The expanded version of our PowerPoint presentation that clearly lays out the fiscal challenge facing the United States. For more, visit http://crfb.org/go-big.

1. Averting a Fiscal Crisis
Why America Needs Comprehensive
Fiscal Reforms Now

2. Deficit Projections
(Percent of GDP)
12% 1992-2012 Average Deficit: 2.9%
10%
2012-2022 Average Current Policy Deficit: 4.7%
8%
6%
4%
2%
0%
-2%
-4%
Current Policy Current Law
Note: Estimates based on CRFB Realistic Baseline.
1

3. Gap Between Revenue and Spending
(Percent of GDP)
26% Actual Projected
24%
Avg. Historical Spending (1972-2011): 21.0%
22%
20%
18%
16%
Avg. Historical Revenues (1972-2011): 17.9%
14%
12%
10%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Current Law Spending Current Law Revenues
CRFB Realistic Spending CRFB Realistic Revenues
Note: Estimates based on CRFB Realistic Baseline.
2

4. Components of Revenue and Spending
Revenues and Financing Outlays
Interest
6% Medicare
13%
Borrowing Medicaid &
Non-Defense
30% Individual Income Other Health
17%
Tax 8%
27%
2011
Social Security
Defense 21%
Other
6% Corporate Tax 19%
5%
Social Insurance
Taxes Other Mandatory
25% 16%
Total Revenues = $2.523 Trillion Total Outlays = $3.601 Trillion
Total Financing = $3.601 Trillion
3

5. Debt Projections
(Percent of GDP)
500%
Realistic Projections
450%
2010: 62%
400%
2025: 94%
350% 2040: 154%
300% 2080: 430%
250%
200%
What the Debt Will
150% Realistically Look Like
100%
50%
Current Law
0%
Note: Estimates based on CRFB Realistic Baseline.
4

6. Growth in Mandatory Spending
(Percent of GDP)
30%
Actual Projected
25%
Historical Average
20%
15%
10%
5%
0%
1972 1982 1992 2002 2012 2022 2032 2042 2052 2062 2072 2082
Social Security Health Care Other Entitlements Revenue
5

7. Consequences of Debt
 “Crowding Out” of private sector
investment, leading to slower economic
growth
 Higher Interest Payments displacing other
government priorities and investments
 Intergenerational Inequity as future
generations pay for current government
spending
 Unsustainable Promises of high spending
and low taxes
 Uncertain Environment for businesses to
invest and households to plan
 Eventual Fiscal Crisis if changes are not
made
6

8. The Risk of Fiscal Crisis
“Rising Debt increases the likelihood of a fiscal crisis during which investors would
lose confidence in the government's ability to manage its budget and the
government would lose its ability to borrow at affordable rates.
-Doug Elmendorf, Director of the Congressional Budget Office
“Our national debt is our biggest national security threat.”
-Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff
“One way or another, fiscal adjustments to stabilize the federal budget must occur
… *if we don’t act in advance+ the needed fiscal adjustments will be a rapid and
painful response to a looming or actual fiscal crisis.”
-Ben Bernanke, Chairman of the Federal Reserve
7

9. Debt Drivers
Short-Term Long-Term
 Economic Crisis  Rapid Health Care Cost Growth
(lost revenue and increased spending on (causing Medicare and Medicaid costs
safety net programs like Food Stamps) to rise)
 Economic Response  Population Aging
(stimulus spending/tax breaks and (causing Social Security and Medicare
financial sector rescue policies) costs to rise, and revenues to fall)
 Tax Cuts  Growing Interest the Debt Will
What Costs
(in 2001, 2003, and 2010) Realistically Look Like
(from continued debt accumulation)
 War Spending  Insufficient Revenue
(in Iraq and Afghanistan) (to meet the costs of funding government)
8

10. How Did We Get Here?
Drivers of the Debt Since 2001
Increases in Debt:
 Technical & Economic Changes: 27%
 Tax Cuts: 27%
 Spending Increases: 41%
 Other Means of Financing: 6%
Note: Estimates from The Pew Charitable Trusts based on CBO data.
9

11. Growing Entitlement Spending
Federal Spending and Revenues (Percent of GDP)
60%
Actual Projected
50%
Average Historical
Revenues
40% Interest
Revenues
30%
20% Health Care
Social Security
10%
Other Spending
0%
Note: Estimates based on CRFB Realistic Baseline.
10

12. Why Is Entitlement Spending Growing?
Drivers of Entitlement Spending Growth (Percent of GDP)
26%
24%
22%
20%
56%
18%
Excess Health Care
16% Cost Growth
36%
14%
12% Aging 44%
64%
10%
8%
Source: CBO Long-term Budget Outlook, 2011.
11

13. Why Is Federal Health Spending Increasing?
 The Population Is Aging due to increased life
expectancy and retirement of the baby boom
generation, adding more beneficiaries to Medicare
and Medicaid
 Per Beneficiary Costs Are Growing faster than the
economy in both the public and private sector.
Causes of this excess cost growth include:
 Americans Are Unhealthy when compared to
populations in similar economies
 Americans Are Wealthy and Willing to Pay More
 Fragmentation and Complexity among
insurers, providers, and consumers make normal
market competition difficult
 Incentives Are Backwards by hiding true costs of care
through insurance and by hiding costs of insurance
enrollment through employer
sponsorship, incentivizing overspending
12

14. Health Care Spending by Country
Percent of GDP (2008)
18%
16%
14%
12%
10%
8%
6%
4% 36%
2%
0% 64%
Public Private
Source: 2008 Data from the Organization for Economic Cooperation and Development.
13

15. Number of Workers for Every Social Security Retiree is Falling
1950 1960 2011 2035
36%
64%
16:1 5:1 3:1 2:1
Source: 2011 Social Security Trustees Report.
14

16. Living Longer, Retiring Earlier
90
85
80 Average Age of Retirement
75
Normal Retirement Age
70
65
60
55 Early Retirement Age
50 Life Expectancy
45
40
Source: Social Security Administration and U.S. Census Bureau.
15

17. Looming Social Security Insolvency
Social Security Costs and Revenues (Percent of Taxable Payroll)
20% What Social Security “Promises” to Pay
What Social Security Can Afford to Pay
18%
16%
14%
12%
10%
Revenues
36%
8%
6% 64%
Source: 2011 Social Security Trustees Report.
16

18. Interest as a Share of the Budget
(Percent of GDP)
2010 2030 2050
Primary Interest Primary Interest
Interest Primary
Spending 19% Spending 28%
6% Spending
94% 72%
81%
Total Spending = 24% of GDP Total Spending = 27% of GDP Total Spending = 35% of GDP
Note: Estimates based on CRFB Realistic Projections.
17

19. Insufficient Revenue
 Unpaid for Tax Cuts in 2001, 2003, and
2010 lowered revenue collection without
making corresponding spending cuts or
tax increases to offset the budgetary
effect
 Spending in the Tax Code Costs Over $1
Trillion annually in lost revenues through
so called "tax expenditures," which make
the tax code more complicated, less
efficient, and force higher rates
18

20. Excessive Spending Through the Tax Code (Tax Expenditures)
TaxIn order to stabilize Debtof Primary the economy by 2021: Expenditures
Expenditures as a Percent at 60% of Large Tax
Spending if Included in the Budget and Their 2011 Costs (billions)
Employer Health Insurance Exclusion $174
Mortgage Interest Deduction $89
Defense
Discretionary 401(k)s and IRAs $77
Tax
16%
Expenditures
24% Earned Income Tax Credit $62
Non-Defense Special Rates for Capital Gains and $61
Discretionary
15%
Dividends
Health Spending
18% State & Local Tax Deduction $57
Social Secutity Charitable Deduction $49
16%
Other Mandatory Child Tax Credit $45
12%
Source: Joint Committee on Taxation.
Source: Office of Management and Budget.
19

21. How Much Do We Need to Save?
In order to stabilize debt at 60% of the economy by 2022:
(2012-2022 Savings)
Current Policy Current Policy
Current Law
Baseline Assuming Baseline Assuming
Baseline Assuming
Upper-Income Tax All Tax Cuts
No Trigger Savings
Cuts Expire* Continued*
Debt in 2021 w/ No
Savings 67% 81% 86%
(% GDP)
Required Savings to
$1.7 Trillion $5.1 Trillion $6.4 Trillion
Stabilize Debt at 65%
*Estimates based on CRFB Realistic Baseline.
20

22. How Much Do We Need to Save? (cont’d)
In order to stabilize debt at 65% of the economy by 2022:
(2012-2022 Savings)
Current Policy Current Policy
Current Law
Baseline Assuming Baseline Assuming
Baseline Assuming
Upper-Income Tax All Tax Cuts
No Trigger Savings
Cuts Expire* Continued*
Debt in 2021 w/ No
Savings 67% 81% 86%
(% GDP)
Required Savings to
$0.4 Trillion $3.8 Trillion $5.2 Trillion
Stabilize Debt at 65%
*Estimates based on CRFB Realistic Baseline.
21

23. How Much Do We Need to Save? (cont’d)
In order to stabilize debt at 70% of the economy by 2022:
(2012-2022 Savings. Negative numbers reflect increase in deficits.)
Current Policy Current Policy
Current Law
Baseline Assuming Baseline Assuming
Baseline Assuming
Upper-Income Tax All Tax Cuts
No Trigger Savings
Cuts Expire* Continued*
Debt in 2021 w/ No
Savings 67% 81% 86%
(% GDP)
Required Savings to
-$0.8 Trillion $2.6 Trillion $4.0 Trillion
Stabilize Debt at 70%
*Estimates based on CRFB Realistic Baseline.
22

24. How Much Do We Need to Save? (cont’d)
So even if lawmakers were to stabilize debt at 70% of the
economy in 2021—a level higher than the internationally
recognized threshold of 60%—they would have to enact at
least $2.8 trillion in savings beyond the $920 billion enacted in
the Budget Control Act, compared to realistic assumptions of
future debt.
That calls for a Go Big approach to debt reduction.
23

25. We Can’t Inflate or Grow Our Way Out
Inflation Growth
 An unexpected increase in inflation  Strong economic growth is a necessary
could temporarily reduce the real value but not sufficient condition for debt
of debt and federal interest payments reduction
to investors  Many spending programs grow as the
 However, higher inflation would prompt economy does, and would outpace
investors to demand higher interest revenue growth
payments, increasing the costs of  Social Security payments would
financing new debt increase as wages and, thus,
 Higher inflation would also push up benefits grew over time
spending for all inflation-indexed  Health care spending would grow
programs, including Social Security, food even faster, given that costs
stamps, military pensions, veterans’ continually grow notably faster
benefits. than the overall economy
 The levels of growth needed to
significantly reduce medium-term debts
would be way above historical norms
24

26. Debt Reduction and Economic Growth
Real Output Growth (Percent)
4.0%
3.5%
CBO studied the economic
3.0% impact of an illustrative $2.4
trillion debt reduction plan
2.5% and found that real output
would be between 0.6% and
2.0%
1.4% higher, depending on
1.5% the magnitude of the effects.
1.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CBO Baseline Growth Small Output Effect
Medium Output Effect Large Output Effect
*Estimates from CBO, “The Macroeconomic and Budgetary Effects of an Illustrative Policy for Reducing the Federal Budget Deficit.”
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27. How to Reduce the Deficit
 Domestic Discretionary Cuts
 Defense Spending Cuts
 Health Care Cost Containment
 Social Security Reform
 Other Spending Cuts
 Tax Reform and Tax Expenditure
Cuts
 Budget Process Reform
26

28. “Go Small”: Lots of Pain for Little Gain
 A smaller package would offer some
improvement to our fiscal situation, but
it would not offer the benefits of a
declining debt path
 The public would see a package of tough
choices and a debt burden that continues
to grow. In essence, it would deliver
political pain with not so much gain
 Would leave in place considerable policy
uncertainty, affecting businesses and
markets
 A smaller package and an incremental
approach to debt reduction would not
offer the political tradeoffs necessary to
solve our fiscal challenges
27

29. What Could “Go Small” Look Like?
Possible Policy Changes Savings
 Without addressing
Government-Wide $250 billion from chained CPI health care reforms or
Discretionary
$100-200 billion from modestly revenues, it will be very
slower growth in BCA caps difficult to achieve
Health Care Negligible savings significant savings
$150-250 billion from farm
subsidies, federal civilian and
Other Mandatory
military retirement and benefits,  And even then, there is
Fannie and Freddie, and others no guarantee that
Social Security Negligible savings significant savings in
Revenues Negligible savings other areas of the budget
Net Interest $100 billion could be agreed on
Total $600-800 billion
28

30. Adding Serious Entitlement Reforms and Revenues
Pushes You into “Go Big”
 Democrats will only agree to serious
entitlement reforms if there are revenues
 Republicans will only agree to revenues in
the context of comprehensive tax reform
 Democrats will only agree to a
comprehensive tax reform that replaces the
Bush tax cuts if it raises at least the $800
billion they would get if President Obama
vetoes extension of upper income tax cuts
 Republicans will not agree to revenues
anywhere near that amount without health
savings that go beyond the amount proposed
by the President
29

31. Advantages of “Go Big”
 Debt stabilized and falling as a share of
the economy later in the decade, and
all the benefits associated with a
declining debt burden:
 Less “crowding out” of private sector
investment
 Stronger confidence in businesses and
markets
 Greater certainty and stability
 Stronger economy over the long-term
 Lower interest payments and increased
fiscal space
 Intergenerational equity
 Reduced or eliminated risk of fiscal
crisis
30

32. Advantages of “Go Big” (cont’d)
 Increased chances of enacting a
comprehensive debt solution of at
least $3 - $4 trillion in savings:
 Political trade offs necessary to address
entitlement growth and revenues
 Shared sacrifice in Go Big approach
 Realize the gains of debt reduction by
stabilizing and reducing the debt, and
not just making difficult decisions that
solve only part of the problem
 Restore America’s faith in the political
system
31

33. The Announcement Effect
 Just announcing the adoption of a debt reduction
plan can provide a boost in confidence, aiding the
recovery
 Prominent lawmakers, government
officials, economists, and experts have reiterated
the benefits of the announcement
effect, including:
 Ben Bernanke, Fed Chairman
 Erskine Bowles and Alan Simpson
 The International Monetary Fund
 Glenn Hubbard, former Chair of the President’s CEA
 Mark Zandi, Chief Economist, Moody’s Analytics
 Michael Bloomberg, Mayor of New York City
 Alan Blinder, former Fed Vice Chairman
 Larry Summers, former Director, NEC
 Various editorial boards and magazines, including the
Washington Post, Financial Times, and The Economist
Note: For more information on the “announcement effect,” see CRFB at
http://crfb.org/blogs/announcing-announcement-effect-club
32

34. “Go Big”: Shared Sacrifice
 Expanding the size and scope of a package can promote a sense of shared
sacrifice on behalf of the American public and key interest groups, making it more
likely that they would accept changes if everyone was contributing to the solution.
 An incremental approach would allow advocates for parts of the budget to argue
that they are bearing an unfair burden. A Go Big approach which achieves savings
in all parts of the budget neutralizes that argument.
 In a recent Washington Post op-ed, Fiscal Commission co-chairs Erskine Bowles
and Alan Simpson highlighted this lesson from the Fiscal Commission
deliberations:
“The more comprehensive we made it, the easier our job became. The tougher
our proposal, the more people came aboard. Commission members were
willing to take on their sacred cows and fight special interests — but only if they
saw others doing the same and if what they were voting for solved the
country’s problems.”
33

35. What Could “Go Really Big” Look Like?
Including serious entitlement reforms and revenues pushes the
overall savings well above the $1.2 trillion mandate
Possible Policy $600 - $800 Billion
$3 Trillion Plan $4 Trillion Plan
Changes Plan
Government-Wide $250 billion $250 billion $250 billion
Discretionary $100- 200 billion $300 billion $400 billion
Health Care Negligible savings $650 billion $900 billion
Other Mandatory $150 - $250 billion $350 billion $350 billion
Social Security Negligible savings $150 billion $300 billion
Revenues Negligible savings $850 billion $1.2 trillion
Net Interest $100 billion $450 billion $600 billion
Total $600 - $800 billion $3 trillion $4 trillion
Note: $4 trillion plan is a more ambitious version of the types of reforms in
the $2.8 trillion plan.
34

36. The Bowles-Simpson Fiscal Commission Plan
Discretionary Spending
 Cuts to defense and non-defense
programs, totaling an additional $400 billion
over ten years [on top of the savings already
enacted].
Social Security
 Progressive benefit changes, retirement
age increase, tax increase for high earners
totaling $300 billion.
Health Care Spending
 Cuts to providers, lawyers, drug companies, &
beneficiaries totaling $400 billion.
Other Mandatory Programs
 Reforms to farm, civilian/military retirement, &
other programs saving $290 billion.
Tax Reform and Revenue
 Comprehensive reform to lower tax
35 rates, broaden the base, and raise $1.2 trillion.

37. Illustrative Tax Rates
2012 Rates, Expiration of the Tax Cuts, and Fiscal Commission’s Illustrative Plan
Corporate
Bottom Rates Middle Rates Top Rates
Rate
Current Rates for
10% 15% 25% 28% 33% 35% 35%
2012
Scheduled Rates for
15% 28% 31% 36% 39.6% 35%
2013
Eliminate All Tax
8% 14% 23% 26%
Expenditures
Keep Child Tax
9% 15% 24% 26%
Credit and EITC
Fiscal Commission’s
12% 22% 28% 28%
Illustrative Tax Plan
Fiscal Commission’s illustrative tax plan would reduce or eliminate
most tax expenditures and use the savings to reduce tax rates and
reduce the deficit.
36

38. The Bowles-Simpson Fiscal Commission Plan
(Deficits as Percent of GDP)
10% 18%
9% 16%
8% 14%
7%
12%
6%
10%
5%
8%
4%
6%
3%
2% 4%
1% 2%
0% 0%
37

39. What Savings Have Lawmakers Enacted So Far?
(Billions of Dollars)
$2,000
$1,600
$1,200
$800
$400
$0
Bowles-Simpson Recommendations Savings Enacted
Note: Estimates based on realistic budget projections.
38

40. It’s Time For a Fiscal Reform Plan
Reasons to Enact a Plan Size of Adjustment to Close 25-year Fiscal Gap,
Sooner Rather than Later Depending on Start Year (Percent of GDP)
 Allows for gradual phase in
 Improves generational fairness 201
2
4.9%
 Gives taxpayers 201
5.9%
businesses, and entitlement 5
beneficiaries time to plan 202
8.1%
 Creates “announcement
0
effect” to improve growth 202
12.5%
5
 Reduces size of necessary
adjustment 0% 2% 4% 6% 8% 10% 12% 14%
Source: Congressional Budget Office
39

41. It’s Time for a Fiscal Reform Plan…Now
We Can’t Wait Until After the Election
 Every month and year that passes, the debt grows larger and larger and
the solutions become more difficult
 Elections can take policy options off the table and back candidates into
positions that make bipartisan solutions more difficult
 Addressing the fiscal situation as soon as possible would make
governing easier – not harder – after the election
40

42. Who Supports “Go Big”?
Calls for a $4+ Trillion, Bipartisan Solution to the Debt
 45 Members of the Senate
 150 Members of the House of Representatives
 200 Business Groups, including the Chamber of Commerce, National
Association of Manufacturers, and Business Roundtable
 Other groups: Partnership for New York City, American Business
Conference, National Conference of State Legislatures
 60+ former government officials, business leaders, and experts
 Editorial boards and other outside experts
 Countless concerned citizens
41

43. Principles of Fiscal Responsibility
For the 2012 Campaign
1. Make Deficit Reduction a Top Priority
2. Propose Specific Fiscal Targets
3. Recommend Specific Policies to Achieve the Targets
4. Do No Harm
5. Use Honest Numbers and Avoid Budget Gimmicks
6. Do Not Perpetuate Budget Myths
7. Do Not Attack Someone Else’s Plan Without Putting Forward an Alternative
8. Refrain from Pledges That Take Policies Off the Table
9. Propose Specific Solution for Social Security, Health Programs, and the Tax Code
10. Offer Solutions for Temporary and Expiring Policies
11. Encourage Congress to Come Up with a Budget Plan as Quickly as Possible
12. Remain Open to Bipartisan Compromise
42

44. The Time For Action Is Now
“If not addressed, burgeoning deficits
will eventually lead to a fiscal crisis, at
which point the bond markets will
force decisions upon us. If we do not
act soon to reassure the markets, the
risk of a crisis will increase, and the
options available to avert or remedy
the crisis will both narrow and
become more stringent.”
-Erskine Bowles and Sen. Alan Simpson, Former
co-chairs of the National Commission on Fiscal
Responsibility and Reform
43