Precisely as the House began voting Tuesday night on the short-term rescue from the fiscal cliff, the White House published its own perspective on the legislation’s long-term budgetary impact -- countering a more dire-seeming analysis from the Congressional Budget Office.
The morning after the Senate’s Monday night vote on a downsized package of new tax provisions, the nonpartisan CBO had scored the bill as likely to add some $3.6 trillion to the federal deficit over a decade. Acting Budget Director Jeffrey Zients posted a blog asserting that the American Taxpayer Relief Act actually reduces deficits by
The reason for the difference, he said, is that CBO is required to analyze the bill under “current law,” which, as of Jan. 1, assumes the expiration of the 2001 and 2003 tax cuts, new cuts to Medicare payments to physicians of almost 27 percent, and across-the-board cuts from sequestration, which, absent President Obama’s signature on the new law, would have kicked in on Jan. 2.
“The relevant point of comparison isn't current law, it is ‘current policy’ – those policies that were in place on Dec. 31st, the day before all of these changes were scheduled to take effect,” Zients wrote. “Different organizations, ranging from the Bowles-Simpson Fiscal Commission to the House Budget Committee, have considered this current policy baseline to be the appropriate reference point, since it measures changes relative to the status quo, rather than the mix of expiring provisions and policy changes that would likely never be implemented.”
Using “current policy” assumptions shared by CBO and the Joint Taxation Committee, the Office of Management and Budget sees a $107 billion spending cut in the now-enacted bill. Its 10-year deficit reduction would come from:
- $618 billion due to higher taxes on the highest-income Americans and the wealthiest estates;
- $22 billion due to reductions in discretionary spending and a change to tax-preferred savings accounts that pay for turning off sequestration for two months; and
- $24 billion in various health measures that pay for turning off the so-called sustainable growth rate hikes in payments;
- Another $104 billion from lower interest payments on the federal debt.
Zients said these provisions “more than offset the $30 billion cost of the measure’s one-year extension of emergency unemployment insurance benefits, resulting in $630 billion of net non-interest deficit reduction.”