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Financing Projected Spending in the Long Run [i] (July 2007)

handle is hein.congrec/cbo8515 and id is 1 raw text is: O CONGRESSIONAL BUDGET OFFICE Peter R. Orszag, Director U.S. Congress Washington, DC 20515 July 9, 2007 Honorable Judd Gregg Ranking Member Committee on the Budget United States Senate Washington, DC 205 10 Dear Senator: Under current law, rising health care costs and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substantially as a share of the economy. If tax revenues as a share of gross domestic product (GDP) remain at current levels, that additional spending will eventually cause future budget deficits to become unsustainable. To prevent those deficits from growing to levels that could impose substantial costs on the economy, the choices are limited: Revenues must rise as a share of GDP, projected spending must fall, or both. In response to your letter of June 18, 2007, the Congressional Budget Office (CBO) has prepared the attached analysis of the potential economic effects of using higher tax rates alone to finance the projected increases in spending over the next several decades. That analysis also examines the effect of such tax changes on various illustrative taxpayers. In keeping with CBO' s mandate to provide objective, impartial analysis, this report makes no policy recommendations. CBO would be pleased to address any further questions you have. I can be reached at (202) 226-2700. The staff contact for the macroeconomic analysis is Doug Hamilton, who can be reached at (202) 226-2770; the contact for the tax analysis is David Weiner, who can be reached at (202) 226-2689. Sncerely, Peter R. Orszag Attachment cc: Honorable Kent Conrad Chairmnan www.cbo.gov

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