CBO: 'Fiscal cliff' deal carries $4 trillion price tag over next decade

The Senate deal to avoid the "fiscal cliff" will add roughly $4 trillion to the deficit when compared to current law, according to new numbers from the Congressional Budget Office (CBO).

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The CBO determined Tuesday that the package, hammered out late Monday evening by Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.), would — over the next decade — come with a $3.9 trillion price tag. 

The agreement, which is pending before the House after passing in an 89-8 Senate vote early Tuesday, would extend lower tax rates on annual household income under $450,000 and postpone automatic spending cuts for two months.

The extension of lower tax rates for the bulk of the nation's taxpayers and the addition of a patch to the Alternative Minimum Tax would add roughly $3.6 trillion to the deficit over the next decade, the CBO said. Other individual, business and energy tax extenders would add another $76 billion. The extension of unemployment benefits would cost roughly $30 billion, and the so-called "doc fix" would tally another $25 billion through fiscal 2022.

The CBO says the budget agreement will lead to an overall increase in spending of about $330 billion over 10 years.

The combination of tax hikes and spending cuts that make up the fiscal cliff — if allowed to proceed — would improve the nation's deficit, but economic experts on both sides warn its dramatic impact would push the nation back into a recession if allowed to take effect in 2013.


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The CBO price tag is based on a "current law" baseline, which assumes that all components of the "fiscal cliff" will take effect, which includes a wide range of automatic tax hikes and spending cuts. Neither party in Congress is seriously considered allowing those policies to take effect unaltered.

White House officials and lawmakers who voted for the bill argue the measure would raise $620 billion in new tax revenue compared to current policy.

The new numbers come as both parties in the House grapple with whether to support the deal. The two sides met separately behind closed doors to discuss the Senate package.

In addition to indefinitely extending the George W. Bush-era income tax rates for family income up to $450,000 and individual income up to $400,000, the agreement would also set the estate tax rate at 40 percent, up from 35, and exempt inheritances below $5 million. 

The deal would also increase the capital gains and dividend tax rates to 20 percent from the 15 percent level in 2012 — although both rates jumped Tuesday when the U.S. entered the new year.

The deal would also postpone automatic spending cuts known as the sequester for two months, offsetting the $24 billion cost of that delay with a combination of other spending cuts and new revenues.

The CBO estimate comes after the Joint Committee on Taxation estimated it would reduce federal revenue by $3.93 trillion over the next 10 years when compared to current law.

The Committee for a Responsible Federal Budget, an advocacy group that supports broad deficit-reduction reforms, estimates the entire package would increase deficits by about $4.6 trillion over the next 10 years compared to current-law projections.

— Alexander Bolton contributed to this report.

— Updated at 3:30 p.m.