Deal Cost

Just for the record: the Congressional Budget Office our official and non-partisan score keeper on all matters to do with the budget, has ‘scored’ the deal struck yesterday. It will increase the Federal deficit by a little under $4 trillion over the next decade.

The CBO is constrained to score legislation and its effects by what is on the books as law. Thus when the deal extends the Bush tax cuts for most people this appears as a tax cut and thus a loss of revenue versus the existing law that had those tax cuts expiring.

This is what I mean about the entire ‘fiscal cliff’ debate being nothing to do with deficits.

It also helps bring into focus my larger point: the US has no real deficit of debt problems. Were that true a revenue loss of such significance would send shudders through the financial markets. It hasn’t. Obviously the markets don’t care about the debt or the deficit. What they care about is growth, the potential for profit, and the potential for wealth generation. Increasing taxes, as the Bush law would have done without legislation to prevent it, would have crippled an already weak economy.

The entire thrust of policy ought to be about getting growth back. The markets are signaling agreement with that position. Only those in Washington are focused on the irrelevant issues of debt reduction and spending cuts.

That debate is political not economic.

The cost of this deal, as calculated by the CBO, demonstrates that everyone knows this.