our future? certainly. but just as importantly, responsibility to one another. elected officials and the public, and the public, have a responsibility to one another in this debate, and if either side fails, we will all fail. washington has a responsibility to show political courage and not to exploit for temporary advantage someone else's willingness to make those hard choices. some of my colleagues have criticized paul ryan. i don't agree with paul ryan's suggestion, but i applaud paul ryan's courage for putting something on the table that, in fact, does what he says it's going to do. whether or not you agree with that policy, it is what we all ought to be doing and not criticizing the other for doing it or using it for political advantage. p p.m. choices are selfish

choices because they leave the work of cleaning up to someone else. easy choices may be popular but that popularity is bought on credit. the people have a responsibility too, to refpblgt easy answers from their representatives, to indicate themselves about the source of the debt and realistic ways of ways out and understand that lower taxes and higher spending may be superofficially popular but they are road to ruin. debt is a test of character for all of us. i believe we have the character to pass. let us pray that we will. thank you very much. [applause] -- thank you very much. [applause] >> magically it appears.

well, thank you. thank you very much, mr. hoyer, for your dedication to this issue. and for having a fiscal forum on the first really nice sunny day of the spring. and i thank all of you for coming. and showing some interest in this interest, which does affect the young very definitely. thank you for the university of maryland for hosting us today. it is a recognition that the difference -- the difference of wise or unwise fiscal policies will make for the future of our country. and the people who live in it. i'm going to start by just doing a little budget 101 to give you an idea of where the budget is today. and what are some of the demographic and healthcare challenges that face the budget. and then others will look at where we're projected forward

and then hopefully we can get into a good talk of solutions, what we do about it. so the first thing to recognize about the federal budget is that this year we're going to run a very big budget deficit. somewhere around 1.25 trillion or a little bit more. one thing i would note about the deficit just on the spending side of this chart is the amount of net interest. at slightly over $200 billion. that's quite a bit. that's the interest that the government pays on the debt. on its borrowing. to give you some perspective, it's considerably more than we're spending on the wars in iraq and afghanistan this year. so a quick answer to the question of why deficits matter, is that one thing they do is they run of interest costs which is an expense to the taxpayers. another thing to notice that on the spending column is sial security, medicare and medicaif.

those programs unlike, say, defense or the other appropriations programs are -- they're called entitlement programs. sometimes called mandatory spending. the key point is they grow by benefit formulas and population. and they're not annually appropriated. which makes it a little bit more difficult to keep control. so -- i mean, that gives you an idea of the size of social security, medicare and medicaid in the context of the current budget. now, a lot of economists like to look at the budget in terms of its percentage of the economy. so it gives you some better context than just looking at the dollar figures alone. so the importance of a chart like this -- it's showing you what federal revenues and spending a the resulting deficits or surplus are in relation to the size of our national economy. what we've tended to do is spend at the federal level around 21% of gdp.

and tax around a little over 18% of gdp. leaving a deficit somewhere in between. the key thing to take out of this is really the trendline not so much -- you can see right now we're way off the charts because of the recession primarily. and the bailouts and attempts to deal with the recession. revenues have dropped considerably. spending has gone way up. and in the past people would say, well, recessions are always caused by -- deficits are always caused by recessions and war. so as the recession fades and we presume the war costs will be winding down, doesn't that mean we'll get back to some sort of a normal and we won't really to have worry about this? well, the answer is no. even if you in the president's budget or the congressional budget office projections, anybody who does these -- when you look out, even assuming that the -- we have a robust economic recovery and war costs fade, the

lines never come back to closing close together again and that's really part of our problem. we have a structural built-in deficit rather than a cyclical one caused by the economy. now, a couple of consequences of deficits -- of constant deficits to highlight. one is we are doing more borrowing from abroad. a growing part of our national debt is owned by foreign investors, which isn't necessarily a bad thing. it's just that the benefit from that flows abroad and not to our own domestic economy. and so it acts like a mortgage on future national income. and it does make us vulnerable to decisions that are made elsewhere. another consequence of big deficits is running up interest costs. that interest that i mentioned that was $200 billion this year is projected to go around $800 billion within 10 years. that's under the president's budget. and, you know, that would be,

for example, more than we spend on national defense. that's quite a lot. i mean, when you think about it, having interest costs get up more than we're paying. or all the rest of government you could say. besides national defense and all the other appropriations programs would be more than what we're spending on that. so it's really a problem. and why is this going to be happening? well, two factors. one is the aging of the population. demographics, we're going to have an older -- people are living longer and the baby boomers are getting set to retire. so that alone is going to drive up the cost of programs like social security and medicare. but that's hardly the only problem. the other thing is healthcare costs and representative hoyer mentioned that. had a lot of discussion about that this year. rising healthcare costs, we really have to get ahold of. but you put those dynamics together, agings population, rising healthcare costs and that's why our budget is on an unsustainable track even with a

strong economic recovery. so we've been doing fiscal wakeup tours with lots of people. often the brookings and heritage organizations are involved as well. and what we found with our fiscal wakeup tour or solutions tour is there are certain points that everybody agrees to. it's not a matter of ideology. it's a matter of arithmetic. current fiscal policy is unsustainable. everybody pretty much agrees on that. and there aren't any easy answers like cutting waste, fraud or abuse or growing our way out of it. we should do everything we can to grow the economy. we should cut waste, fraud and abuse. we know it's there. but the problem is much bigger than that. and it is going to require, when you look at solutions, bipartisan cooperation, and a willingness to look at these things without preconditions. public engagement is very, very important to this. we can't have back room deals. the public is going to have to be aware of what the choices are. that's why we're out on the road.

we encourage members of congress to have discussions about this with their constituents. but finally, even though we talk about a lot of numbers, and show lots of charts, it really isn't a numbers issue. this is not a green eye shade issue. it is a moral issue. it's about the legacy that we're leaving to future generations. and right now that legacy doesn't look so good. and so it's really up to my generation, the people that are in charge now, to leave a better, more prosperous nation behind. so let me now turn things over to our next speaker david walker who has occasionally been referenced as the rock star of our tour. and that's a pretty good achievement when you're a cpa and, you know -- i mean, at our age, stage of life, david, it's great to be referred to as a rock star, isn't it? >> thanks, bob. [applause] >> thank you, bob. i thank all of you for coming on this beautiful spring day. thank you to the university of maryland.

everybody who made today possible. in particular, thank you to majority leader hoyer, who's a great leader. and who is sincerely dedicated to financial responsibility. i've been asked to speak for a few minutes on federal financial responsibility. and since this is april 1, i want you to know that this is not an april fool's joke. that we really do mean that we need to restore federal financial responsibility. it's not a joke and it's not a oxymoronic statement. what i would like to do is i want you to understand how profoundly the budget has changed and where do we go from here. in the last 40 years, federal spending net of inflation has grown almost 300%. net of inflation. it's gone from defense dominating the budget in 1970 to

where it's now number two. and it will soon be number three. exceeded by medicare and medicaid and soon to be exceeded by social security. there are three key messages about spending. when you spend more money than you make on a recurring basis, that is irresponsible. when you spend somebody else's money irresponsibly, that is unethical or a fiduciary breach if you're a fiduciary. and when you spend somebody else's money irresponsibly and they're too young to vote or not born yet, that is immoral. and all three things are going on today. and all of us on the podium are dedicated to changing that. if you look at the total liabilities, unfunded promises that the federal government has made, they have more than

tripled in the last nine years. they've gone from $20 trillion to $62.3 trillion as of last september 30. medicare alone was underfunded by over $38 trillion as of last september 30. and these numbers go up by 2 to 3 trillion a year on auto pilot even with a balanced budget. now, how much is $62.3 trillion? it's over $200,000 per person. it's over $500,000 per family. median household income in america is about $50,000 a year. so that means that under our present imprudent status quo do-nothing path the typical american household has a second or third mortgage equaled to 10 times their household income but no house to back that mortgage. this is our fiscal future. under our do nothing path.

the line represents revenues that's percentage of the economy. the bars represent spending. if the bars above the line, which it is in every time period, that's a deficit. the fastest growing cost is interest on the federal debt. within 12 years the single largest line item in the federal budget without an increase in interest rates will be interest on the federal debt. if interest on the federal debt increases by 200 basis points or 2%, then the only thing the federal government will be able to do in 25 years is pay interest on the federal debt. that's how bad the numbers are. it's a simple four-letter word called math. this is what our debt to gdp or debt as a percentage of the total economy has been in the past. and what it looks like in the future. this is not possible. we must demonstrate that we understand that we're on an

imprudent and unsustainable path and make changes sooner than later before our foreign lenders lose confidence to do so. we're increasing relying on foreign lenders to finance our debt and if they lose confidence in our ability to put our house in order, then interest rates will go up dramatically. the dollar will decline dramatically. and that will cause something much worse than a recession. we must avoid that. yes, we can help to create a better future. yes, we can put ourselves on a more prudent and sustainable path. but it involves tough choices. it involves reimposing tough budgetary controls to address both discretionary spending as well as some type of triggers for mandatory spending and tax preferences. it involves reforming social security to make it solvent, sustainable, secure and more savings-oriented. it involves reducing healthcare costs as well as the rate of increase in healthcare costs. and stabilizing healthcare as a

percentage of the economy. it involves making sure that all healthcare legislation focuses not just on coverage but also on cost, quality, and personal responsibility. it involves the need for comprehensive tax reform that can help make our system more streamline, understandable, equitable and competitive. while generating adequate revenues to pay our bills and deliver on the promises we intend to keep. it involves reviewing, reprioritizing, reengineering the base of government including the waste that exists in defense, in homeland security, and many other areas of government. and, frankly, many programs and tax policies that just flat don't work. and, yes, we're going to need special processes in order to achieve this because the regular order is broken. and we should act sooner rather than later. because the longer we wait to act, the greater the chances have to be. we need to make decisions sooner so that the miracle of

compounding can work for us rather than against us as it is now. this shows you how much you would have to cut federal spending if you waited till these various dates. these percentages are totally unrealistic. this shows you how much you would have to rai fedal taxes if you wanted to solve the problem through taxes. and these percentages are totally unrealistic. so, yes, everything has to be on the table. we need to act sooner rather than later. we need to achieve a grand bargain. in closing, this is not just about numbers. this is about people. my children, my grandchildren, and yours. this is about the future of the united states of america. this is about the future of our families. america is at a critical crossroads. the decisions that are made or failed to be made within the next 3 to 5 years will largely determine whether our best years are behind us or whether they're

ahead of us. and all of us up on this panel are dedicated to doing our part to try to make sure the tough choices are made so america stays great. and the american dream stays alive. but you need to do your part, too. and i hope you will. thank you. [applause] >> and now bill. [applause] >> well, good afternoon, everybody. we've just heard about the unsustainable fiscal situation in which we find ourselves at this point in the 21st century. creating solutions to this enormous problem is an absolute imperative. now, bob bixby pointed out that the aging of america is one important factor in analyzing and dealing with this dilemma. when i was the ceo of aarp i was giving a talk once in kentucky. and a woman raised her hand and

she said, do you know that women live longer than men? and i said, yes, i do. and she said, well, what are you going to do about it? [laughter] >> well, i wasn't going to do anything about it. but the truth is both men and women are living longer. and so what i want to briefly talk about is the critical need to address our long-term debt crisis in the context of also achieving adequate retirement security for today's and tomorrow's older generations. fixing the problem of annual deficits and stabilizing federal debt must be done in tandem with major social needs. and among those needs is a secure retirement. and we can have both if we have the courage to face up to what has to be done. a secure retirement is built on four pillars. a solvent social security system as dave said, individual retirement savings and employer

pensions, the ability for people to continue to work and to earn. and adequate and affordable healthcare coverage and long-term care. now, while we still have a long way to go, the recently passed healthcare reform legislation is an important step toward that fourth pillar. healthcare access and affordibility. congratulations to speaker hoyer on that -- leader hoyer, excuse me. [applause] >> so i want to focus on that first pillar on social security. it isn't our biggest problem. but as bob said, along with medicare and medicaid it constitutes a large personally of our federal budget. it's important to understand that we can achieve social security solvency. we can do so in an equitable way. and in doing so, we can score a big win for fiscal reform, put some points on the board. and build momentum for other bipartisan fixes.

now, like the fiscal problem as a whole, we've got to address both the revenue side and the benefit side of social security. we can't just raise revenues and fix the problem. and neither can we just cut spending and find a good solution. our social security problem -- program, excuse me, our program, is out of long-term fiscal balance by about 1.7% of taxable payroll. according to the 2008 social security trustees report. so this means that revenue increases and benefit adjustments equal to that amount are needed to bring it back into long-term balance. now, among many others -- and we heard this from leader hoyer, senators kent conrad and judd gregg said we can handle our

social security problem. after all it's just math. true, it is math. but, of course, it's also politics. so what are some reasonable ways to address social security solvency? first let's look at the revenue side. we could raise the taxable wage base. restoring the fica revenue base to about 90% of wages, which was last attained in 1993 up to about 85% of wages today. it would eliminate about half of the 75-year shortfall. we might impose a new tax on wages and salaries above the maximum taxable amount. now, there are a variety of ways to come at this. but right now some 90% of a millionaire's earnings are exempt from the social security tax. whereas 94% of all workers pay taxes on every dollar of their earnings. we could cover all new state and

local workers. some 25% of state and local government employees who have other pension systems are not in social security. now, shouldn't that system, our social security system, universal for all americans? including those who change jobs. if we think that, then we could cover newly hired workers in those states where they're not presently covered so as not to disrupt the other pension systems of existing workers. we could raise revenues by investing social security trust fund money in other instruments besides treasury securities. other systems like canada's already do this. now, there are some concerns that this could dominate our capital markets. but if we invested, let's say, 15% of trust funds in a broad stock market index fund, that would only be about 2% or so of today's market capitalization.

and in addition to bringing in more money, it would have the added benefit of keeping those funds away from the temptation of politicians to spend them on things other than social security. now, the other side of the ledger, the benefit adjustment side. the older population is already working longer. facilitating and accelerating that helps create a more sustainable balance between the number of years that people spend working and the number of years they spend receiving benefits. it helps older workers by reducing the total assets needed in retirement. it benefits our economy with experienced workers. and it helps our fiscal situation by generating more tax revenue. next, we need to take increased longevity into account if we're going to make social security solvent.

now, one way to do this is to index our benefits to longevity so that living longer would not automatically mean greater lifetime benefits. another way to deal with longevity is to raise the normal retirement age. which is now moving up to 67. pushing it 68 or higher would present employment and policy and political challenges. but it should be on the table as everything else should be on the table for discussion. we could also raise the early retirement age for social security from 62 to something higher. perhaps 65. now, this would not directly affect solvency. but it would increase people's income retirement security, their adequacy. and it would be an important signal to employers and employees about work life expectations as longevity increases.

another possible benefit reduction is to change the formula to scale benefits back for higher earners. and possibly middle wage earners as well. while maintaining benefit levels for lower earners. there are other options to consider. in conclusion, we have a fiscal crisis staring us in the face. we can deal with it if we engage the public and our policymakers. and if we get serious about it. and in doing so, we need to take into account important social goals including retirement security. thanks very much. [applause] >> well, thanks very much for having me today. i'm andrew begges.

we had such a good introduction from bob i'll really talk thematically talking about the issues going forward. the federal budget faces two main problems. one is the aging of the population which essentially means more retirees dependent on social security, medicare, medicaid. fewer workers supporting those problems. and the second issue is higher or rising healthcare costs. when you combine those two things, we really get this tidal wave of spending coming over the budget that we have to find some way to deal with. the congressional budget office says that to balance the budget over the next 30 years would require around a 30% increase in all federal taxes, income taxes, corporate taxes, payroll taxes. that's not going to happen. so we have to think creatively how we handle these issues. i'll talk about social, medicare and medicaid and sum things up. the way we see it, we want people to work more. we want them to save more, we want them to retire later.

so on the social security front, i propose several different things. the first is to reduce benefits for a medium and high range earners while retaining and strengthening the safety net at the low end. doing that would tend to encourage people to work more so they can generate more savings themselves later on. second, is institute universal savings accounts outside of social security. such as automatic enrollment and 401k plans. by building more savings outside of social security, we reduce the burden on the program and make it easier to meet its goals. third, is i would increase the retirement age for social security while reducing payroll taxes on lower earners. it's a way of using both the carrot and the stick of saying we'd like you to work longer. we're trying to make it worth your while to stay in the labor force. at the same time, when i think of these three goals, work more, save more, and retire later, that's also one reason why i would try to minimize the use of tax increases in balancing the program.

if you increase taxes people tend to work less because the after-tax reward for working is smaller. they'll tend to save less because they'll have less after-tax wages to save and they'll retire earlier because social security benefits will appear higher relative to the take-home pay they have while they're working. so i think when we put all these things together, we're going to have to look at some tough choices. we'll ultimately have to look at tax increases. we might want to look at things like changing the way the consumer price index is adjusted to adjust for cola and adjust tore tax rate. but most for the social security you want to focus on the increase end and savings. moving on to healthcare costs, a lot of the increase in healthcare costs and healthcare spending is totally justifiable. there's new technologies out there that are great. that people want. people have higher incomes and they want to spend more on healthcare. but much of the rise in wasteful spending comes from the fact that patients and doctors today have no real incentive to

monitor costs and to care about cost-effectiveness. if you think back in 1960, half of healthcare spending was paid out-of-pocket. that meant you paid 50 cents of each dollar out of your picture and it was an incentive to care about how much you spent and how cost-effective that was. today that's only 12 cents out of each healthcare dollar is paid out-of-pocket. so why we spend so much and waste so much is a little bit asking somebody in an all you can eat restaurant why you're eating so much food. there's no reason not to. there's evidence if we shift from a system of high premiums and low deductibles to low premiums and high deductibles giving people more skin on the game they will try to save more on their spending and spend more effectively. what are our prospects for success? what we've seen here is how crucial these goals are and how important it is we address them. i'm a naturally optimistic person. i've got to say i've never been gloomiha