CBO issued a letter today responding to a request from the Chairman of the House Budget Committee. In December 2007, we issued a report on the nation's 75-year fiscal gap (roughly speaking, the gap between the present value of projected spending and projected revenue, as a share of GDP).
In today's letter, we provide estimates of the impact on the 75-year fiscal gap from net spending under current law on Medicare Part D (the prescription drug benefit) and possible permanent extension of the individual income tax provisions enacted in 2001, 2003, and 2004 past their scheduled sunset in 2010. In particular:
- The effect of spending for Part D (net of income from premiums) on the 75-year fiscal gap amounts to 0.9 percent of GDP.
- The effect of extending the expiring individual income tax provisions would amount to 0.7 percent of GDP in the absence of further reform to the Alternative Minimum Tax (AMT) and 1.4 percent of GDP if the AMT 's parameters were indexed to inflation.
- CBO limited its analysis to the estimated effects of extending the individual income tax provisions and did not assess the effects of permanently extending provisions applicable to the estate and gift tax. If the only result of extending the estate and gift tax provisions were to eliminate all revenues from those taxes from CBOs long-term baseline, the fiscal gap would increase by an additional 0.7 percent of GDP over the next 75 years. Under that assumption and assuming the AMT is indexed to inflation, the combined effect of extending all the tax provisions (including the gift and estate tax ones) on the 75-year fiscal gap would amount to slightly over 2 percent of GDP.