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Letter to the Honorable Nancy Pelosi 1 (March 2005)

handle is hein.congrec/cbo8628 and id is 1 raw text is: CONG RESSIONAL BU DGE~T OFFICE Douglas Holtz-Eakin, Director U-!S. Congress Washington, DC 20515 March 14, 2005 Honorable Nancy Pelosi Democratic Leader U.S. House of Representatives Washington, DC 20515 Dear Leader Pelosi: In response to your request for long-term budget simulations, the Congressional Budget Office has prepared the attached set of three figures that summarize the fiscal impacts of two different tax policies. The spending side of the budget reflects the assumptions underlying scenarios 2 and 5 in our December 2003 study, The Long-Term Budget Outlook. The revenue projections are based on the technical and economic assumptions from our August 2003 economic update. Current law reflects the law in effect at the time. Changes in the budget outlook over the past 15 months would not lead us to substantially modify our long-range assumptions about spending or revenues. These projections are based on national income and product account classifications that differ somewhat from formal budget concepts, but those differences do not significantly affect the future paths of spending and revenues. Figure 1 illustrates projected spending and revenues under the assumption that revenues would follow current law-that is, the tax provisions enacted in 2001 and 2003 would expire as scheduled, mostly at the end of 20 10 except that the alternative minimum tax (AMT) would have all of its parameters indexed to inflation and that the exemption currently in place would be extended. Under that scenario, total federal revenues would slowly climb from about 20 percent in 2015, to 21 percent in 2030, and almost 22 percent in 2050. Total spending would reach 20 percent of the gross domestic product in 2020, nearly 23 percent in 2032, and roughly 27 percent in 2050. The accelerating spending growth under this scenario is driven by health care programs, debt service, and Social Security. www~cbo~gov

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