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CBO: Trimming Health Cost Growth Will be Key

July 9, 2007 – If health costs continue to grow as they have in the past four decades, income tax rates will have to rise dramatically by 2050 if they are the mechanism used to pay for those added outlays, according to an analysis released Monday by the Congressional Budget Office. Based on the current rate of health cost growth—2.5 percentage points per year higher than the growth in the Gross Domestic Product—the tax rate in the lowest tax bracket would have to climb from 10 percent to 26 percent. In the next bracket, it would climb from 25 percent to 66 percent, and in the highest bracket, it would have to rise from 35 percent to 92 percent.

But if health cost growth is held to one percentage point above GDP, the rate in the lowest bracket would rise to 17 percent instead of 26 percent; in the middle bracket to 43 percent instead of 66 percent; and in the highest bracket to 60 percent instead of 92 percent. "Given the nature of the nation's long-term fiscal challenge, constraining the growth of federal health care costs seems a key component of reducing the deficit over the next several decades," the CBO said in an analysis prepared for the top Republican on the Senate Budget Committee, Judd Gregg of New Hampshire.

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