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Letter to the Honorable Paul Ryan: The Long-Term Economic Effects of Some Alternative Budget Policies [i] (May 2008)

handle is hein.congrec/cbo8646 and id is 1 raw text is: CONGPESS ONAL BUDGET OFFICE Peter R. Orszaig, Director LI S. Congress VV IShinrtn, DJC 2'0515 May 19, 2008 Honorable Paul Ryan Ranking Member Committee on the Budget U.S. House of Representatives Washington, DC 20515 Dear Congressman: Under current law, rising costs for health care and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substan- tially 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 May 15, 2008, the Congressional Budget Office (CBO) has prepared the attached analysis of the potential economic effects of (1) allowing federal debt to climb as projected under the alternative fiscal scenario presented in CBO's The Long- Term Budget Outlook (December 2007), (2) slowing the growth of deficits and then eliminating them over the next several decades, and (3) using higher income tax rates alone to finance the increases in spending projected under the alternative fiscal scenario. 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. Sincerely, 6&t(Qy1 Peter R. Orszag Attachment cc: Honorable John M. Spratt Jr. Chairman www cbo gov

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