pay benefits are invested in special U.S. government bonds (P. 221). + From 1984 until 2010, the Social Security Trust Fund ran a surplus, meaning more money was taken in through taxes than was paid out in benefits (Pp. 142-143). + By law, when the program was running a surplus, the surplus was “…credited to the Social Security trust funds in the form of U.S. government securities.

The money itself, however, [was] used to pay for whatever other expenses the government…” had at the time45. In other words, this means that the government spent the “surplus” money on general government operations while Social Security, in return, received a U.S. government bond that earns interest.

34

SOCIAL SECURITY HAS TWO SEPARATE TRUST FUNDS OLD-AGE AND SURVIVORS INSURANCE TRUST FUND (commonly referred to in the public as the “Social Security Trust Fund”) – pays retirement income for qualified retirees (and their dependents) (Pp. 222). Is expected to run out of funds by 2036, one year earlier than originally projected in last year’s trustees report.

DISABILITY INSURANCE TRUST FUND – pays income for disabled workers (and their dependents) who are unable, or partly unable, to work due to a disability (Pp. 222). This fund is expected to run out of money by the year 2018.

At the end of 2010, the balance of both Social Security trust funds was $2.6 trillion. According to the trustees, the current unfunded obligation for Social Security over the next 75 years is $6.5 trillion (P. 12).

TWO PROMINENT VIEWS ON THE STATE OF SOCIAL SECURITY46 How bad is the financial situation with Social Security? Is the money in the trust funds really there? Well, it depends how you view the situation. Here are two different takes: Sen. Bernie Sanders (I-VT) “…We keep hearing that the Social Security trust fund has a pile of worthless IOUs. The fact is, Social Security invests the surplus money it receives from workers, from the payroll tax, into U.S.

Government bonds, the same bonds China or anybody else purchases.

These bonds are backed by the full faith and credit of the U.S. Government.

And in our entire history—and many of us want to make sure this continues— the U.S. Government has never defaulted on its debt obligations. The point is, to say these are worthless IOUs is not dissimilar to saying: Guess what.

Because we have a deep deficit and a deep national debt, we don’t have any money to fund equipment for soldiers who are in the field in Afghanistan or Iraq. They are just worthless IOUs, and we can’t fund them. That is, of course, nonsense.”

Sen. Tom Coburn (R-OK) “…The flaw in the argument given by my colleague from Vermont (Senator Sanders) is the assumption that the IOU at the Treasury for Social Security is good. It is good as long as people will loan us money.

It is not any good if they will not…And having looked at every aspect of Social Security, I can tell you if we are not able to borrow the $2.6 trillion, the benefits will not be there. The money has been stolen. There is no trust fund.

There is no money there. Congresses, under both Republican and Democratic control, both Republican and Democratic Presidencies, have stolen money from Social Security and spent it. The money is gone…The question is, does this Congress owe… [it] back to Social Security? Yes. But where do we get the money to repay it?”

36 DEFENSE SPENDING how bloated spending is hurting our nation’s security “The biggest threat to our national security is our debt.”

Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff47 Washington’s unsustainable spending has stifled an already weak economy, and is making the country less secure over time. As the U.S. debt continues to grow, it makes the U.S. more dependent on foreign countries, such as China, which finance the federal government’s growing appetite for deficit spending.

THE DEPARTMENT OF DEFENSE (DOD): A DRIVER OF THE NATION’S DEBT [1]

Defense: A Driver of Federal Debt

[2]

Duplication and Waste

[3]

The Conflict

DEFENSE: A DRIVER OF FEDERAL DEBT In Fiscal Year 2011, defense spending consumed nearly 19 percent of total federal spending48. Defense spending is by far the largest component of discretionary spending, which is generally anything that is funded by yearly appropriations acts (funding for things like Social Security benefits occurs automatically and is therefore outside of the appropriations process). + Defense spending consumes more than 50 percent of all discretionary spending49. + Since 2001, funding for national defense has nearly doubled50.

The recently passed Budget Control Act, which increased the debt ceiling and capped the rate of federal discretionary spending growth, reduces the growth of defense spending over 10 years by $350 billion51.

No other nation comes close to matching the U.S. in defense spending. + Last fiscal year, the U.S. spent nearly $700 billion on national defense, 43 percent of total defense spending among all countries in the world52. + The other top defense spenders are53:

– China (seven percent of world spending)

– Russia (four percent of world spending)

– The United Kingdom (four percent of world spending)

– France (four percent of world spending)

Quite simply, the world’s other top defense spenders are nowhere close to spending what Washington does on defense. + In Fiscal Year 2011, virtually all areas of discretionary spending saw modest spending decreases but not defense spending. It was the only discretionary spending area that can make such a claim54.

The leaders of our nation’s armed services recognize that defense cuts are necessary in order to tackle our nation’s budget deficit.

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BY DEFENSE SPENDING

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frA

UK

2000000

1000000

0

2

S

War On Terror

WAR SPENDING AS A PERCENT OF THE DEBT

[SPENDING IN BILLIONS]

be cheaper to just buy

e military?

Maybe not,

9

ponentially over the past

hina, Russia, the United

d

France to

U.S.

all

pale

in

spending

on

806 444 29 6

IRAQ

S. has increased defense

AFGHANISTAN ENHANCED SEC. UNALLOCATED

SOURCE: CRS Total War Spending: Table 1

WER

TOTAL 1283 billion

ND I N G SI NCE 9/11

*

2001

2005

20 0 2

2003

2004

TOTAL DISCRETIONARY NATIONAL DEFENSE

2006

SOURCE: OMB De f e n s e O u t l a ys and Discretionary Outlays: Tables 3.1 and 8.7

2007

2008

* IN MILLIONS ADJUSTED FOR INFLATION

2009

2010

2011

40

“It is no secret that the United States faces a serious fiscal predicament that could turn into a crisis—of credit, of confidence, of our position in the world – if not addressed soon…as a matter of simple arithmetic and political reality, the Department of Defense must at least be part of the solution.”

– Robert Gates, Former Secretary of Defense55 DUPLICATION AND WASTE A Government Accountability Office (GAO) report released in March 2011 found several areas of duplication and waste within the Department of Defense56. Here are some samples findings and recommendations from GAO’s report: + There are 31 entities that provide warfighter urgent needs – opportunities for consolidation exist. + DoD and Veterans Affairs could use joint contracting for prescription drugs to lower costs. + Since there are about 2,300 investments in DoD business systems, opportunities exist to streamline and lower costs.

More recently, the Commission on Wartime Contracting in Iraq and Afghanistan found at least $31 billion in waste. The commission’s co-chair said:

“We have found billions of dollars of waste stemming from a variety of shortcomings—poor decision making, vague contract requirements, lack of adequately trained federal oversight people in the field, duplicative or unnecessary work, failure to revise or recompete contracts, unsustainable projects, inadequate business processes among contractors, and delayed audits. There are many causes, and no simple solution57.”

No-bid contracting is a process through which the government grants a contract without opening it up for public bids. Reforming or eliminating this practice could also save money. + The Center for Public Integrity recently reported that in 2010 there were $140 billion in no-bid contracts, up form $50 billion in 20058.

SPENDING ON THE WAR ON TERROR As of March 18, 2011, federal spending on the War on Terror totaled $1.283 trillion59.

THE CONFLICT While no one questions the need to protect and support our troops in conflict, the question is: should Washington pursue further military commitments and projects, or focus on bringing down our enormous debt so that tomorrow’s troops will have the tools they need?

As Gordon Adams and Matthew Leatherman recently wrote in Foreign Affairs, “The U.S. Government’s ambitions now outstrip its capacities… abroad” in respect to defense spending60.

42

The U.S. is currently fighting several conflicts in foreign countries, retains troops in dozens of countries throughout the world, and is involved in peacekeeping and nation-building missions across the globe. The simple fact is that the U.S. level of debt is so burdensome the country cannot afford to keep defense spending off the table when it comes to debt reduction61.

Lawmakers must have an honest intellectual conversation about which -- if any -- of these commitments actually make the U.S. safer.

All numbers taken from this source, unless otherwise stated: CBO: Monthly Budget Review.

October 7, 2011. http://www.cbo.gov/ftpdocs/124xx/doc12461/2011_10_07_MBR.pdf 1

“Other activities” include everything from education to transportation funding.

2

This does not include TARP money, which was -$39 billion for the fiscal year.

3

White House: Fact Sheet: Bipartisan Debt Deal. July 31, 2011. http://www.whitehouse.gov/ the-press-office/2011/07/31/fact-sheet-bipartisan-debt-deal-win-economy-and-budget-discipline 4

White House: Fact Sheet: Bipartisan Debt Deal. July 31, 2011. http://www.whitehouse.gov/ the-press-office/2011/07/31/fact-sheet-bipartisan-debt-deal-win-economy-and-budget-discipline 5

All member biographies are from CQ.com’s Full Member Bio subscription service.

Becerra: http://www.cq.com/person/H0411 Clyburn: http://www.cq.com/person/H3673 Van Hollen: http://www.cq.com/person/H1712 Hensarling: http://www.cq.com/person/H4520 Camp: http://www.cq.com/person/H1932 Upton: http://www.cq.com/person/H1872 Murray: http://www.cq.com/members/card.do?personId=S0943 Baucus: http://www.cq.com/members/card.do?personId=S0510 Kerry: http://www.cq.com/members/card.do?personId=S0421 Kyl: http://www.cq.com/members/card.do?personId=S0051 Toomey: http://www.cq.com/members/card.do?personId=H3492 Portman: http://www.cq.com/members/card.do?personId=H3021 7 Voting Records

2006 Capitol Gains, Dividends, & AMT Tax Cut Extension: U.S. Senate Roll

Call Vote, H.R. 4297. May 11, 2006. http://www. senate.gov/legislativeLIS/

roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=2&vote=00118 and

U.S. House of Representatives Final Vote Results Roll Call 135. May 10,

2006. http://clerk.house.gov/evs/2006/roll135.xml. Upton flip flop vote

621. December 8, 2005. http://clerk.house.gov/evs/2005/roll621.xml.

6

Farm Subsidies: U.S. Senate Roll Call Vote, H.R. 2419. May 22, 2008. http:// www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=11 0&session=2&vote=00140 and U.S. House of Representatives Final Vote Results Roll Call 346. May 21, 2008. http://clerk.house.gov/evs/2008/roll346.xml

Fannie and Freddie Bailout: U.S. Senate Roll Call Vote, H.R. 3221. July 26, 2008. http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congre ss=110&session=2&vote=00186 and U.S. House of Representatives Final Vote Results Roll Call 519. July 23, 2008. http://clerk.house.gov/evs/2008/roll519.xml Tarp: U.S. Senate Roll Call Vote, H.R. 1424. October 1, 2008. http://www.

senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&sessi on=2&vote=00213 and U.S. House of Representatives Final Vote Results Roll Call 681. October 3, 2008. http://clerk.house.gov/evs/2008/roll681.xml

Obama Stimulus: U.S. Senate Roll Call Vote, H.R. 1 Conference Report. February 13,

2009. http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?

congress=111&session=1&vote=00064 and U.S. House of Representatives Final Vote

Results for Roll Call 70. February 13, 2009. http://clerk.house.gov/evs/2009/ roll070.xml Cash for Clunkers Refill Funding: Library of Congress: U.S. Senate Roll Call Vote,H.R. 3435. August 6,2009. http://www.senate.gov/legislative/LIS roll_call_lists/roll_ call_vote_cfm.cfm?congress=111&session=1&vote=00270 and U.S. House of Representatives Final Vote Results for Roll Call 682. July 31, 2009. http://clerk.house. gov/evs/2009/roll682.xml

2010 Bush Tax Cut Extension: Library of Congress: U.S. Senate Roll Call Vote, H.R.

4853. December 15, 2010. http://www.senate.gov/legislative/LIS/ roll_call_lists/roll_call_vote_cfm.cfm?congress=111&session=2

&vote=00276 and U.S. House of Representatives Final Vote

Results for Roll Call 647. December 17, 2010. http://clerk.house.gov/evs/2010/roll647.xml Obama Debt Commission Recommendations: Fiscal Commission Member Statements. December 3, 2010. http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/ MemberStatements.pdf 8

CBO: Monthly Budget Review. October 7, 2011. http://www.cbo.gov/ftpdocs/124xx/ doc12461/2011_10_07_MBR.pdf 9

CBO: Monthly Budget Review. October 7, 2011. http://www.cbo.gov/ftpdocs/124xx/ doc12461/2011_10_07_MBR.pdf 10

Pew Research Center:10,000 Baby Boomers Retire. http://pewresearch.org/databank/ dailynumber/?NumberID=1150 11

CBO. An Analysis of the President’s Budgetary Proposals for Fiscal Year 2012. Pp. 2. http:// www.cbo.gov/ftpdocs/121xx/doc12130/04-15-AnalysisPresidentsBudget.pdf 12

Social Security and Medicare Board of Trustees: Status of the Social Security and Medicare Programs: A Summary of the 2011 Annual Reports. http://www.ssa.gov/oact/trsum/index.html 13

Congressional Research Service: Medicaid: A Primer. July 15, 2010. Pp 1 – 2. http://aging. senate.gov/crs/medicaid1.pdf.

14

Congressional Research Service: Medicaid: A Primer. July 15, 2010. P. 13. http://aging.

15

senate.gov/crs/medicaid1.pdf. https://www.cms.gov/actuarialstudies/downloads/MedicaidReport2010.pdf. P. Executive Summary.

16

Congressional Research Service: Medicaid: A Primer. July 15, 2010. P. 13. http://aging.

17

senate.gov/crs/medicaid1.pdf.

Department of Health & Human Services: 2010 Actuarial Report on the Financial Outlook for Medicaid. Executive Summary. https://www.cms.gov/actuarialstudies/downloads/ MedicaidReport2010.pdf.

18

Department of Health & Human Services: 2010 Actuarial Report on the Financial Outlook for Medicaid. Pg. 3. https://www.cms.gov/actuarialstudies/downloads/MedicaidReport2010.pdf.

19

Congressional Research Service: Medicaid: A Primer. July 15, 2010. P. 11. http://aging. senate.gov/crs/medicaid1.pdf.

20

Congressional Research Service: Medicaid: A Primer. July 15, 2010. P. 8. http://aging. senate.gov/crs/medicaid1.pdf.

21

Congressional Research Service: Medicaid: A Primer. July 15, 2010. P. 8. http://aging. senate.gov/crs/medicaid1.pdf.

22

Congressional Research Service: Medicaid: A Primer. July 15, 2010. P. 9. http://aging. senate.gov/crs/medicaid1.pdf.

23

In general, unless otherwise noted, information in this section is found in the 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance Fund and Federal Supplemental Medical Insurance Trust Funds. https://www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf 24

Census Bureau: U.S. Census Bureau Announces 2010 Census Population Counts. December 21, 2010. http://2010.census gov/news/releases/operations/cb10-cn93.html 25

For the purposes of this document, “payroll tax” also includes Medicare self-employment taxes, which are triggered if you work for yourself instead of an employer.

26

In general, for the purposes of being “paid into the system,” it means working 10 or more years. https://questions.medicare.gov/app/answers/detail/a_id/2305/~/medicarepremiums-and-coinsurance-rates-for-2011 27

Medicare: FAQ. November 5, 2010. https://questions.medicare.gov/app/answers/ detail/a_id/2307/~/will-my-medicare-part-b-premium-increase-in-2011%3F 28

This information was found by researching various Medicare Part C policies on the internet.

29

Kaiser Family Foundation. “Medicare Part D Spotlight.” http://www.kff.org/medicare/ upload/8107.pdf 30

In general, unless otherwise noted, information in this section is found in the 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance Fund and Federal Supplemental Medical Insurance Trust Funds. https://www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf 31

Congressional Budget Office. March 2011 Medicare Baseline. http://www.cbo.gov/budget/

32

factsheets/2011b/medicare.pdf CRS: Medicare: History of Part A Trust Fund Insolvency Projections. May 2009. Pg. 3. http:// aging.senate.gov/crs/medicare14.pdf 33

In general, unless otherwise noted, information in this section is found in the 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance Fund and Federal Supplemental Medical Insurance Trust Funds. https://www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf 34

For the purposes of this document, “payroll tax” also includes Social Security self-employment taxes, which are triggered if you work for yourself instead of an employer.

35

In general, unless otherwise noted, information in this section is found in the GAO Social Security Reform Answers to Key Questions. May 2005. http://www.gao.gov/new.items/ d05193sp.pdf 36

Social Security Online: FAQ’s. April 28, 2011. http://ssa-custhelp.ssa.gov/app/answers/ detail/a_id/13/~/average-monthly-social-security-benefit-for-a-retired-worker 37

2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. P. 2. http://www.ssa.gov/oact/tr/2011/tr2011.pdf 38

U.S. Census Bureau: U.S. Census Bureau Announces 2010 Census Population Counts.

December 21, 2010. http://2010.census.gov/news/releases/operations/cb10-cn93.html 39

Status of the Social Security and Medicare Programs, A Summary of the 2011 Annual Reports.

Social Security and Medicare Board of Trustees. http://www.ssa.gov/oact/trsum/index.html 40

2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. P. 10. http://www.ssa.gov/oact/tr/2011/ tr2011.pdf 41

Social Security Administration: Social Security & Medicare Tax Rates. http://www.ssa.gov/ oact/progdata/taxRates.html 42

Social Security Administration: Contribution and Benefit Base. http://www.ssa.gov/oact/ COLA/cbb.html#Series 43

In general, unless otherwise noted, information in this section is found in 2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. http://www.ssa.gov/oact/tr/2011/tr2011.pdf.

44

CRS: “Social Security: Trust Fund Investment Practices.” October 2010. http://aging.senate. gov/crs/ss5.pdf 45

Congressional Record – Senate. March 16, 2011. Accessible by searching http://thomas. loc.gov/home/LegislativeData.php?&n=Record.

46

Joint Chiefs of Staff: National Debt Poses Security Threat, Mullen Says. http://www.jcs.mil/ newsarticle.aspx?ID=360 47

CBO: Monthly Budget Review. October 7, 2011. http://www.cbo.gov/ftpdocs/124xx/

48

doc12461/2011_10_07_MBR.pdf Foreign Affairs: A Leaner, Meaner Defense. January/February 2011. http://www. foreignaffairs.com/articles/67145/gordon-adams-and-matthew-leatherman/a-leaner-andmeaner-defense 49

Foreign Affairs: A Leaner, Meaner Defense. January/February 2011. http://www. foreignaffairs.com/articles/67145/gordon-adams-and-matthew-leatherman/a-leaner-andmeaner-defense 50

White House Fact Sheet: Bipartisan Debt Deal. July 31, 2011. http://www.whitehouse.gov/ the-press-office/2011/07/31/fact-sheet-bipartisan-debt-deal-win-economy-and-budget-discipline 51

Stockholm International Peace Research Institute: Background paper on SIPRI military expenditure data. April 2011. http://www.sipri.org/research/armaments/milex/factsheet2010 52

Stockholm International Peace Research Institute: Background paper on SIPRI military expenditure data. April 2011. http://www.sipri.org/research/armaments/milex/factsheet2010 53

CQ Weekly: 2012 Appropriations – Defense: Parties Unite to Increase Pentagon Budget. May 30, 2011. http://www.cq.com/doc/weeklyreport-3879408?wr=U2ZyOGV0Ymg1TTNTcnVn N2hZdip0Zw 54

The American: Gates at AEI: Strategy Must Drive Budget Decisions. May 24, 2011. http:// blog.american.com/2011/05/gates-at-aei-strategy-must-drive-budget-decisions/ 55

GAO: Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. March 2011. http://www.gao.gov/new.items/d11318sp.pdf 56

Commission on Wartime Contracting in Iraq and Afghanistan: Press Release. August 2011. http://www.wartimecontracting.gov/index.php/pressroom/pressreleases/203-cwc-nr-49 57

Center for Public Integrity: Windfalls of War. August 29, 2011. http://www.iwatchnews. org/2011/08/29/5989/windfalls-war-pentagons-no-bid-contracts-triple-10-years-war/ 58

CRS: The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11.

March 2011. http://www.fas.org/sgp/crs/natsec/RL33110.pdf 59

Foreign Affairs: A Leaner, Meaner Defense. January/February 2011. http://www. foreignaffairs.com/articles/67145/gordon-adams-and-matthew-leatherman/a-leaner-and-meaner-defense 60

Foreign Affairs: A Leaner, Meaner Defense. January/February 2011. http://www. foreignaffairs.com/articles/67145/gordon-adams-and-matthew-leatherman/a-leaner-andmeaner-defense 61

For more information on the facts that affect your pocketbook, visit us at: thepublicnotice.org [published October, 19 2011]