world war ii baby boom and of ongoing increases in life expectancy. longer life expectancies are certainly to be welcomed. but they are likely to lead to longer periods of retirement in the future, even as the growth rate of the workforce declines. as a consequence of the demographic trends, the number of people of retirement age will grow relative both to the population as a whole and to the number of potential workers. currently, people 65 years and older make up about 12 percent of the u. s. population, and there are about five people between the ages of 20 and 64 for each person 65 and older. according to the intermediate projections of the social security trustees, in 2030 americans 65 and older will constitute about 19 percent of the u. s. population, and the ratio of those between the ages of 20 and 64 to those 65 and older will have fallen to about 3. although the retirement of the baby boomers will be an important milestone in the demographic transition – the oldest baby boomers will be eligible for social security benefits starting next year – the change in the nation's demographic structure is not just a temporary phenomenon related to the large relative size of the baby - boom generation. rather, if the u. s. fertility rate remains close to current levels and life expectancies continue to rise, as demographers generally expect, the u. s. population will continue to grow older, even after the baby - boom generation has passed from the scene. if current law is maintained, that aging of the u. s. population will lead to sustained increases in federal entitlement spending on programs that benefit older americans, such as social security and medicare. the second cause of rising entitlement spending is the expected continued increase in medical costs per beneficiary. projections of future medical costs are fraught with uncertainty, but history suggests that – without significant changes in policy – these costs are likely to continue to rise more quickly than incomes, at least for the foreseeable future. together with the aging of the population, ongoing increases in medical costs will lead to a rapid expansion of medicare and medicaid expenditures. long - range projections prepared by the cbo vividly portray the potential effects on the budget of an aging population and rapidly rising health care costs. the cbo has developed projections for a variety of alternative scenarios, based on different assumptions about the evolution of spending and taxes. the scenarios produce a wide range of possible budget outcomes, reflecting the substantial uncertainty that

unlikely to solve the nation's impending fiscal problems. economic growth leads to higher wages and profits and thus increases tax receipts, but higher wages also imply increased social security benefits, as those benefits are tied to wages. higher incomes also tend to increase the demand for medical services so that, indirectly, higher incomes may also increase federal health expenditures. increased rates of immigration could raise growth by raising the growth rate of the labor force. however, economists who have looked at the issue have found that even a doubling in the rate of immigration to the united states, from about 1 million to 2 million immigrants per year, would not significantly reduce the federal government's fiscal imbalance. 7 the prospect of growing fiscal imbalances and their economic consequences also raises essential questions of intergenerational fairness. 8 as i have noted, because of increasing life expectancy and the decline in fertility, the number of retirees that each worker will have to support in the future – either directly or indirectly through taxes paid to support government programs – will rise significantly. to the extent that federal budgetary policies inhibit capital formation and increase our net liabilities to foreigners, future generations of americans will bear a growing burden of the debt and experience slower growth in per - capita incomes than would otherwise have been the case. an important element in ensuring that we leave behind a stronger economy than we inherited, as did virtually all previous generations in this country, will be to move over time toward fiscal policies that are sustainable, efficient, and equitable across generations. policies that promote private as well as public saving would also help us leave a more productive economy to our children and grandchildren. in addition, we should explore ways to make the labor market as accommodating as possible to older people who wish to continue working, as many will as longevity increases and health improves. addressing the country's fiscal problems will take persistence and a willingness to make difficult choices. in the end, the fundamental decision that the congress, the administration, and the american people must confront is how large a share of the nation's economic resources to devote to federal government programs, including transfer programs such as social security, medicare, and medicaid. crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. thus, members of the to give a sense of the magnitudes involved, suppose – for the sake of illustration only – that the deficit projected