Washington – The Congressional Budget Office on Tuesday said Senate-passed legislation to avert the “fiscal cliff” would add nearly $4 trillion to federal deficits over a decade, largely because it would extend low tax rates for almost all Americans.
The congressional scorekeeper’s analysis was released as a number of Republicans in the House of Representatives voiced opposition to the bill, and considered amending it with deeper spending cuts.
House Majority Leader Eric Cantor and others complained the bill’s spending cuts would do little to curb trillion-dollar deficits.
Senate-passed plan extends decade-old Bush-era tax rates for individuals earning up to $400,000 and couples earning up to $450,000 – nearly 99 percent of U.S. taxpayers.
But the non-partisan CBO compared the Senate plan’s revenue and expenditure changes to laws that are currently in force, which call for $600 billion in tax hikes and automatic spending cuts in 2013 alone – effectively a dive off the fiscal cliff.
With Congress feverishly working to avoid the fiscal cliff in recent weeks, many Washington policymakers had viewed the current-law budget “baseline” as unlikely to be maintained.
Compared to an alternative CBO scenario in which Congress extends all expiring tax provisions and turns off automatic spending cuts slated to start taking effect this week, the Senate plan achieves minimal deficit reduction in the early years.
Over 10 years, deficits under the Senate plan would be $3.75 trillion less than permanently extending all of the tax and spending policies in the alternative scenario. That is largely because the CBO expects that remaining on an unsustainable fiscal path would severely constrict economic growth later in the decade, holding back revenue growth and keeping outlays higher.
FISCAL 2013 EFFECTS
By going over the fiscal cliff, the CBO had previously forecast that the higher taxes and lower spending would slash the fiscal 2013 U.S. budget deficit by more than half, to $641 billion from $1.1 trillion the prior year.
But in its analysis of the Senate-passed plan, the CBO said fiscal 2013 revenues would be $280 billion lower and spending $50 billion higher, resulting in a $330 billion deficit increase, for a total deficit of around $971 billion.
Under the CBO’s keep-taxes-unchanged scenario, the deficit would be $1.04 trillion for fiscal 2013.
None of the CBO’s analyses takes into consideration possible future spending cuts and reforms to federal health care and retirement programs that Congress might make in a new budget battle emerging around mid-February over the next increase in the U.S. debt limit.