Update: The House has passed the Senate “fiscal cliff” bill.
The “fiscal cliff” deficit-reduction deal approved by the White House and Senate will leave taxpayers with a national debt of almost $20 trillion by the end of 2016.
The increase to the debt was downplayed in the White House’s “victory” statement, which claimed that “together with a strengthening economy these [fiscal cliff] steps will bring down the deficit as a share of the economy over the next five years.”
His statement claimed credit for reducing the 10-year deficit by $2.3 trillion.
A March 2012 “baseline” report by the Congressional Budget Office, which assumed that the Bush tax cuts would expire and that deep cuts in military and domestic spending would be preserved, predicted the debt would rise by $2.9 trillion from 2013 to 2022 because of annual deficit spending.
The cliff deal passed by the Senate would increase the 10-year baseline deficit of $2.9 trillion by $4 trillion, says the CBO in a report released Tuesday. That’s a nearly $7 trillion increase in debt by 2022.
The deal would increase the deficits during Obama’s second term by $1.7 trillion, in addition to the $1.7 trillion deficit already projected by the CBO, creating a four-year deficit of $3.4 trillion.
That $3.4 trillion in new debt by 2017 would increase the current federal debt from $16.4 trillion to almost $20 trillion in January 2017.
That’s an debt increase of almost $10 trillion during Obama’s two terms. The higher deficits would be primarily due to the extension of lower tax rates, known as the Bush-era rates, for individuals making under $400,000 and couples making under $450,000.
Because of the federal government’s huge debt, Wall Street analysts say Obama’s $4 trillion target he set in 2011 “grand bargain” talks should have been a minimal goal.
Interest rates are now at historical low levels because the U.S. and European economies are stalled.
But Wall Street analysts say interest-rates could spike if world economies improve or if they worry that U.S. politicians and taxpayers are unable or unwilling to pay the interest payments.
If interest rates reach five percent, taxpayers’ annual interest-costs would reach $1 trillion per year, or one third of the federal government’ 2012 tax revenues.
That annual cost would force Congress to imposed painful spending cuts or new taxes that would cripple future growth.
Obama’s claim of a $2.3 trillion fiscal cliff trim was achieved by adding $620 billion in new fiscal cliff taxes to the GOP-imposed 2011 and 2012 spending cuts worth $1.7 trillion.
If fully implemented, the $2.3 trillion trim leaves the expected 10-year deficit at roughly $7 trillion. That amounts to roughly $25,000 for every one of the nation’s working-age population of roughly 240 million.
When added to the current debt of $16.4 trillion, the per-worker debt would rise to roughly $80,000 per person by 2017.
Obama’s claimed $2.3 reduction in the 10-year debt is small largely because he GOP opposes his push to grow the size and reach of the federal government.
For example, during the fiscal cliff talks, Obama has pushed to preserve costly spending programs, including subsidies to universities and to wind-energy programs. Overall, the deal includes $15 billion in new spending on Obama’s favored programs.
The Jan. 1 deal even canceled a portion of planned “sequestration” spending-cut, set in 2011. The cancellation eliminated $24 billion in planned spending cuts, leaving only $485 billion in spending cuts throughout 2013.
Throughout the talks, Obama rejected GOP proposals to trim fast-growing entitlement programs.
For example, GOP leaders have long called for the introduction of market-based incentives to federal health-care programs. Those measures are intended to give aid-recipients financial incentives to reduce wasteful spending.
Similarly, Obama and his allies rejected a GOP proposal to improve the automatic anti-inflation adjustments to Social Security programs. The change would cut Social Security spending by only 1 percent, $100 billion over the period 2013 to 2022, when spending is expected to reach $10.6 trillion.
Administration officials, including Obama, almost never mention current and predicted debt levels when talking about the nation’s annual budget deficits.
GOP officials say they’ll use their power over the federal credit-card to force another round of spending cuts in February negotiations.
But Obama said Dec. 31 that would demand further tax increases in exchange for spending cuts during the February talks.