White House: Deal cuts deficits by $737 billion

The White House early Wednesday argued that the fiscal-cliff deal cuts deficits by $737 billion when realistic assumptions are made.

Acting White House Budget Director Jeff Zients wrote in a blog post that the current-law baseline, which the Congressional Budget Office used Tuesday to conclude the deal approved by Congress would add $4 trillion to the debt over 10 years, is not realistic. 

“The relevant point of comparison isn’t current law, it is ‘current policy’ — those policies that were in place on Dec. 31, the day before all of these changes were scheduled to take effect,” Zients wrote.

{mosads}The current-law baseline assumes all the George W. Bush-era tax rates would expire on schedule at the end of 2012, something neither party wanted to see happen. It also assumed the Alternative Minimum Tax would be allowed to hit middle-class households and that Congress would allow a steep drop in Medicare payments to physicians. 

The White House baseline assumes all of the tax rates are extended, the AMT is “patched” and the Medicare payments are not cut. 

Using that baseline, the deal reduces deficits by $618 billion by allowing the income tax rate to rise to 39.6 percent for households making more than $450,000 and by allowing the estate tax to rise to 40 percent for estates of more than $5.1 million.

It cuts the deficit by $22 billion due to reductions in discretionary spending and by generating immediate revenue from allowing more savers to convert retirement plans to Roth IRAs. 

Congress includes the savings to offset spending cuts that were set to begin in January under the “sequester” approved as part of a separate deal to raise the debt ceiling in 2011. 

The White House also includes $24 billion in healthcare savings to offset the Medicare “doc fix” that prevents the cut in physician payments.

And it gets $104 billion in interest savings from making the other revenue and cuts. 

The new spending in the bill, for unemployment insurance, costs $30 billion, Zients wrote.

“So H.R. 8 not only keeps taxes low for the middle class, asks the wealthiest to pay their fair share and helps the economy continue to grow, it also reduces the deficit by $737 billion under this more realistic scenario,” he wrote.