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White House clarifies trillion-dollar gap in cliff deal scores

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While original scoring of the fiscal cliff compromise estimated the bill would add $3.97 trillion to the national deficit over 10 years, the White House says it actually will reduce deficits by $737 billion when the score is based on a more appropriate method.

In a Jan. 1 release (.pdf), the Congressional Budget Office says it scored the bill as adding roughly $4 trillion to the deficit by using a current-law approach, which then assumed the expiration of the 2001 and 2003 tax cuts, Medicare changes and cuts under sequestration.

However, Acting Budget Director Jeffrey Zients writes in a Jan. 1 blog post that the American Taxpayer Relief Act will instead reduce the deficit because it addresses changes to these tax cuts and the sequester, which the CBO did not include.

"The relevant point of comparison isn't current law, it is 'current policy'--those policies that were in place on Dec. 31," Zients writes.

Zients says the difference is that a current policy baseline measures changes relative to the status quo, while the current law baseline will include a "mix of expiring provisions and policy changes that would likely never be implemented."

Under the current policy assumptions, Zients said the Office of Management and Budget predicts (.pdf) a $747 billion reduction to the deficit, including a $107 billion cut in spending. It projects the reduction largely to come from:

  • $618 billion in new revenues from high-income earners and wealthy estates;
  • $22 billion due to reactions in discretionary spending plus a change to tax-preferred savings accounts that pays for delaying sequestration for two months;
  • $24 billion in health measures that pay for stopping the sustainable growth rate hike for one year; and
  • $104 billion in additional deficit reduction resulting from lower interest payments.

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."

For more:
- read Zients' post
- view the CBO estimate (.pdf)
- download OMB's estimate .pdf)

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