CBO: Financial reform bill reduces the deficit by nearly $20 billion

A financial reform bill under consideration by the Senate would reduce federal budget deficits by $19.5 billion over 10 years while increasing spending by about $13.2 billion over the same period, according to an updated estimate released Monday. 

The measure reduces the deficit by $5.9 billion between 2011 and 2015 and would increase spending subject to appropriation by $4.6 billion over the period, according to The Congressional Budget Office and Joint Committee on Taxation. 

The estimate makes two changes to reflect new provisions in the bill sponsored by Senate Banking Chairman Chris Dodd (D-Conn.) with derivatives language included from the bill authored by Senate Agriculture Chairwoman Blanche Lincoln (D-Ark.). 

A new Commodity Futures Trading Commission program that would provide  awards to individuals who provide information about violations of commodity trading laws would increase direct spending by $200,000 from 2011-2020. 

The estimate also includes a projected $1 billion decrease in revenues from the provisions dealing with over-the-counter derivatives over 10 years. Some taxpayers would be expected to take the position that regulated derivatives would be subject to taxes. Revenues would likely decrease because individual tax rates on short- and long-term gains and losses differ, and the timing of the taxation of gains and losses would change. 

There is "considerable uncertainty" about the size of the losses because it's also expected that the Treasury Department would issue guidance narrowly interpreting the scope and application of the tax code in regard to derivatives contracts.

CBO and JCT could not yet determine the effect of derivatives contracts provisions on federal revenues.