USA Inc. (Mar ’25)

March 2025

March 3, 2025

Introduction

Over the last 14 years, the state of our country’s finances has profoundly deteriorated.  Metrics that we analyzed in
our 2011 report USA Inc., A Basic Summary of America’s Financial Statements show – as we had feared – a
dramatic decline in America’s ability to handle many of the social, economic, and international challenges that lie
ahead. Beneath the surface, financial “results” – treating the government as if it were a corporation – conceal a
buildup in structural weakness that can jeopardize our country’s standing in the world. The growth and general
inefficiency in public spending (and regulation) of all sorts – but especially related to entitlements and interest
expense – appears unsustainable.

Paying for the debt we have collectively assumed is increasingly likely to crowd out future opportunities.  Simply put,
the abnormally low interest rates prevailing in the early years of this century allowed our elected and appointed
leaders to avoid making the difficult decisions needed to restore our finances to long-term stability.  Had effective
interest rates remained at their longer-term average, America’s annual net interest payments would have been
nearly $1 trillion higher.  Adding state and local government debt adjusted to include the real long-term impacts of
public retirement costs, the “net worth” of our country is deteriorating rapidly – leaving our flexibility to handle real
national crises greatly diminished. This document is a 2025 update to the summary section of our 2011 report.

USA Inc., A Basic Summary of America’s Financial Statements –
Revisiting our 2011 Report

Mary Meeker & Alexander Krey

In mid-2009, as America was working its way out of the financial crisis, we were preparing a document focused on
key economic metrics and the emergence of the mobile Internet and social networking. We also focused on the
nagging problem of steadily rising domestic debt levels (especially government debt).

This work led us to ask the question, “What would America’s income statement look like if we were to model it out
the same way we model Google?” This took us on a journey that led us to publish USA, Inc., A Basic Summary of
America’s Financial Statements in February 2011. Here’s a link to the 266-page document…and the same as a
book. We released the report into the public domain as a source document. For us it was “one and done” and back
to our day jobs.

But we remained concerned that debt was rising at rates in excess of economic growth (evinced by trends in the
ratio of USA Public Debt to GDP) – especially during a novel period of government-driven interest rate declines
(a.k.a. borrowing). Our worries never went away…in fact they rose dramatically.

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USA Public Debt to GDP Ratio =
Rising Materially Over 15 Years (@ 97% in 2023 vs. 39% in 2008)...
Near Anomalous WWII Levels

Since 2008, USA, Inc’s. Public Debt as % of GDP Rose 148%...
While Effective Interest Rates* Fell 64% to Historically Low Levels (2021)...
 Since Then, Interest Rates Have Risen 59%, Driving Up Effective Cost of Debt

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Nominal Interest Rates* (1871 – 2023) =
2000s & 2010s Declines Were Not Normal…
Especially During Relatively Good Economic Times

USA Money Supply Rising Rapidly =
167% Growth Over 15 Years (2023 vs. 2008)...Accelerated Briskly in 2019…
Money Printing Growing Faster Than GDP (USA Inc.’s Output) = Unsustainable

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Value of US Dollar Has Fallen Steadily Since 1933

USA Public Debt Up 600%+ Over 25 Years…
While Interest Expense Payments Down to 11% of Spending (vs. 15%)...
Peak-to-Trough 10-Year US Treasury Yield Fell From 6.8% to 0.5% (2000 – 2020)…
Interest Rates / Treasury Yields Finally Reversed in August, 2020*…

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…Had Effective Interest Rates Remained at 6.25%
(30-Year Average Rate as of Our February 2011 Report)...
From 1991 to 2023 (vs. Current 2.5% Effective Rate)...
 Net Interest Payments Would Have Been 149% (~$1 Trillion) Higher in F2023

Sadly, most people responsible for managing America’s income statement (spending) and balance sheet
(borrowing) highlighted in the preceding seven graphs – our collective elected and appointed officials – have not had
the resolve to make necessary changes.

Overdue though it may be, the tide may now be shifting. Newly appointed Treasury Secretary Scott Bessent
observed during his Senate confirmation hearing on January 16, 2025 – “Productive investment that grows the
economy must be prioritized over wasteful spending that drives inflation…We must work to get our fiscal house in
order.” And, others are stepping up…

We are optimistic that renewed focus (with corresponding urgent solutions) on the rising, unsustainable and often
inefficient spending of our government can help re-ignite already impressive innovation and growth in America. Our
country – and our world – need it. As Secretary Bessent pointed out, “The breadth and depth of our capital markets,
along with predictable pro-growth tax policy, and smart, updated regulation will continue to make America the most
popular destination in the world for starting, growing and taking public a business.”

With all this in mind, we decided it was time to revisit the 12-page Summary from USA, Inc. which was published
fourteen years ago, with a red-line of updated words and data (and additions / clarifications in blue text). In general,
the trends continue to be distressing – and getting worse and worse. We thus hope this document helps shine a
light on portions of such problematic trends…and that others take the data (from this document and the original
report), go deep and improve / expand on them.  For us, back to the day job…

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Summary (2025 Update)

2011 USA Inc. Text Red-Line Updated with Recent (~2023) Actuals + New Observations in Blue…
2011 USA Inc. Slides / Charts Updated with Recent Data + New Header Summaries in Blue

Imagine for a moment that the United States government is a public corporation. Imagine that its
management structure, fiscal performance, and budget are all up for review. Now imagine that you’re a
shareholder in USA Inc. How do you feel about your investment?

Because 45% 61% of us own shares in publicly traded companies, nearly half over half the country expects
quarterly updates on our investments. But although 100% of us are stakeholders in the United States, very few of us
look closely at Washington’s financials. If we were long-term investors, how would we evaluate the federal
government’s business model, strategic plans, and operating efficiency? How would we react to its earnings
reports? Nearly two-thirds Some 60% of all American households pay federal income taxes, but very few of us take
the time to dig into the numbers of the entity that, on average, collects 13% of our annual gross income (not
counting another 15-30% for payroll and various state and local taxes).

We believe it’s especially important to pay closer attention to one of our most important investments.

As American citizens and taxpayers, we care about the future of our country. As investors, we’re in an on-going
search for data and insights that will help us make more informed investment decisions. It’s easier to predict the
future if one has a keen understanding of the past, but we found ourselves struggling to find good information about
America’s finances. So we decided to assemble – in one place and in a user-friendly format – some of the best data
about the world’s biggest “business.”

Note that, in 2011, when USA, Inc. was published, America was still the world’s biggest “business” based on Gross
Domestic Product (GDP) adjusted for Purchasing Power Parity (PPP). While America still leads in absolute GDP,
China – as measured by purchasing power parity – has been the largest since 2016, according to the World Bank.

While USA GDP Remains Above China…
China Surpassed USA In Purchasing Power Parity (PPP)-Adjusted GDP in 2016

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We also provide some historical context for how USA Inc.’s financial model has evolved over decades. And, as
investors, we look at trend lines which help us understand the patterns (and often future directions) of key financial
drivers like revenue and expenses.

The complexity of USA Inc.’s challenges is well known, and our presentation is just a starting point; it’s far from
perfect or complete. But we are convinced that citizens should understand the business of their government.
Thomas Jefferson and Alexis de Tocqueville knew that – armed with the right information – the enlightened citizenry
of America would make the right decisions.  It is our humble hope that a transparent financial framework can help
inform future debates.

In the conviction that every citizen should understand the finances of USA Inc. and the plans of its “management
team,” we examine USA Inc.’s income statement and balance sheet and present them in a basic, easy-to-use
format. We summarize our thoughts in PowerPoint form and in this brief text summary at BOND’s website. We
encourage people to take our data and thoughts and study them, critique them, augment them, share them, and
make them better. There’s a lot of material – think of it as a book that happens to be a slide presentation.

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.

While we focus on America’s federal government, state and local governments face similar long-term financial
challenges. The size of state and local government budget deficits, per the Census Bureau, was $1 trillion in
aggregate in F2022 vs. $70 billion in F2009 (excluding intragovernmental revenue from the federal government) and
debt-to-GDP ratio was 12%, on average, in F2022 vs. 7% in F2008. This pales in comparison to the federal
government’s $1.7 trillion budget deficit and 96% debt-to-GDP ratio in F2022. Note that many have noted that these
metrics may actually understate state and local governments’ financial challenges by a significant amount because
they exclude the long-term cost of public pension and other post employment benefit (OPEB) liabilities. Like USA
Inc., state and local governments must meet this fiscal challenge by reducing their outstanding debts and balancing
their budgets.

By the standards of any public corporation, USA Inc.’s financials are discouraging.

USA Inc. has many fundamental strengths.  On an operating basis (excluding Medicare and Medicaid spending and
one-time charges, as a hypothetical exercise), the federal government’s profit & loss statement is solid, with a 4%
median net margin fair, running just below breakeven over the last 15 years (see addendum for trending). But
cash flow is deep in the red (by almost $1.3 trillion $1.7 trillion last year, or $11,000 -$12,810 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.

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Since 2002, the Year After USA Last Generated Positive Cash Flow…
America’s Net Worth Has Decreased to -$105 Trillion from -$21 Trillion

Note: “Net Worth” methodology has changed since USA Inc.’s 2011 publication. In 2011, we estimated the NPV of
the next 75 years’ worth of liabilities for Social Security & Medicare using a 3% discount rate. In 2006, the White
House Office of Management and Budget’s (OMB’s) “Financial Report of the U.S. Government” began reporting
future open-group (i.e., accounting for future participants, as well as current ones) net liabilities for these programs
in the Statement of Social Insurance (SOSI), backdated to 2002. To ensure consistency, we have updated the US
government’s net worth figures (red-line) to reflect these SOSI figures.

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.

As we publish this update, entitlements remain a boogeyman of USA Inc. But with the return of higher interest rates
in 2022, as predicted, growth in net interest payments now looms large and makes it even more imperative that we
resolve the entitlement challenge.

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Since 2010, USA, Inc’s. Annual Revenue Rose $2.3T While Expenses Rose $2.7T…
Net Interest Payments Grew 236% vs. Medicare & Federal Medicaid +102%,
Social Security +91%, Unemployment Insurance & Other Entitlements +73%,
Non-Defense Discretionary +108% & Defense +18%

In addition to rapidly rising expenses, USA Inc.’s off-balance sheet liabilities (related to the likes of unfunded future
Medicare and Social Security commitments) are, in a word – epic – and rising. These total at least $73 trillion as of
F2023 (mostly unfunded Medicare and Social Security obligations, but they include others like future defense
discretionary and non-defense discretionary items) and amount to nearly $3 for every $1 of debt on the books. Just
as unfunded corporate pensions and other post-employment benefits (OPEB) weigh on public corporations,
unfunded entitlements, over time, may increase USA Inc.’s cost of capital. And today’s off-balance sheet liabilities
will be tomorrow’s on-balance sheet debt.

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Since 2010, Unfunded Liabilities for Social Security Up ~320% & Medicare Up ~175%...
Unfunded Liabilities ~180% Greater than 2023 USA Public Debt…
Today’s Off-Balance Sheet Liabilities = Tomorrow’s Debt

Some consider defense outlays – which have nearly doubled increased 29% in the last decade, to 5% 3% of GDP
– a principal cause of USA Inc.’s financial dilemma.  But defense spending is still massively below its average 7%
share of GDP from 1948 to 2000; it accounted for 20% of the budget in 2010 only 13% of the budget in 2023,
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 (late 2007 - mid 2009) and COVID (2020-2022).  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 $25,967 per household per year, and entitlement spending far outstrips
funding, by more than $1 trillion $1.8 trillion (or $9,000 $13,683 per household) in 2010 2023.  More than 35%
Estimates ranging from 30% to 50% of the US population receives entitlement dollars or is on the government
payroll, up from ~20% in 1966.  In addition, means-tested programs have grown considerably since we first
published USA Inc., as others have highlighted. 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% ~31%, 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 5% in 2023 and only 4% from
2000 to 2008 – both of which compare poorly to the 1970s, when Americans saved, on average, 12%.

Millions of Americans have come to rely on Medicare and Medicaid – and spending has skyrocketed, to 21%
24% of USA Inc.’s total expenses (or $724B $1.46T) in F2010 F2023, up from 5% forty fifty years ago.

Together, Medicaid and Medicare – the programs providing health insurance to low-income households and the
elderly, respectively – now account for 35% 39% of total healthcare spending in the USA.  Since their creation in
1965, both programs have expanded markedly.  Medicaid now serves 16% 19% of all Americans, compared with
2% at its inception; Medicare now serves 15% 19% of the population, up from 10% in 1966, in part owing to aging

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demographics.  As more Americans receive benefits and as healthcare costs continue to outstrip GDP growth, total
spending for the two entitlement programs is accelerating.  Over the last decade alone, Medicaid spending has
doubled increased nearly 65% in real terms, with total program costs running at $273 $616 billion in F2010 F2023.
Between 1967 & 2010 2023, real Medicare spending per beneficiary rose 36 42 times.  In fact, Medicare spending
exceeded related revenues by $272 billion $481 billion last year.

Amid the rancor about government’s role in healthcare spending, one fact is undeniable: total government
spending on healthcare now consumes 8.2% 8.4% of GDP, compared with just 1.3% fifty years ago 3.4% in
1988. This compares unfavorably to, for example, government expenditures on education – which, over the same
period since 1988, have increased only by 0.2pp, from 4.6% to 4.8% of GDP.

Since 1987, Total Government Spending on Healthcare as % of GDP Has Risen 148% to 8.4%...
While Total Government Spending on Education Has Increased Only 6%…
An Example of How Spend Changes for Entitlements vs. Budgeted Items

Note: In 2009, the Center for Medicare & Medicaid Services (CMS) began publishing national healthcare spending
data at the "sponsor" level, breaking down spending across federal vs state and local government sources. We use
this data to align with sources used in the Office of Management and Budget's "Financial Report of the U.S.
Government." The earliest available date for this national healthcare spending data is 1987.

The overall healthcare funding mix in the US is skewed toward private health insurance due to the predominance of
employer-sponsored funding (which covers 157MM 178MM working Americans and their families, or 58% 54% of
the total population in 2023 2008 vs. 64% in 1999).  This mixed private-public funding scheme has resulted in
implicit cross-subsidies, whereby healthcare providers push costs onto the private market to help subsidize lower
payments from public programs.  This tends to help drive a cycle of higher private market costs causing higher
insurance premiums, leading to the slow erosion of private market coverage and a greater enrollment burden for
government programs.

The Patient Protection and Affordable Care Act, enacted in early 2010, includes the biggest changes to healthcare
since 1965 and will eventually expand health insurance coverage by ~10%, to 32 million new lives (per HHS) has

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enrolled 21MM new American consumers as of February 2024, or 6% of the US population.  Increased access
likely means higher spending if healthcare costs continue to grow 2 percentage points faster than per capita income
(as they have over the past 40 years).  The CBO sees a potential $143B reduction in the deficit over the next 10
years, but this assumes that growth in Medicare costs will slow – an assumption the CBO admits is highly uncertain.
Under current policy, the CBO no longer forecasts this reduction in the deficit, and at the same time, the
Government Accountability Office (GAO), the agency tasked with the nation’s fiscal simulations, now forecasts —
using CBO assumptions —  that the federal government’s healthcare spending will steadily rise from 5.6% of GDP
in 2023 to 8.2% of GDP by 2052.

Unemployment Insurance and Social Security are is adequately funded...for now. Their Its future,
unfortunately, isn’t so clear. And Social Security is in rough shape.

Unemployment Insurance is cyclical and, apart from the 2007-09 recession, generally operates with a surplus,
though it is the purview of state legislature decisions that roll up to the federal government.  Payroll taxes kept Social
Security mainly at break-even until 1975-81 when expenses began to exceed revenue.  Reforms that cut average
benefits by 5%, raised tax rates by 2.3%, and increased the full retirement age by 3% (to 67) restored the system’s
stability for the next 25 years, but the demographic outlook is poor for its pay-as-you-go funding structure.  In 1950,
100 workers supported six beneficiaries; today, 100 workers support 33 37 beneficiaries.  Since Social Security
began in 1935, American life expectancy has risen 26% (to 78), again with aging demographics playing a part, but
the “retirement age” for full benefits has increased only 3%. And Social Security today creates $100 billion in new
debt for USA Inc. each year, rising rapidly, per the Hoover Institution’s John Cogan.

Regardless of the emotional debate about entitlements, fiscal reality can’t be ignored—if these programs
aren’t reformed, one way or another, USA Inc.’s balance sheet will go from bad to worse.

Federal Government Spending as % of GDP Likely Would
Have Made America’s Founders Happy for First 128 Years (1790 – 1917)…
Since Then, It’s Just Unrecognizable & Unsustainable

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Since 1965, The Dawn of the “Great Society,”* Entitlement Expenses Have Risen 15x…
While Real GDP Has Risen 4.9x…Bottom Line, Math Does Not Work

Note: The Great Society program was a series of legislative reforms and entitlement expansions introduced by
President Lyndon B. Johnson that, according to the White House, “became Johnson's agenda for Congress in
January 1965: aid to education, attack on disease, Medicare, urban renewal, beautification, conservation,
development of depressed regions, a wide-scale fight against poverty, control and prevention of crime and
delinquency, removal of obstacles to the right to vote.”

Take a step back, and imagine what the founding fathers would think if they saw how our country’s finances have
changed. From 1790 to 1930, government spending on average accounted for just 3% of American GDP. Today,
government spending absorbs closer to 24% 23% of GDP.

It’s likely that they would be even more surprised by the debt we have taken on to pay for this expansion. As a
percentage of GDP, the federal government’s public debt has doubled increased nearly 4x over the last 30 45
years, to 53% 97% of GDP.  The public debt to GDP ratio is likely to triple to 146% over the next 20 years, per CBO.
reach its highest point in history – 106% – in 2028, and increase to a stunning 535% of GDP by 2099, per
CBO. The main reason is entitlement expenses, plus rising interest expense on our rising debt. By 2037,
cumulative deficits from Social Security could add another $11.6 trillion to the public debt. By 2033, per the CBO,
cumulative deficits from Social Security could add another $4.1 trillion to the public deficit. This is steadily draining
the country’s Social Security trust funds, which will be depleted by 2035, according to the 2024 Social Security
Board of Trustees report - two years earlier than forecast back in 2010.

The problem gets worse.  Even as USA Inc.’s debt was rising for decades, plunging interest rates were keeping the
cost of supporting it relatively steady. Last year’s interest bill would have been 155% 149% (or $290 $980 billion)
higher if rates had been at their 30-year 1980-2009 average of 6.25% (vs. 2% in 2010 2.5% in 2023).  As debt
levels rise and interest rates normalize, net interest payments could grow 20% or more annually.  Below-average
debt maturities in recent years have also kept the Treasury’s borrowing costs down, but this trend, too, will drive up
is driving up interest payments as interest rates rise.

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Bottom line: as interest rates have risen, 2010’s warning indicators turned into 2023’s reality. The country’s interest
bill has grown sharply: net interest payments grew 87% from F2021 to F2023 alone. Looking forward, under current
policy, net interest costs as a percent of GDP would increase more than 4x from F2024 to F2062, and increase
almost 8x by F2099, per OMB. By 2099, net interest payments could account for 51% of government spending.

As described by Hoover Institution’s John Cogan in a recent Wall Street Journal editorial, “Excessive spending has
been a way of life for lawmakers in Washington for more than half a century. Since 1969 federal outlays have
exceeded revenue every year, except briefly during the high-tech bubble in the late 1990s…the root cause of this
problem lies with the federal government's abandonment of federalism in fiscal matters…The federal government
has…chosen to take on and finance additional responsibilities by using debt alone. This is a sharp, and dangerous,
break from its past fiscal restraint…The Founders believed that, among its benefits, federalism would serve as an
effective constraint on federal spending and a barrier to structural budget deficits. Prior to World War I, the federal
government experienced budget deficits only during war and economic recession - and, in other years, ran budget
surpluses to pay down any debt it incurred.”

Can we afford to wait until the turning point comes? This fiscal year, entitlements plus net interest
payments will absorb all – yes, all – of USA Inc.'s revenue, per CBO; and by 2037, net interest will surpass
Social Security to become the largest category of government spending, per OMB.

Entitlement Spending + Interest Payments Alone
Were More Than Total Federal Government Revenues in 2020…
& Will Be Again in 2025, Per CBO…Think About That!

Note: In 2011 and now, we are using the CBO’s Long-Term Budget Outlook data. Changes to these figures reflect
updates to assumptions & forecasts over time.

Less than 15 years from now In just one year, in other words, USA Inc. – based on current forecasts for revenue
and expenses – without borrowing more money, would have nothing left over to spend on defense, education,
infrastructure, and R&D. This critical juncture is getting ever closer.  Just ten fifteen years ago, the CBO thought
federal revenue would support entitlement spending and interest payments until 2060 – 35 years beyond its current

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projection. This dramatic forecast change over the past ten fifteen years helps illustrate, in our view, how important
it is to focus on the here-and-now trend lines and take action based on those trends.

How would a turnaround expert determine ‘normal’ revenue and expenses?

The first step would be to examine the main drivers of revenue and expenses.  It’s not a pretty picture.  While
revenue – mainly taxes on individual and corporate income – is highly correlated (83% 78%) with GDP growth,
expenses – mostly entitlement spending – are less correlated (73% 65%) with GDP.  With that as backdrop, a
turnaround expert might try to help management and shareholders (citizens) achieve a long-term balance by
determining “normal” levels of revenue and expenses:

•  From 1965 to 2005 2019 (a period chosen to exclude abnormal trends related to the recent recession

COVID-19 pandemic), real annual revenue growth (3%) has been roughly in line with GDP growth (3%, per
BEA), but corporate income taxes have grown 2% 0.3% a year (albeit with some unusual items which
repressed growth), while personal income taxes have grown 2.8% per year. Social insurance taxes grew
5% 4% annually and represented 37% 36% of USA Inc. revenue, compared with 19% in 1965.  An expert
might ask:

o  What level of social insurance or entitlement taxes can USA Inc. support without reducing job

creation?

o  Are low corporate income taxes important to global competitive advantage and stimulating growth?

•  Entitlement spending has risen 5% a year on average since 1965, well above average annual GDP growth
of 3%, and now absorbs 51% 56% of all expenses, more than twice its share in 1965.  Defense and non-
defense discretionary spending (including infrastructure, education, and law enforcement) is up just 1-2%
annually over that period.  Questions for shareholders:

o  Do USA Inc.’s operations run at maximum efficiency? Where are the opportunities for cost savings?
o  Should all expense categories be benchmarked against GDP growth?  Should some grow faster or

slower than GDP? If so, what are the key determinants?

o  Would greater investment in infrastructure, education, and global competitiveness yield more long-

term security for the elderly and disadvantaged?

With expenses outstripping revenues by a large (and growing) margin, a turnaround expert would develop an
analytical framework for readjusting USA Inc.’s business model and strategic plans.  Prudence would dictate that
our expert assume below-trend GDP growth and above-trend unemployment, plus rising interest rates – all of which
would make the base case operating scenario fairly gloomy.

A turnaround expert might also consider implementing zero-based budgeting (ZBB) into the budget planning
process. ZBB requires that each year, all expenses must be individually justified and approved, not just based on
the previous year’s budgeted or actual amounts. This would impose thoughtful discipline on the budgeting process
and the maintenance of ‘first principles’ thinking for USA Inc.

This analysis can’t ignore our dependence on entitlements. Almost one-third of all Americans have grown
up in an environment of lean savings and heavy reliance on government healthcare subsidies. It’s not just a
question of numbers—it’s a question of our responsibilities as citizens…and what kind of society we want
to be.

As of 2022, some 90 116 million Americans (out of a total population of 307 333 million) have grown accustomed to
support from entitlement programs; so, too, have 14 22 million workers in the healthcare industry (as of 2022) who,
directly or indirectly, benefit from government subsidies via Medicare and Medicaid.  Moreover, with the boomer
generation reaching retirement age, 71MM million Americans will be 65 or older (21% of population) by 2030, up

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from ~14% in 2012, per the US Census Bureau. Low personal savings, and high unemployment and demographic
shifts make radical change difficult.  Political will can be difficult to summon, especially during election years.

At the same time, however, these numbers don’t lie. With our demographics and our debts, we’re on a
collision course with the future.  The good news:  Although time is growing short, we still have the capacity
to create positive outcomes. If we don’t act very soon, which generation will be left holding the bag?

Even though USA Inc. can print money and raise taxes, USA Inc. cannot sustain its financial imbalance indefinitely –
especially as the Baby Boomer generation nears retirement age retires.  Net debt levels are approaching warning
levels (note, this was written in 2011…), and some polls suggest that Americans consider reducing debt a national
priority and recent polling suggests a large majority of Americans from all parties consider reducing the debt a top
electoral priority.  Change is legally possible.  Unlike underfunded pension liabilities that can bankrupt companies,
USA Inc.’s underfunded liabilities are not legal contracts.  Congress has the authority to change the level and
conditions for Social Security and Medicare benefits; the federal government, together with the states, can also alter
eligibility and benefit levels for Medicaid.

Options for entitlement reform, operating efficiency, and stronger long-term GDP growth.

As financial analysts, not public policy experts, we can offer mathematical illustrations as a framework for discussion
(not necessarily as actual solutions).  We also present policy options from outside organizations such as the CBO.

Reforming entitlement programs – Social Security.

The underfunding could be addressed through some or all of the following mechanical changes (per the
Congressional Research Service):  increasing the full retirement age to as high as 73 (from the current level of 67);
and/or reducing average annual social security benefits by up to 12% (from $13,010 to $11,489); and/or increasing
the social security tax rate from 12.4% to 14.2%. raising the payroll tax rate by 3.44 percentage points, from
12.40% to 15.84%; or immediately reducing benefits by 21.3% for all current and future beneficiaries, or by
25.4% for newly-eligible beneficiaries only. An alternative approach proposed by the trustees of the Social
Security Trust Fund is to raise the full retirement age immediately from 67 to 69, and an additional 2 months
each year thereafter; however, this would close only slightly more than half the funding gap by 2098.
Options proposed by the CBO include similar measures, as well as adjustments to initial benefits and index levels.
Of course, the low personal savings rates of average Americans – 3% 5% of disposable income, compared with a
10% average from 1965 to 1985 – limit flexibility, at least in the early years of any reform.

Reforming entitlement programs – Medicare and Medicaid.

Mathematical illustrations for these programs, the most underfunded, seem draconian:  Reducing average Medicare
benefits by 53% 58%, to $5,588 $5,391 per year, or increasing the Medicare tax rate by 3.9 4.0 percentage points,
to 6.8% 6.9%, or some combination of these changes would address the underfunding of Medicare. As for Medicaid,
the lack of a dedicated funding stream (i.e., a tax similar to the Medicare payroll tax) makes the math even more
difficult.  But by one measure from the Kaiser Family Foundation, 60% of the Medicaid budget in 2001 was spent on
so-called optional recipients (such as mid- to low-income population above poverty level) or on optional services
(such as dental services and prescription drug benefits).  Reducing or controlling these benefits could help control
Medicaid spending – but increase the burden on some low-income groups.

Ultimately, the primary issue facing the US healthcare system is ever-rising costs, historically driven by increases in
price and utilization.  Beneath sustained medical cost inflation is an entitlement mentality bolted onto a volume-
based reimbursement scheme.  All else being equal, the outcome is an incentive to spend:  Underlying societal,
financial, and liability factors combine to fuel an inefficient, expensive healthcare system.

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Many thoughtful commentators have weighed in here – for one, Sebastian Caliri of 8VC recently noted several
promising areas for systemic reform: “Reform healthcare payments – pay for value (i.e. health outcomes), not
volume of work; Eliminate barriers to market entry – open the door to new market entrants who will compete to
produce the strongest health outcomes at the lowest cost; Liberate healthcare data – allow all patients and
healthcare providers to benefit from seamless sharing of health records; Accelerate scientific inquiry – speed up
research that will yield valuable new technologies and care models; Address fraud and abuse – clean up areas
where bad actors siphon off federal funds for personal benefit.”

Improving operating efficiency.

With nearly one federal, state and local government civilian worker for every six households, per the Bureau of
Economic Analysis, efficiency gains seem possible.  A 20-year trend line of declining federal civilian headcount was
reversed in the late 1990s, and headcount growth accelerated post-2008, jumping 24% (+450,000 full-time
employees) by 2023. However, federal employees (ex-Postal Service) as a share of total civilian employment have
remained steady at 1.5% for more than a decade, according to Pew Research.

Our analysis shows that resuming that trend the 1988 to 2009 trend would imply a 15% 36% potential headcount
reduction over five years (through 2028) and save nearly $300 billion over $1.3 trillion over the next ten years –
see the following slide for more detail.  USA Inc. could also focus intensively on local private company outsourcing,
where state and local governments are finding real productivity gains.

Trendline of Decreasing Federal Civilian Headcount Reported in 2011 Has Reversed…
Federal Civilian Employment Up 24% in F2023 vs. F2008…
If 1988-2009 Trendline Stayed in Place, Headcount Would Be 36% (~840K) Lower

Areas for improvement and efficiency are also likely to be found beyond the workforce. For example, the GAO noted
in September 2024 that federal agencies have estimated $2.7 trillion in total improper payments since 2003, and
that the federal government may be facing up to $520 billion of annual losses in F2023 due to fraud in the federal
government. The GAO has conducted reports like this for multiple decades now and the observations have gotten
more troubling with each report.

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Improving long-term GDP growth – productivity and employment.

Fundamentally, federal revenues depend on GDP growth and related tax levies on consumers and businesses.
Higher GDP growth won’t be easy to achieve as households rebuild savings in the aftermath of a recession, as
experienced in both 2008-2009 and in 2020.  To break even without changing expense levels or tax policies, USA
Inc. would need real GDP growth of 6-7% in F2012-14 and 4-5% in F2015-20, according to our estimates based on
CBO data to close an average deficit gap of 6% of GDP between 2023 and 2035 – highly unlikely, given 40-year
average GDP growth of 3%.  While USA Inc. could temporarily increase government spending and investment to
make up for lower private demand in the near term, the country needs policies that foster productivity and
employment gains for sustainable long-term economic growth.

Productivity gains and increased employment each contributed roughly half of the long-term GDP growth between
1970 and 2009, per the National Bureau of Economic Research. Since the 1960s, as more resources have gone to
entitlements and interest payments, USA Inc. has scaled back its investment in technology R&D and infrastructure
as percentages of GDP.  Competitors are making these investments.  India plans to double infrastructure spending
as a percent of GDP by 2013, and its tertiary (college) educated population will double over the next ten years,
according to Morgan Stanley analysts pledged to increase infrastructure spending by 33% in its 2023 budget
and, according to the UK India Business Council, will have the largest college-enrolled population globally
by 2030, thus perhaps enabling its GDP growth to accelerate to 9-10% of an average 6% annually by 2015
through 2030 (China’s annual GDP growth is forecast to remain near 8% by 2015 near 4% through the same
period, both per the IMF). USA Inc. can’t match India’s demographic advantage, but technology can help.  For
employment gains, USA Inc. should minimize tax and regulatory uncertainties and encourage businesses to add
workers.  While hiring and R&D-related tax credits may add to near-term deficits, over time, they should drive job
and GDP growth.  Immigration reform could also help:  A Federal Reserve study in 2010 shows that immigration
does not take jobs from U.S.-born workers but boosts productivity and income per worker A 2024 study from the
Dallas Federal Reserve showed that immigration contributes to job growth and output, with payroll job
growth up 100,000 in 2023 and GDP increasing $8.9 trillion from 2024-2034. If we are to benefit from this
contribution, we must fix our immigration system to allow for more effective legal immigration.

Changing tax policies.

Using another simple mechanical illustration, covering the 2010 2023 budget deficit (excluding one-time charges) by
taxes alone would mean doubling individual income tax rates across the board, to roughly 26-30% of gross income,
would mean increasing individual income tax rates by nearly 80% across the board, to roughly 25% of gross
income, we estimate.  Such major tax increases would ultimately be self-defeating if they reduce private income
and consumption.  However, reducing tax expenditures and subsidies such as mortgage interest deduction would
broaden the tax base and net up to $1.7 trillion in additional revenue over the next decade, per CBO. However,
reducing subsidies such as itemized deductions or head-of-household tax filing statuses could net more
than $1.75 trillion in additional revenue over the next decade, per CBO.  A tax based on consumption – like a
value added tax (VAT) – could also redirect the economy toward savings and investment, though there would be
drawbacks.

These issues are undoubtedly complex, and difficult decisions must be made. But inaction may be the
greatest risk of all. The time to act is now, and our first responsibility as investors in USA Inc. is to
understand the task at hand.

Our review finds serious challenges in USA Inc.’s financials.  The ‘management team’ has created incentives to
spend on healthcare, housing, and current consumption.  At the margin, investing in productive capital, education,
and technology – the very tools needed to compete in the global marketplace – has stagnated. With these trends,
USA Inc. will not be immune to the sudden crises that have afflicted others with similar unfunded liabilities, leverage,

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and productivity trends.  The sovereign credit issues in Europe suggest what might lie ahead for USA Inc.
shareholders – and our children. In effect, USA Inc. is maxing out its credit card.  It has fallen into a pattern of
spending more than it earns and is issuing debt at nearly every turn.  Common principles for overcoming this kind of
burden include the following:

1)      Acknowledge the problem – some 80% of Americans believe ‘dealing with our growing budget deficit and
national debt’ is a national priority, according to a Peter G. Peterson Foundation survey in 11/09; The Peter G.
Peterson Foundation reported in August 2024 that 75% of Americans agreed on the importance of
addressing the national debt, with 65% of Democrats, 74% of independents, and 86% of Republicans
considering it a top-three priority for the president and Congress;

2)      Examine past errors – People need clear descriptions and analysis to understand how the USA Inc. arrived at
its current financial condition – a ‘turnaround CEO’ would certainly initiate a ‘no-holds-barred’ analysis of the
purpose, success and operating efficiency of all of USA Inc.’s spending;

3)      Make amends for past errors – Most Americans today at least acknowledge the problems at personal levels
and say they rarely or never spend more than what they can afford (63% according to a 2007 Pew Research study)
they know at least a fair amount about personal finances (54% according to a 2023 Pew Research study).
The average American knows the importance of managing a budget.  Perhaps more would be willing to sacrifice for
the greater good with an understandable plan to serve the country’s long-term best interests;

4)     Improve reporting transparency – High quality public companies provide transparent, high quality, detailed
quarterly reporting, and more importantly, clear and easy-to-understand core KPIs... shouldn’t USA Inc. simplify and
publish similar metrics for USA citizen-shareholders to track fundamentals?

5)     Develop a new code of behavior – Policymakers, businesses (including investment banks), and citizens need
to share responsibility for past failures and develop a plan for future successes.
Past generations of Americans have responded to major challenges with collective sacrifice and hard work.
Will ours also rise to the occasion?

Addendum

As the Summary of our Report shows, a lot has changed with USA Inc.’s financials since 2011. Sadly, most
changes were predictable by simply extending (or worse, by accelerating) trend-lines. Many such trends
represented, in effect, “give an inch and they’ll take a mile.” We won’t be updating our full report, which, again, can
be found here - but we pulled out a few charts that especially warrant updates and added a few new ones.

It’s worthwhile to go back in time and reflect on the goals and objectives of America’s Founders. From a financial
perspective, the outlays (a.k.a. spending) were very focused. For the country’s first 155 years, 41% of cumulative
spending went to defense, 8% to veterans, 14% to interest on public debt, and 37% to ‘other,’ defined as
administration, legislation plus veteran compensation and pensions. The intent was to keep the country, citizens and
fledgling democracy safe and sound.

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USA Inc. First 155 Years (1776 – 1930) = Era of Defense…
Departments of Army & Navy = 41% of Cumulative Spend (1789 – 1930)...

For the country’s next 93 years (1931-2023), federal government spending evolved dramatically. After rising from
23% in 1931 to 52% in 1960, defense spending fell precipitously as a percent of the pie, while spending for social
welfare rose markedly. By 2023, defense declined to 13% of spend while healthcare rose to 28%, retirement and
disability insurance rose to 22%, “other” defined as international affairs, agriculture, justice, education, veterans’
services and general uses, rose to 19% while interest on public debt clocked in at 11%.

…USA Inc. Next 93 Years (1931 – 2023) = Era of Expansion…By 2023...
Defense Down to 13% of Spending…Social Security + Healthcare Up to 50%

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In the 1930s, the federal government substantially expanded its role (in effect, its “business lines”) in response to
the Great Depression (1929-1941). As the chart below articulates, the entitlement expansion started with Social
Security & Aid to Dependent Children (1935) and evolved to Federal Housing Administration & Fannie Mae (1938)
as part of President Franklin D. Roosevelt’s “New Deal,” to Federal Subsidies for K-12 & Higher Education and
Medicare & Medicaid (1965) as part of President Lyndon B. Johnson’s “Great Society,” to the Community
Development Block Grant (1974) to the Department of Energy (1977) to President Barack Obama’s “Affordable
Care Act” (2010).

USA Inc. “Business Line” Extensions: 1930 – 2023 (Nominal $)

While some of these policy implementations have remained cost-efficient for taxpayers, several have blown through
the original expense forecasts and have been added onto time and again. Medicare serves as arguably the most
cautionary tale.

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Public Debt as % of GDP Soon to Eclipse 100%...
Deficit as % of GDP Already Above 5%...
Levels Typically Seen Only in Wars or Recessions

The preceding thoughts might appear to be a theoretical exercise – but in an increasingly turbulent world, where the
rainy day funds no longer exist (see the two following graphs), every dollar matters.

USA, Inc. Income Statement in Peace Time =
Entitlement Programs Are Largest + Growing Expense Items

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Future Federal Deficit Growth, per CBO =
Almost Entirely a Function of Rising Net Interest Costs…
Forecast @ ¾ of Deficit by 2054E

In sum, we harken back to our trend summary from USA Inc. (2011), which as per the chart below remains equally
and frustratingly relevant today…

●  America is spending beyond its means, and the problem – with mounting losses & increasing debt – is getting

worse, not better.

●  Healthcare spending and obesity are is rising dramatically. However, given the rise of GLP-1 drug usage, some

progress against obesity rates is being made.

●  Education spending is growing slower than healthcare spending.

●  Defense spending is declining on a relative basis.

●  More and more Americans are on the government payroll or receive government subsidies for retirement

income, medical care, housing, and food.

●

Inequality of income and wealth is rising, and fewer Americans pay income taxes to support USA Inc.

●  The government increasingly resorts to borrowing.

The original report ended with a note of optimism and a hope that we could break trendlines. Sadly, as the chart
below highlights, America has not learned its lesson, yet…

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USA Inc. = Key Data Points & Trends Over 58 Years

As we emphasized at the start – this is not our day job, and we’re returning to that. We hope, if this is your day job,
that you take it and run with developing solutions. But below are a few thoughts from the original report about how
we might start to tackle our current challenges…and hearteningly, if we can muster the collective will, these also still
apply…

Overview of USA Inc.’s Key Financial Challenges & Potential and/or Solutions

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###

DISCLAIMER

BOND is a global technology investment firm that supports visionary founders throughout their entire life cycle of innovation and growth.
BOND's founding partners have backed industry pioneers such as Airbnb, Canva, DocuSign, DoorDash, Facebook, Instacart, JD.com,
Peloton, Plaid, Revolut, Ring, Slack, Snap, Spotify, Square, Stripe, Twitter, Uber, and Waze.

This document, including the information contained herein, has been compiled for informational purposes only & does not constitute an offer
to sell or a solicitation of an offer to purchase any security. Such offer or solicitation shall only be made pursuant to offering documents
related to such security, if any.

The document relies on data + insights from a wide range of sources, including public + private companies, market research firms +
government agencies. We cite specific sources where data is public; the document is also informed by non-public information + insights. We
disclaim any + all warranties, express or implied, with respect to the document. No document content should be construed as professional
advice of any kind (including legal or investment advice).

We may post updates, revisions, or clarifications of this document on Bond’s website (www.bondcap.com).

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