CBO: Payroll deal adds $89.3B to deficit

The Congressional Budget Office estimates the payroll tax cut extension package will cost $89.3 billion over 10 years.

Both houses of Congress are expected to vote on the package Friday, but the cost could cause Republicans in both chambers to balk over adding to the deficit. GOP leaders in the House support the deal, and Democrats in both chambers are expected to vote for it. 

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How many House Republicans end up opposing the package will be one of the things to watch in the Friday vote. GOP leaders this week agreed to a deal that will not pay for the tax extension with other spending cuts or tax increases. 

The package also includes an extension of federal unemployment benefits and the "doc fix," which prevents a scheduled cut in physician payments under Medicare.

These are offset by $15 billion in spectrum sales, $15 billion from increasing retirement contributions for new federal employees and $18 billion from changes to healthcare entitlements.

Overall, the package will add $101 billion to the deficit in fiscal year 2012, but over 10 years the variety of offsets will make up for some of the package's costs. .

The bulk of the fiscal 2012 deficit results from a loss of $70 billion in payroll tax revenue that would otherwise flow into the Social Security Trust Fund. Money to recoup the loss is taken from the general treasury and put into the fund, allowing deal supporters to claim Social Security is unaffected by the deal.

The tax break extends through the first three months of fiscal 2013, contributing to a $40 billion deficit increase next year.

Treasury Secretary Timothy Geithner acknowledged Thursday that the deal will move up the time when the nation's $16.3 trillion debt ceiling will need to be raised, but Treasury will likely be able to use extraordinary accounting methods to push the battle over the debt ceiling past the election into a lame duck session of Congress.

— This story was updated at 9:03 a.m.