Expense Growth by Category: Entitlement Spending Growing Much Faster than

Expense Growth by Category: Entitlement Spending Growing Much Faster than Other Expenses and 2% Higher than GDP Growth 1965 — 2005 USA Real Federal Expenses Growth by Category vs. Real GDP Growth Expenses Growth ‘05 vs. 40-yr 4965YY 2005Y/Y |40-yrCAGR| Variance Comments Entitlement Expenses 12% 3% -3% Entitlement expenses grew 2 percentage points faster than GDP and overall expenses Defense 12 6 4 Defense spending grew 2 . . . percentage points below overall Non-Defense Discretionary 10 6 4 expenses Net Interest Payments ré 12 8 Total Federal Expenses 11% 5% 2% Real GDP 7% 3% 0% Note: All data are inflation adjusted using GDP price index from BEA; ’05 vs. 40-yr variance is rounded. *Non-defense discretionary KP spending includes education, infrastructure, agriculture, housing, etc. Data source: White House Office of Management & Budget. (@)E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 229 Expense Growth by Category: Observations from Previous Slide While GDP and USA Inc. tax revenue have grown at a 3% annual rate for 40 years, entitlement spending has grown 5%, net interest payments have risen 3%, and defense plus non-defense discretionary spending (including education, infrastructure, law enforcement and judiciary) have risen by 1%. These different growth rates have become even more pronounced in recent years. Questions: 1) Isn’t it time for a re-set and acknowledgment of trade-offs? Should taxes, non-defense discretionary spending, and defense spending grow in line with GDP over time? Should entitlement spending be restructured to be more efficient and supportable by the ongoing financial dynamics of USA, Inc. and also grow in line with or below GDP? Note: All data are inflation adjusted using GDP price index from BEA; 05 vs. 40-yr variance is rounded. KP Data source: White House Office of Management & Budget. (@E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 230 HOUSE_OVERSIGHT_020956