Congressional Budget Office
Director’s Blog

At a meeting of the Social Security Advisory Board, on April 21st, CBO staff presented four charts comparing our March 2008 and March 2009 projections of the income and spending of the Social Security trust funds. Those baseline projections cover 10 years and assume no changes in current law. (This summer, CBO will issue new projections of the long-term budget outlook, spanning 75 years.)

Over the 10-year period from 2009 through 2018, projected income and outlays have both declined significantly from our projections of a year ago—income is down by about $1.2 trillion (about 11 percent) and outlays are down by about $250 billion (about 3 percent) for that 10-year period (see Chart 1). Nearly all of the adjustments stem from changes in CBO’s economic forecast: our projections for inflation, real GDP, and interest rates have all declined relative to those underlying our March 2008 baseline. Lower inflation affects both revenues and outlays through lower payroll taxes and smaller cost-of-living adjustments (COLAs). Similarly, lower real GDP would imply lower real wages—and therefore less revenue from payroll taxes and, over time, a lower initial benefit amount for new beneficiaries. Finally, because projected interest rates are lower, the trust funds are expected to earn less interest income. Outlays projected for the first few years are now higher than we estimated in 2008 because of the larger-than-expected COLA (5.8 percent) that took effect in January 2009. (For a discussion of CBO’s projected COLA increases, see my recent blog. ) The decline in projected income and outlays has affected our projections of the trust funds’ annual surpluses and balances (see Charts 2-4). 

Current projections of total surpluses of the two trust funds—for Old Age and Survivors Insurance (OASI) and Disability Insurance (DI)—are much lower than last year’s estimates (see Chart 2). In 2018, for example, the trust funds are now projected to record a surplus (total income less expenditures) of $133 billion, compared with last year’s estimate of a $246 billion surplus.

The trust funds’ total surplus includes interest credited to the trust funds, based on the balances accumulated over many years.  That interest is an intragovernmental transaction and doesn’t affect the budget deficit. Another measure to assess the financial condition of the program is the primary surplus, which excludes interest credited to the trust funds. The projected primary surplus dips to $3 billion in 2010, recovers for the next several years, and then falls below zero beginning in 2017 (see Chart 3). When the primary surplus disappears, Social Security benefits exceed Social Security’s income from the public, and the operations of the Social Security system increase the federal deficit.

The projected balance in the OASI trust fund continues to grow throughout the 10-year period, albeit at a slower rate than CBO projected a year ago, reaching $3.9 trillion by 2019 (see Chart 4). In contrast, we expect that the DI trust fund balance will decline each year. CBO now anticipates that the DI trust fund will be exhausted in 2019, with available funds falling $29 billion below projected expenditures. At that time, absent a change in law, Social Security could not pay DI beneficiaries the full benefits to which they are entitled under the Social Security Act.

Yesterday I gave a lecture in the introductory economics course at Harvard University.  I was the head sectionleader of this course—known as “Ec 10”—when I was an assistant professor at Harvard about 20 years ago.  The full professor in charge of the course at that time was Martin Feldstein, who had been the chairman of the Council of Economic Advisers under President Reagan (and was one of my dissertation advisers).  The professor in charge of the course today is Greg Mankiw, who was chairman of the CEA under President George W. Bush (and also was one of my dissertation advisers).  I was honored by Greg’s invitation to talk to the class today and appreciated the attentiveness and questions of the students.

My topic was the outlook for the federal government’s budget over the next 10 years and the next 75 years.  You can read the slides.

In discussing the next 10 years, I began with the observation that CBO’s baseline projection of the budget deficit for 2010 through 2019 (that is, the deficit we project under current laws and policies) was more than $4 trillion.  Then I explained that, compared with current law, President Obama’s budget would both cut taxes and raise outlays considerably over the next 10 years.  In rounded figures, we estimate the President’s budget proposals would produce:

• Revenue reduction: $2.1 trillion.
  – Extend elements of 2001-2003 tax cuts (which are scheduled to expire in 2010 under current law and are treated as such in the baseline):  $1.9 trillion.
  – Index the Alternative Minimum Tax (which is not indexed to inflation under current law and is treated as such in the baseline): $450 billion.
  – Other proposals: $250 billion increase.
• Programmatic outlay increase: $1.7 trillion.
  – Refundable tax credits: $500 billion.
  – Adjust Medicare physician payments (which are scheduled under current law to be reduced by 21 percent in 2010 and more in subsequent years, and are treated as such in the baseline): $300 billion.
  – Defense discretionary (which is assumed in the baseline to keep pace with inflation) $150 billion.
  – Other (about half nondefense discretionary, which is assumed in the baseline to keep pace with inflation): $800 billion.
• Resulting increase in net interest on the debt: $1.0 trillion.

The resulting budget deficit for 2010 through 2019 would be more than $9 trillion according to our projections.

I also told the students that, while these proposals would require legislation, many would would continue policies already in place (for example, holding steady tax rates set in the 2001-2003 legislation) or maintain historical relationships (for example, preventing nondefense discretionary spending from falling to nearly the smallest share of GDP in my lifetime, as would occur under the baseline projection). 

The aspect of the budget that is anomalous by the standards of the past several decades—under both the baseline and the President’s budget—is outlays for Social Security, Medicare, and Medicaid.  Specifically, under CBO’s estimate of the President’s budget for 2019:

• Revenues would be close to their pre-recession share of GDP and historical average share of GDP.
• Spending on all programs except Social Security, Medicare, and Medicaid would be below their pre-recession share of GDP and historical average share of GDP.
• While at the same time, spending on Social Security, Medicare, and Medicaid would be a record share of GDP.  The result is large and growing budget deficits.

Looking beyond the next 10 years, federal outlays under current law for Medicare and Medicaid, in particular, will substantially outpace GDP growth.  CBO is now in the process of updating its long-term budget projections and will release these projections when they are completed.  However, the key message of these long-term projections is not in doubt:  U.S. fiscal policy is on an unsustainable course.

Today we released a paper on updated long-term projections for Social Security. (Our last long-term projection for social security was included in the December 2007 Long-Term Budget Outlook.) As CBO has highlighted in previous reports, the number of Social Security beneficiaries will grow considerably as the baby boomers become eligible for retirement benefits. Absent legislative changes, spending for the program will therefore climb substantially and exceed the program’s revenues. CBO projects that the 75-year actuarial imbalance in the program amounts to 0.38 percent of GDP, or 1.06 percent of taxable payroll.

The projections released today differ somewhat from earlier results because of newly available programmatic and economic data, updated assumptions about future demographic and economic trends, and improvements in CBO’s models. For example, these projections assume that future immigrants will be younger and more numerous than was assumed in 2007. (This change was included in the 2008 Social Security trustees’ report; CBO adopts the trustees’ aggregate demographic assumptions.) As a result of this and other changes, CBO projects somewhat smaller future deficits than we did in our 2007 projections.

CBO’s long-term Social Security projections have always shown both a point estimate and the range within which 80 percent of the possible values are likely to fall. In this update, however, CBO has expanded its uncertainty presentation. Many figures and tables still show the 10th and 90th percentiles of various measures, but new presentations show the probabilities of specific outcomes.

Here is an example of our new presentation. A table in today’s report shows the probability that Social Security outlays will exceed revenues by a specified percentage of GDP in a selected year. For example, the likelihood that outlays will exceed revenues in 2030 is about 97 percent, CBO projects, and there is almost a 50 percent chance that the gap will be larger than 1 percentage point of GDP; the chance of its being 2 percentage points (or more) of GDP is only 6 percent.

Another new table shows the probability, for different birth cohorts, that the Social Security trust funds will be sufficient to pay specified percentages of scheduled benefits. According to CBO’s projections, the 1940s cohort, for example, is virtually certain to receive all of its scheduled first-year benefit. The 1990s cohort has only a 32 percent chance of receiving all of its scheduled first-year benefit but an 84 percent chance of receiving at least 70 percent of that benefit.

Both the analyses that show 10th and 90th percentiles and the new presentations are based on the same underlying data, but we hope that the different perspectives will help to communicate uncertainty more fully to readers.

I was on a panel this morning at the Aspen Ideas Festival on the future of health care reform. For video from the panel, see here .

During a session earlier in the conference, David Brooks delivered an important talk about how policymakers should pay more attention to neuroscience, emotion, peer effects, and other related factors in the design of public policies. Many of his themes are echoed in, and reflect, the growing field of behavioral economics (see here for a related discussion).

RAND researchers recently sent me a letter and an attachment , which they have circulated to others, commenting on CBO’s analysis of a recent RAND health IT study. Our analysis is summarized here and the full analysis is here . As I have noted previously, I will occasionally use this blog to respond to critiques of our work, and that is the purpose of this entry.

The RAND study estimated potential savings of approximately $80 billion per year from health IT if it were widely adopted. As CBO concluded in its recent report, however, that $80 billion figure is not an appropriate guide to the effects of legislative proposals aimed at increasing the use of health IT for several reasons. For example, the RAND study attempted to measure the potential impact of the widespread adoption of health IT — assuming the occurrence of “appropriate changes in health care” — rather than the likely impact, which would take account of factors that might impede its effective use. In addition, the RAND study was based solely on empirical studies from the literature that found positive effects for the implementation of health IT systems; it excluded studies of health IT that failed to find favorable results.

Nothing in the RAND letter would cause us to modify our previous conclusions. The letter emphasizes that the RAND study was published in a peer-reviewed journal (Health Affairs ), was implemented with the advice and review of a steering group of experienced and respected professionals, and was carried out with transparency with respect to its methods and assumptions. CBO did not, though, criticize the report for failing to be peer-reviewed, having inappropriate leadership, or lacking transparency. Our concerns are instead based on the substance of the study itself — especially the questions it was designed to answer — and perhaps more importantly how it has been used in the policy debate. (Similarly, CBO did not criticize the RAND study for being funded "by companies interested in health information technology." The issue we addressed is instead the analysis itself and how that analysis has been presented in policy circles.)

The letter also argues that CBO did not take account of other possible benefits of adopting health IT beyond those considered in the RAND report (such as improvements in health and safety), and that those benefits imply that RAND’s estimate of savings is conservative. In our paper we specifically identified the sources of savings considered in the RAND study and also described some other possible areas of savings. For example, our paper stated that “One significant potential benefit of health IT that has thus far gone relatively unexamined involves its role in research on the comparative effectiveness of medical treatments and practices.” However, we also recognized that obtaining those benefits would require a number of steps beyond merely a greater diffusion of health IT. For example, it would require creating databases, commissioning studies, and then most importantly using the results of those studies to alter the practice of medicine. In other words, much more would have to change to obtain these benefits than just the adoption level of IT.

Another area of confusion appears to be the question of the appropriate counterfactual: that is, what are the scenarios one is trying to compare when evaluating the impact of health IT? For our work at CBO, we compare what would happen under a proposed piece of legislation with what would happen if current laws remained in place. RAND’s $80 billion savings estimate, by contrast, is generated by comparing the level of adoption in 2004 with the level of adoption attained in a future year if IT were to follow a diffusion pattern that has been observed in other industries. Even if we agreed with other assumptions and calculations that led RAND to the $80 billion estimate (which we do not), we believe that health IT will continue to diffuse under current law, so that the appropriate calculation for our purposes is to compare savings under a new law with savings under the current-law pattern of diffusion. The point matters because health IT in the future will almost certainly have attained greater adoption rates than had occurred in 2004. Indeed, in a different RAND study, the authors compared savings under a baseline of continued adoption with a subsidy program that would speed adoption by 50 percent. That study’s estimate of the impact of the subsidy program follows more closely the approach that CBO would take.

Our published analysis covers, in more detail, the other technical reasons why we believe that the RAND study’s estimates overstate the cost savings from policy interventions to increase the adoption of health IT.

Finally, we very much appreciate and value the input that outside reviewers provide as we prepare our reports. As I have noted in a previous post , the fact that someone is listed as a reviewer of our paper in no way implies that the reviewer agrees with the analysis in the paper.

CBO released an issue brief today on different approaches for splitting the projected growth in the costs of the major federal health care programs into “excess cost growth” and demographic effects (these two factors reflect, respectively, rising costs per beneficiary and the number and age of beneficiaries). For more information about CBO’s projections of long-term health care costs, see here.

The key points of the issue brief are:

• If health care costs per beneficiary grew at the same rate as per capita gross domestic product (GDP) and the age distribution of the population did not change, Medicare and Medicaid spending would remain a constant share of the economy. In reality, however, health care costs per beneficiary will grow more quickly than per capita GDP and the population will age.

• Although many observers portray aging as the dominant cause of future growth in federal spending on Medicare and Medicaid, most of the increase that CBO projects reflects rising costs per beneficiary rather than rising numbers of beneficiaries. The effect of population aging is smaller but still results in substantial spending growth. Rising costs and population aging also interact with each other: The rapid growth of health care costs is a more important factor when the population is aging over time; conversely, population aging looms larger when health care costs are rising over time.

• Understanding the relative contributions of those two factors to the growth in federal spending on Medicare and Medicaid is important. The aging of the population, which has a smaller impact on spending growth, cannot be easily influenced by policy changes, but efforts can be made to stem the rising costs per beneficiary relative to per capita GDP—by far the larger factor in spending growth in the two programs.

• To estimate the relative contributions of the two factors, CBO based its projections on three sets of reasonable assumptions. Regardless of the assumptions and methods used in the projections, the results were basically the same: More than half of the growth in federal spending on Medicare and Medicaid is attributable to health care costs per person growing more rapidly than per capita GDP. Depending on the approach used, by 2082 between 53 percent and 60 percent of the accumulated growth is attributable solely to cost growth, between 14 percent and 17 percent is attributable solely to aging, and the remainder (between 26 percent and 30 percent) is attributable to the interaction of those two factors as costs grow and the population ages at the same time. Over the next 25 years, aging will be relatively more important, accounting for between 27 percent and 35 percent of projected growth by 2032, but even during that period, CBO’s estimates suggest that more than half of the growth in spending will result from rising costs per beneficiary.

The issue brief was written by Noah Meyerson, who works in the long-term modeling group within our Health and Human Resources Division.

Many people believe that health information technology (health IT) has the potential to transform the practice of health care by reducing costs and improving quality. CBO just released a significant study, prepared at the request of the Chairman of the Senate Budget Committee, examining the evidence on the costs and benefits of health information technology.

“Health IT” generally refers to computer applications for the practice of medicine. (Those applications may include computerized entry systems for physicians’ orders for tests or medications, support systems for clinical decisionmaking, and electronic prescribing of medications.) Relatively few providers—as of 2006, about 12 percent of physicians and 11 percent of hospitals—have adopted health IT.

When used effectively, health IT can enable providers to deliver health care more efficiently. For example, it can:

• Eliminate the use of medical transcription and allow a physician to enter notes about a patient’s condition and care directly into a computerized record;

• Eliminate or substantially reduce the need to physically pull medical charts from office files for patients’ visits;

• Prompt providers to prescribe generic medicines instead of more costly brand-name drugs; and

• Reduce the duplication of diagnostic tests.

Indeed, many analysts and policymakers believe that health IT is a necessary ingredient for improving the efficiency and quality of health care in the United States. Research does indicate that in some instances, health IT appears to have reduced the cost of providing health care, helped eliminate inappropriate services, and improved the quality of care. In general, however, health IT appears to be necessary but not sufficient to generate cost savings; that is, health IT can be an essential component of an effort to reduce cost (and improve quality), but by itself it typically does not produce a reduction in costs.

The most auspicious examples involving health IT have tended to involve relatively integrated health systems. For providers and hospitals that are not part of integrated systems, however, the benefits of health IT are not as easy to capture, and perhaps not coincidentally, those physicians and facilities have adopted electronic health records (EHRs, the primary health IT package commonly purchased by a provider) at a much slower rate. For example, office-based physicians in particular may see no benefit if they purchase such a product – and may even suffer financial harm. Even though the use of health IT could generate cost savings for the health system at large that might offset the EHR’s cost, many physicians might not be able to reduce their office expenses or increase their revenue sufficiently to pay for it.

The search for improved efficiency in delivering health care has prompted numerous proposals for increasing the adoption of health IT. For example, a recent study by the RAND Corporation estimated about $80 billion in net annual savings that is potentially attributable to such technology. This study has received significant attention, but unfortunately it suffers from significant flaws and is therefore not an appropriate guide to estimating the effects of legislative proposals aimed at boosting the use of health IT:

• The RAND researchers attempted to measure the potential impact of widespread adoption of health IT, assuming that it was used effectively—rather than the likely impact, which would take account of factors that might impede its effective use. For example, health care financing and delivery are now organized in such a way that the payment methods of many private and public health insurers do not reward providers for reducing costs—and may even penalize them for doing so.

• The RAND study is based solely on empirical studies from the literature that found positive effects for the implementation of health IT systems; it excluded the studies of health IT, even those published in peer-reviewed journals, that failed to find favorable results. The decision to ignore evidence of zero or negative net savings clearly biases any estimate of the actual impact of health IT on spending.

• The RAND study was not intended to be an estimate of savings measured against the rates of adoption that would occur under current law, but rather, against the extent of adoption in 2004. That is, the study did not allow for growth in adoption even without a policy intervention, as CBO would in a cost estimate for a legislative proposal.

One significant potential benefit of health IT that has thus far gone relatively unexamined involves its role in comparative effectiveness research. Widespread use of health IT could make available large amounts of data on patients’ care and health, which could be used for empirical research that might not only improve the quality of health care but also help make the delivery of services more efficient. By making clinical data easier to collect and analyze, health IT systems could support rigorous studies to compare the effectiveness of different treatments for a given disease or condition. Then, in response to the studies’ findings, they could aid in implementing changes in the kinds of care provided and the way those services are delivered, and track progress in carrying out the changes. Such comparative effectiveness studies would, on average, probably lead to reductions in total spending for health care because of the tendency in the current health care system to adopt ever more expensive treatments even though rigorous evidence about their effectiveness is lacking. The likelihood of such reductions in spending would be higher if the studies’ findings were linked to the payments that providers received or the cost sharing that patients faced.

If the federal government chose to intervene directly to promote the use of health IT, it could do so by subsidizing that use or by imposing a penalty on failing to use a health IT system. From a budgetary perspective, the subsidization approach is less likely to generate cost savings for the federal government because it involves up-front costs. (It is also possible that, for any given underlying financial incentive, a penalty may be more effective at triggering adoption than a subsidy if a penalty carries a negative connotation that does not apply to failing to receive a subsidy.)

Stuart Hagen of CBO’s Health and Human Resources Division and Peter Richmond, formerly of CBO, prepared the report under the supervision of Bruce Vavrichek and James Baumgardner.

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 substantially as a share of the economy. At the request of the Ranking Member of the House Budget Committee, CBO released a letter examining the potential economic effects of (1) allowing federal debt to climb as projected under the alternative fiscal scenario presented in CBO’s December 2007 Long-Term Budget Outlook; (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 that scenario.

How Would Rising Budget Deficits Affect the Economy? Sustained and rising budget deficits would affect the economy by absorbing funds from the nation’s pool of savings and reducing investment in the domestic capital stock and in foreign assets. As capital investment dwindled, the growth of workers’ productivity and of real (inflation-adjusted) wages would gradually slow and begin to stagnate. As capital became scarce relative to labor, real interest rates would rise. In the near term, foreign investors would probably increase their financing of investment in the United States, but such borrowing would involve costs over time, as foreign investors would claim larger and larger shares of the nation’s output and fewer resources would be available for domestic consumption.

How much would the deficits projected under the alternative fiscal scenario presented in the December 2007 Long Term Budget Outlook affect the economy? For its analysis, CBO used a textbook growth model that can assess how persistent deficits might affect the economy over the long term. According to CBO’s simulations using that model, the rising federal budget deficits under this scenario would cause real gross national product (GNP) per person to stop growing and then to begin to contract in the late 2040s. By 2060, real GNP per person would be about 17 percent below its peak in the late 2040s and would be declining at a rapid pace. Beyond 2060, projected deficits would become so large and unsustainable that the model cannot calculate their effects. Despite the substantial economic costs generated by deficits under this model, such estimates greatly understate the potential loss to economic growth because the effects of rapidly growing debt would probably be much more disorderly and could occur well before the time frame indicated in the scenario.

How Would the Slowing the Growth of Deficits Affect the Economy? The minority staff of the House Budget Committee provided CBO with a target path slows the growth of budget deficits. In evaluating the economic effects of the target path, CBO did not examine how specific policies to achieve that path would affect the economy; instead, CBO limited its attention solely to examining how the deficits produced by the target would affect the economy, assuming that such effects would play out as they have in the past. (CBO has not evaluated either the political feasibility or the economic effects of reducing spending sufficiently to accomplish this path for the deficit. Furthermore, the spending and revenue targets provided by the Committee staff are not the only way to achieve a sustainable budget path. Alternative policies will have different effects on the economy, and changes in taxes and spending can exert influences on the economy other than the effects of reducing budget deficits.)

Under the target path, federal outlays excluding interest (that is, primary spending) would rise from 18 percent of GDP in 2007 to 20 percent in 2030 and then decline to 19 percent in 2050 and 13 percent in 2082. For almost all years, revenues would remain at 18.5 percent of GDP. Under those assumptions, the budget deficit would gradually increase to about 6 percent of GDP in 2040 but then would decline to almost zero in 2075. By 2082, the target path would generate a budget surplus of about 2 percent of GDP. Under this path, real GNP per person would continue to grow over the entire projection period, rising from about $45,000 in 2007 to about $165,000 in 2082 in inflation-adjusted dollars. By 2060 (the last year for which it is possible to simulate the effects of the alternative fiscal policy using the textbook growth model), real GNP per person would be about 85 percent higher under the target path than under the alternative fiscal scenario.

How Would Increasing Income Tax Rates to Finance the Projected Rise in Spending Affect the Economy? How would the economy be affected if the projected rise in primary spending under CBO’s alternative fiscal scenario (from about 18 percent of GDP in 2007 to about 35 percent in 2082) was financed entirely by a proportional across-the-board increase in individual and corporate income tax rates? Answering that question is difficult because the economic models that economists have developed so far would have to be pushed well outside the range for which they were initially developed.

Nonetheless, tax rates would have to be raised by substantial amounts to finance the level of spending projected for 2082 under CBO’s alternative fiscal scenario. Before any economic feedbacks are taken into account, and assuming that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion. The letter provides more details about possible scenarios. (Raising revenue in ways other than increasing tax rates would have a less marked effect on economic activity.)

Conclusion. The United States faces serious long-run budgetary challenges. If action is not taken to curb the projected growth of budget deficits in coming decades, the economy will eventually suffer serious damage. The issue facing policymakers is not whether to address rising deficits, but when and how to address them. At some point, policymakers will have to increase taxes, reduce spending, or both.

Much of the pressure on the budget stems from the fast growth of federal costs on health care. So constraining that growth seems a key component of reducing deficits over the next several decades. A variety of evidence suggests that opportunities exist to constrain health care costs both in the public programs and in the health care system overall without adverse health consequences, although capturing those opportunities involves many challenges.

Last week, the LBJ School at the University of Texas-Austin held a conference on the history and future of Medicare, as part of a series of activities to commemorate Lyndon Johnson’s 100th birthday. (The conference was co-sponsored by the Center for Health and Social Policy at LBJ School, Commonwealth Fund, and the Robert Wood Johnson Foundation.) The conference brought together many of the nation’s leading health policy thinkers, and I was honored to give a lunch-time talk there. The video is posted here.

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 CBO’s 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.