CBO projects Obama’s tax cuts will add trillions to deficit
The Obama administration’s proposal to make the Bush tax cuts permanent for the middle class will drive up the deficit by $2.4 trillion over the next decade, according to the Congressional Budget Office.
The CBO estimates that the President’s FY 2013 budget will increase the deficit by $3.5 trillion between 2013-2022, doubling the projected deficit over the next 10 years.
According to the CBO’s analysis, the main drivers of the ballooning deficit are the various tax cuts and tax credits – totaling $2.4 trillion – that Obama wants Congress to extend or make permanent this year. Proposed spending increases – including permanently freezing the Medicare doctor reimbursement rate (“Doc Fix”) and funding overseas contingency operations (OCO) – will grow the deficit by $586 billion. Interest payments from the increased borrowing will add another $590 billion to the deficit.
As a result, the CBO projects the federal deficit will total $6.4 trillion between 2013-2022 and the public debt will balloon to $18.8 trillion – or 76% of GDP – by 2022.
Sources of the projected $3.5 trillion deficit increase between 2013 and 2022:
- Tax cuts: $2.4 trillion or 67%
- Debt interest: $590 billion or 17%
- Spending: $564 billion or 16%
Proposed tax cuts will add $2.4 trillion to the deficit between 2013 and 2022
The following tax policies will grow the deficit:
- Making the 2001 and 2003 Bush tax cuts permanent for individuals earning less than $200,000 a year or couples earning less than $250,000 a year: $2.1 trillion
- Exempting more people from having to pay the Alternative Minimum Tax (AMT): $855 billion
- Capping estate and gift (inheritance) taxes at 45%; exempting gifts below $1 million from any taxes; and exempting estates worth less than $3.5 million (individual) and $7 million (couple) from any taxes: $245 billion
- Reinstating the research and experimentation tax credit permanently: $96 billion
- Making the $2,500 annual tax credit for college expenses permanent: $81 billion
But the revenue losses will be partially offset by the repeal of tax breaks for high-income earners and other tax reform measures, including:
- Capping tax deductions for high-income earners, which will reduce the deficit by $523 billion between 2013 and 2022;
- Imposing a minimum tax on foreign earnings by American companies, which will reduce the deficit by $168 billion between 2013 and 2022;
- And other tax reform measures to reduce the deficit by $219 billion between 2013 and 2022.
- Congressional Budget Office: Analysis of the President’s 2013 Budget (PDF)
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