Financial Overview of U.S. Federal Budget Shows Large Deficits and Negative Net Worth

There are two caveats. First, we do not make policy recommendations. We try to help clarify some of the issues in a straightforward, analytical way. We aim to present data, trends, and facts about USA Inc.’s key revenue and expense drivers to provide context for how its financials have reached their present state. Our observations come from publicly available information, and we use the tools of basic financial analysis to interpret it. Forecasts generally come from 3rd-party agencies like the Congressional Budget Office (CBO), the nonpartisan federal agency charged with reviewing the financial impact of legislation. Second, the ‘devil is in the details.’ For US policy makers, the timing of material changes will be especially difficult, given the current economic environment. By the standards of any public corporation, USA Inc.’s financials are discouraging. True, USA Inc. has many fundamental strengths. On an operating basis (excluding Medicare and Medicaid spending and one-time charges), the federal government’s profit & loss statement is solid, with a 4% median net margin over the last 15 years. But cash flow is deep in the red (by almost $1.3 trillion last year, or -$11,000 per household), and USA Inc.’s net worth is negative and deteriorating. That net worth figure includes the present value of unfunded entitlement liabilities but not hard-to-value assets such as natural resources, the power to tax or mint currency, or what Treasury calls “heritage” or “stewardship assets” like national parks. Nevertheless, the trends are clear, and critical warning signs are evident in nearly every data point we examine. F2010 Cash Flow = -$1.3 Trillion; Net Worth = -$44 Trillion With a Negative Trend Line Over Past 15 Years USA Inc. Annual Cash Flow & Year-End Net Worth, F1996 — F2010 GOOD nnn ee eee eee cece reece eet ce cece ence nentete eae cneeceenacaeaeaneatateneaneatateneaeeataseaeasenctatastaenseseacnseasnscesnaness $15,000 0 go = | a 1 $0 = _ =< 8 = 8 A TF GAOO Rape ee MB ~-- «-$15,000 - 2 £ xo} ° it = = = % 2 (OME CU) Bee eee ee ncaa, Cee a ~-- -$30,000 > 7 <4 2 mi One-Time Expenses* ul $1,200 mmm Cash Flow (left axis) SR -— f -$45,000 =—O= Net Worth (right axis) BA COD -$60,000 F1996 F1998 F2000 F2002 F2004 F2006 F2008 F2010 Note: USA federal fiscal year ends in September; Cash flow = total revenue — total spending on a cash basis; net worth includes unfunded future liabilities from Social Security and Medicare on an accrual basis over the next 75 years. *One-time expenses in F2008 include $14B payments to Freddie Mac; F2009 includes $2798 net TARP payouts, $97B payment to Fannie Mae & Freddie Mac and $40B stimulus spending on discretionary items; F2010E includes $26B net TARP income, $1378 stimulus spending and $41B payment to Fannie Mae & Freddie Mac. F2010 net worth improved dramatically owing to revised actuarial estimates for Medicare program resulted from the Healthcare reform legisiation. For mare definitions, see next slide. Source: cash flow per White ke House Office of Management and Budget; net worth per Dept. of Treasury, “2010 Financial Report of the U.S. Government.” hs www.kpcb.com USA Inc. | Summary CB www.kpcb.com USA Inc. _ viii HOUSE_OVERSIGHT_020831