CBO: 'Cliff' deal leaves big deficits in place

Associated Press

WASHINGTON (AP) — Legislation passed this week to avert the "fiscal cliff" could still leave in place deficits averaging more than $900 billion a year over the coming decade if Congress fails to follow its tax increases up with further spending cuts or tax hikes, the nonpartisan scorekeeper for Congress said Friday.

The Congressional Budget Office also says the measure should reduce the risk of recession this year by not slamming the economy with a huge tax increase.

The CBO issued a study in August predicting a $10 trillion deficit over the next 10 years if Congress simply followed existing tax and spending policies instead of following the laws that threatened a combination of automatic tax increases and spending cuts.

This weeks' cliff law would cut $700 billion to $800 billion from CBO's 10-year, $10 trillion deficit estimate. But it also leaves in place across-the-board spending cuts that would cut more than $1 trillion from the budget over that time.

The analysis also estimates that the new law will increase the size of the economy by 1.5 to 1.75 percentage points compared with what would have happened if the government went over the cliff. Using data from last summer, when the economy was still limping badly, CBO now estimates the economy will grow by just 1 percentage point next year.

An official CBO estimate of the nation's economic and budget outlook is due next month.

The CBO study also notes that Congress didn't avoid going over the cliff completely. The Social Security payroll tax jumped back to 6.2 percent this week after President Barack Obama failed to win renewal of the temporary 2 percentage point payroll tax cut that's been in place for two years.

And the CBO analysis assumes across-the-board cuts of 8 to 9 percent to many domestic programs and the Pentagon budget would stay in place, which would cost the economy almost 1 percentage point in growth.

Lawmakers promise to replace those across-the-board cuts with more targeted steps that could take longer to implement.

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