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Underfunded entitlements are among the most severe financial burdens USA Inc. faces. And because some of the most underfunded programs are intended to help the nation’s poorest, the electorate must understand the full dimensions of the challenges. Unfunded Entitlement (Medicare + Social Security) + Underfunded F2010 USA Inc. Revenues + Expenses At A Glance Entitlement Expenditures (Medicaid) = Among Largest Long-Term Liabilities on USA Inc.'s Balance Sheet F2010 F2010 USA Inc. Expenses = USA Balance Sheet Liabilities Composition, F2010 Revenues = $3.5T Entitlement Programs $2.2T Net Interest Payment Discretionary $496p One-Time Items Unfunded Medicaid* $1528 Social a Other Security Medicare 5 ' $707B $35.3T ‘orporate a Income Tax income tax Non-Defense Unfunded $22.8T $191B % $8998 Discretionary 12% S431B deral Veteran Federal ‘ai ‘edera Employee i Debt Other Benetite Benefits $1.6T $2.1T $3.7T $9.1T Social . Defense Medicare + Federal es Medicaid wssraoee Tax eas 2 ey ) Unemployment Insurance + Other Entitlements $553B Social Security $7.9T Note: USA federal fiscal year ends in September; tinalvid defense discretionary induces federal spending on edt KP KP ef sw kpcb, com USA Inc. | Summary LH] worn. kpc. com Some consider defense outlays — which have nearly doubled in the last decade, to 5% of GDP — a principal cause of USA Inc.’s financial dilemma. But defense spending is still below its 7% share of GDP from 1948 to 2000; it accounted for 20% of the budget in 2010, compared with 41% of all government spending between 1789 and 1930. The principal challenges lie elsewhere. Since the Great Depression, USA Inc. has steadily added “business lines” and, with the best of intentions, created various entitlement programs. They serve many of the nation’s poorest, whose struggles have been made worse by the recent financial crisis. Apart from Social Security and unemployment insurance, however, funding for these programs has been woefully inadequate — and getting worse. Entitlement expenses amount to $16,000 per household per year, and entitlement spending far outstrips funding, by more than $1 trillion (or $9,000 per household) in 2010. More than 35% of the US population receives entitlement dollars or is on the government payroll, up from ~20% in 1966. Given the high correlation of rising entitlement income with declining savings, do Americans feel less compelled to save if they depend on the government for their future savings? It is interesting to note that in China the household savings rate is ~36%, per our estimates based on CEIC data, in part due to a higher degree of self-reliance — and far fewer established pension plans. In the USA, the personal savings rate (defined as savings as percent of disposable income) was 6% in 2010 and only 3% from 2000 to 2008. CB www.kpcb.com USA Inc. ix HOUSE_OVERSIGHT_020832