page_title: Deficit reduction in the United States
section_title: Allowing laws already on the books to take effect
hierarchical_section_title: Deficit reduction in the United States / Specific deficit reduction proposals / Allowing laws already on the books to take effect
caption_attribution_description: English: Three CBO deficit scenarios related to the American Taxpayer Relief Act of 2012 and the Fiscal Cliff.
context_page_description: Deficit reduction in the United States refers to taxation, spending, and economic policy debates and proposals designed to reduce the Federal budget deficit. Government agencies including the Government Accountability Office, Congressional Budget Office, the Office of Management and Budget, and the U.S. Treasury Department have reported that the federal government is facing a series of important long-run financing challenges, mainly driven by an aging population, rising healthcare costs per person, and rising interest payments on the national debt.
  CBO reported in July 2014 that the continuation of present tax and spending policies for the long-run results in a budget trajectory that causes debt to grow faster than GDP, which is "unsustainable." Further, CBO reported that high levels of debt relative to GDP may pose significant risks to economic growth and the ability of lawmakers to respond to crises. These risks can be addressed by higher taxes, reduced spending, or combination of both.
  The U.S. reported budget surpluses in only four years between 1970-2020, during fiscal years 1998-2001, the last four years budgeted by President Bill Clinton.
context_section_description: As of November 2014, there was no major legislation scheduled to expire or take effect projected by CBO to have a material net impact on the budget deficit. However, an unusual situation developed in early 2013, referred to as the fiscal cliff, in which the Bush tax cuts of 2001 and 2003 were scheduled to expire (causing income tax revenues to rise significantly) and spending cuts due to the Budget Control Act of 2011 (also known as "the sequester") were scheduled to begin taking effect. CBO estimated allowing those laws to take effect would have dramatically reduced the deficit over a decade, but also would have slowed the economy and increased unemployment at a time when the economy was recovering from the subprime mortgage crisis.
  Specifically, allowing laws on the books in 2011 to take effect would have reduced future debts by up to $7.1 trillion over a decade:
  $3.3T from letting temporary income and estate tax cuts enacted in 2001, 2003, 2009, and 2010 (some of which were known as the Bush tax cuts to expire on schedule at the end of 2012;
  $1.2T from implementing the sequester (spending freezes / reductions) in the Budget Control Act of 2011);
  $0.8T other temporary tax cut expirations (the “extenders” that Congress has regularly extended on a “temporary” basis) expire on schedule;
  $0.3T from letting cuts in Medicare physician reimbursements scheduled under current law (required under the Medicare Sustainable Growth Rate formula enacted in 1997, but which have been postponed since 2003) take effect (i.e., no longer applying the Doc fix);
  $0.7T from letting the temporary increase in the exemption amount under the Alternative Minimum Tax expire, thereby returning the exemption to the level in effect in 2001;
  $0.9T in lower interest payments on the debt as a result of the deficit reduction achieved from not extending these current policies.
  CBO reported in November 2012: "Under the current-law assumptions embodied in CBO’s baseline projections, the budget deficit would shrink markedly – from nearly $1.1 trillion in fiscal year 2012 to about $200 billion in 2022 – and debt would decline to 58 percent of GDP in 2022. However, those projections depend heavily on the significant increases in taxes and decreases in spending that are scheduled to take effect at the beginning of January [2013]."
  The fiscal cliff was partially resolved by the American Taxpayer Relief Act of 2012 or ATRA, which extended the Bush tax cuts for the bottom 99% of income earners, resulting in considerably less deficit reduction than if they had been allowed to expire at all income levels according to CBO. Further, the sequester was delayed for two months but contributed to moderately lower defense and non-defense discretionary spending in 2013 and beyond versus the 2011 law baseline.
  Raising income tax rates for the bottom 99% of income earners to their pre-2001 levels would require entirely new legislation. The sequester was implemented, so reversing its impact would also require new legislation.
caption: Three CBO deficit scenarios related to the American Taxpayer Relief Act of 2012 (ATRA) and the Fiscal Cliff. The blue line (August 2012 baseline) was the "current law" baseline, with tax increases and spending cuts that would take effect if laws were not changed. The grey line (March 2012 alternative baseline) was the "current policy" baseline, which represented the avoidance of the tax increases and spending cuts. The orange line (February 2013 baseline) was the post-ATRA result.[98]
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