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					The Federal Deficit and Debt:
  A THREAT TO NATIONAL
         SECURITY
                Bob Feidler
  Director, Strategic Defense Education
      Reserve Officers Association
“ We are heading for disaster in America”
                      -Congressman Paul Ryan
                       Chairman, House Budget Committee


“The economies of Europe and the United
  States have arrived at the moment when they
  no longer have any conceivable hope of being
  able to pay for the huge public commitments
  they’ve amassed the past forty years.”
                       - Wall Street Journal, 5 AUG 2011
TERMINOLOGY
                HOW MUCH IS A
                  TRILLION?
•   Guesses re size of:
•   Debt ceiling
•   GDP
•   Fed Budget
•   Fed Revenue
•   Deficit
•   % we borrow
•   Size of DoD Budget/SS/Medicare/Medicaid
       CURRENT Debt Ceiling/GDP and
   Estimates for FY 2011 BUDGET & DEFICIT
• Debt Ceiling—pre 2 AUG = $14.4T; as of 30
  SEPT it will be $15.3T ; as of 30 JAN 2013, it
  will be $16.5T
• GDP – $15 Trillion
• Federal Budget - $3.6 Trillion
• Federal Revenues - $2.2 Trillion
• Federal Deficit - $1.4 Trillion
  **We borrow approx. 40 cents out of every
      dollar we spend.
   Federal Debt Ceiling and Debt
           as of 18 AUG
• Debt Ceiling - $14.8 Trillion (of which we have
  “used” $14.7T)
• U.S. government held debt - $4.2 Trillion
• Publicly held debt - $10.6 Trillion
  (held by individuals, foreign countries, and
  private institutions)
• China holds roughly $1.5 Trillion in U.S. debt.
 For FY11, The U.S. has about $10.6 trillion in
 accumulated debt held by the public, about half
 of that is the hands of investors abroad.



“ A foreign government, through the actions of its
  central bank, could put pressure on the U.S. in a
  way its military never could.”
                         -WSJ.COM February 2, 2010
 MAJOR FOREIGN HOLDERS OF US DEBT
                                                                               (billions of dollars)
                                                                      China
                                                                       19%    Hong Kong
                                                                                 3%
all other
  48%
                                                                                 Japan
                                                                                  17%

                                                       United Kingdom
                                         Oil Exporters       8%
                                              5%




  Source : Department of the Treasury/Federal Reserve Board July 16, 2010
The Federal Debt in Graph
 Percentage of Public Debt to GDP
Public Debt in relation to GDP with budget cuts:

2011– Public Debt projected to be 69% of GDP

2021– Public Debt projected to be 80% of GDP
**If Bush tax cuts expire, Debt estimated to be
  76% of GDP
Components of the Federal Budget


                        62% and
                        growing



 38% and
decreasing
BUDGET OUTLAY
                                          (DOD $708 billion + all other defense spending)




  Source :http://www.washingtonpost.com/wp-srv/special/politics/budget-2010/?referrer=emaillink
DoD Baseline v. Interest on the
            Debt
   Year     Base   Interest

   2005    $400B $352B

   2010    $515B $425B

   2011    $530B $499B

   2012    $525B $500B
       The Risks of Growing Entitlement Spending
• By 2052 entitlement spending alone will equal revenue
• Any other spending – defense and other discretionary federal activities will put the
budget in deficit.
  National Defense Spending
    as a Percentage of GDP




Source: The Heritage Foundation, based on data from the White House Office of Management and Budget.
             The BIG Problem:
            Unfunded Liabilities
• Unfunded liabilities are promises that the federal
  government has made for future payments

• $90 Trillion (approximate- estimates range from $
  70 - 110 Trillion)

• $70 Trillion Medicare and Medicaid

• $17 Trillion Social Security
Review of Budget Proposals– 2011
• Simpson Bowles Deficit Reduction Comm.
• Domenici-Rivlin Bipartisan Policy Center’s
  Debt Reduction Task Force
• President Obama February Budget
• Congressman Ryan April Proposal
• President Obama April Proposal
• House bill 29 AUG; Senate Bill 29 AUG
• Budget Control Act of 2011 –2 AUG
      Budget Control Act of 2011
• Major Provisions:
   – Immediate debt ceiling Increase of $400B on 2 AUG
   – Further debt ceiling increase 30 SEP of $500B
   – Total debt ceiling increases from $14.4T on 2 AUG to
     $15.3T on 30 SEP
   – Deficit reductions of $917B to accompany debt ceiling
     increase
   – Provision for a Congressional Joint Super Committee to
     recommend no later than 23 NOV cuts totaling between
     $1.2-1.5T; must pass Congress by 23 DEC
                  BCA (cont)
           Supercommittee Members
Congressman James E. Clyburn (D-SC)   Congressman Fred Upton (R-MI)

 Congressman Xavier Becurra (D-CA)    Congressman Dave Camp (R-MI)

Congressman Chris Van Hollen (D-MD) Congressman Jeb Hensarling (R-TX)

    Senator Max Baucus (D-MT)            Senator John Kyle (R-AZ)

     Senator John Kerry (D-MA)         Senator Rob Portman (R-OH)

    Senator Patty Murray (D-WA)         Senator Pat Toomey (R-PA)
         BCA TERMINOLOGY
“Security Spending”= Budgets of the Defense,
State, Veterans Affairs, and Homeland Security
departments; National Nuclear Security
Administration; intelligence community; other
international affairs organizations; does not
include supplemental funding for OCO
             Major Provisions:
    Impact for FY12 and FY13 on Security
        Spending and DoD – Phase I
• FY12 -- $4B in cuts in “security” spending
• FY13 – Security spending would go up $2B from
  previous year
• After that security spending will increase 2% a year
  (as will non security spending)
• This generates $420B in the category of security
  savings over 10 years from CBO baseline budget
• Of this, $350B would be from budget category
  Defense;$330B directly from DoD
                 “The Trigger”
– If the Super Committee does not reach a majority
  recommendation, Congress does not act by its deadline, or
  a balance budget amendment is not passed, a “trigger” is
  pulled requiring $1.2T in cuts, with $1T equally split
  between the “defense” and “non-defense” portions of the
  discretionary elements of the budget (about $200B taken
  off the top for interest). Cuts will take effect JAN 2013.

– The debt ceiling will go up by the amount of cuts made by
  the Super Committee or the trigger, and is likely to go to a
  minimum of $16.5T, which will carry the Federal Budget
  through JAN 2013
“The future of U.S. security should not be
  handed over to a 12-person super panel. Its
  decisions or inability to reach an agreement
  could ultimately break our military or bring it
  very close to that point”
                      —Rep. Duncan Hunter (R-CA, HASC)


“Proposals to cut defense spending reflect
  minimal, if any, understanding of how they
  will be applied or what impact they will have
  on our defense capabilities or our national
  security.”
                       –Senator John McCain (R-AZ, SASC)
  Impact on Defense Spending/DoD –
          Phase II (Triggers)
• The Super Committee could recommend virtually anything in
  cuts to defense spending—but likely would recommend cuts
  between $400B-$600B
• If Super Committee does not make a majority
  recommendation that is also adopted by the Congress by 23
  DEC, the “trigger” of $1.2T kicks in ($1T in cuts, since $200B in
  interest taken off top), as of JAN 2013, with half coming from
  Defense spending (a narrower category than security
  spending)
• Most of the Defense spending cuts will come from DoD
  meaning that DoD, in addition to the Phase I cuts of approx
  $330B will also have cuts of approximately $450-500B or
  about $800B over ten years – if the trigger kicks in.
            Total Reductions
• Total deficit reduction will thus be between
  $2.1 and $2.4T over ten years ($900B plus
  $1.2T-$1.5T)
• Balanced Budget Amendment vote must occur
  by 31 DEC 2011 (and if it passes—no cuts)
  10 Ways that Service Members, Veterans, and
   Retirees Could Feel the Impact of the New
                  Budget Deal
                   from “Frugal Future,” Rick Maze, Army Times 15AUG2011 issue


1. Shrink the Force
   -       Returning the Army and Marine Corps to pre-2001 size could save more than
           $147B over 10 years
   -       Reducing the number of Navy ships and aircraft carriers, and eliminating two
           Air Force fighter wings would save another $177B

2. Reduce Pay Raises (Reduction to 0.5% below private-sector pay
       would save approx. $300 million)

3. Squeeze Bonuses, Special Pays (1% reduction would save
       $34 million)

4. Trim Retiree COLAs (0.25-0.3% reduction would save $24B over
       10 years)
                  Impact (continued)
5. Overhaul Retired Pay
  - Latest proposal from Defense Business Board would do away with 20-year
       retirement and create a new system more like the private sector

6. Raise Health Care Fees
  - Eliminating Tricare Prime for retirees under 65 would save $115B over 10 years

7. Cut Tuition Assistance
8. Eliminate Stateside Schools
9. Tighten Money for Facilities and Housing
   Maintenance
10. Consolidate Commissaries and Exchanges
              Cuts Summary
• Of initial $917B in cuts: $497B non-security and
  $420B security (Phase I)--$350B of which are from
  “Defense” category, specifically $330B from DoD.
• The cuts to be proposed by Super Committee the
  number cannot be known exactly because their goal
  is to make cuts between $1.2 and $1.5T overall
  (probably a little less than half would come from
  security)
• If trigger kicks in – both defense and non-defense
  domestic spending would be cut by $500B each –
  excluded are entitlement cuts to include Medicaid,
  military pensions, and most of Medicare
        10 WAYS TO FIX BUDGET
• Balance budget over a decade
• Favor spending cuts over tax increases
• Cut social security, medicare, and other retiree
  programs
• Don’t spare baby boomers/current retirees
• Evaluate Defense needs independently – and pay for
  them
• Lower tax rates by reducing tax breaks – three rates
  with capital gains taxed at your income rate
                Solutions cont
• Enact an energy or gas tax
• Control health cost – either by tougher regulation
  (liberal approach) or vouchers and credits (Ryan
  approach)
• Make changes gradually

• Deficits reflect gap between what we expect and
  what we are willing to pay. No painless way to close
  the gap but it can be done in a fair and balanced way
  for the common good.
QUESTIONS
                  Resources
Budget Control Act of 2011 text:
  http://rules.house.gov/Media/file/PDF_112_1/Floor
  _Text/DEBT_016_xml.pdf

Current FY2012 Federal Budget:
  http://www.gpoaccess.gov/usbudget/fy12/index.ht
  ml

Center for Strategic and Budgetary Assessments (CSBA)
  Analysis of Budget Control Act:
  http://www.csbaonline.org/publications/2011/08/de
  fense-funding-in-the-budget-control-act-of-2011/

				
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