The compromise could add $4 trillion in debt in the next 10 years. | Composite image by POLITICO Deal could add nearly $4T to deficit

The White House-Senate Republican tax compromise could add almost $4 trillion in debt over the next 10 years, according to Congressional Budget Office estimates, which attribute most of the cost to lost revenues or payments on refundable tax credits.

( Also on POLITICO: CBO score of the fiscal cliff agreement)


The three-page table was released Tuesday even as House Republicans were meeting behind closed doors on the deal. And while the numbers can be understood only with some context, they could also spook deficit-conscious conservatives into demanding more spending cuts.

CBO begins its analysis from its March current law baseline that assumes all of Bush-era tax cuts would expire at New Year’s Day, and therefore gives no deficit-reduction credit for the fact that the deal begins to raise rates for the wealthiest Americans.

Yet since last spring the CBO itself has warned that if nothing were done, the so-called “fiscal cliff” combination of tax increases and automatic spending cuts could throw the country back into recession. In the same way, critics would argue that the deficit estimates now don’t give enough credit to the improved economic growth that could result from the tax cuts.

Most important, perhaps, the long range estimates don’t reflect the fact that the deal now is only the first step toward establishing a new baseline from which the White House and Republicans hope to work next year to carry out tax reform. At one level, tax cuts were being thrown into the mix — impacting the Alternative Minimum Tax for example — in order to influence this future baseline without regard to the deficit results.

Nonetheless, the CBO numbers are big, and the table reflects the scope of the deficit problem that the nation faces — and that isn’t greatly improved upon in the current deal.

CBO says that compared to its baseline, $3.96 trillion would be added to future deficits. About $3.638 trillion would be as result of the numerous tax cut extensions; an additional $296 billion is counted as spending but really represents payments on refundable tax credits for working-class families with children, for example.

Extended unemployment benefits, $30 billion, is the biggest change on the spending side. And there’s a certain irony that CBO devotes one of its longest footnotes to a nine-month extension of the farm bill crafted by Senate Minority Leader Mitch McConnell (R-Ky.).

Here, CBO estimates that the Senate extension will cost about $5 billion in 2013 but that conforms with its baseline projections and poses no new cost. Indeed, to stay within these boundaries, nutrition education funds would be cut $110 million under the Senate bill to help pay for potential subsidies to dairy farmers.

That’s millions — a drop next to the trillions in revenues.

This article tagged under: Deficit