CRS report examines the ACA’s role in fiscal issues

Posted on October 17, 2012 | No Comments

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The Affordable Care Act’s provisions to increase federal revenue through taxes on high-income workers are among the many proposals that policymakers will face next year, according to a new report released by the Congressional Research Service (CRS). The report provides an overview of the tax and spending policy changes set forth by the Act. Collectively referred to as the “fiscal cliff,” these policies would extend current revenue policies (e.g., extending the Bush tax cuts) and change current spending policies (e.g., not allowing the Budget Control Act sequester to take effect) to increase the projected budget deficit relative to current law. The Congressional Budget Office (CBO) estimates that if current law remains in place, the budget deficit will fall by $502 billion between FY2012 and FY2013.

In making these fiscal policy choices, Congress will have to weigh the benefits of deficit reduction against the potential implications of fiscal policy choices for the ongoing economic recovery. Maintaining current revenue and spending policies will add to the deficit, while increasing revenues and reducing spending, as under current law, could slow economic growth. Thus, deficit reduction measures must be balanced against concerns that spending cuts or tax increases could dampen an already weak economic recovery. CBO has concluded that allowing current law fiscal policies to take effect will dampen short-term economic growth, but accelerate long-term economic growth. Conversely, CBO has concluded that postponing the fiscal restraint would accelerate short-term economic growth, but dampen long-term economic growth. In that context, several policy observers have recommended implementing a credible medium-term plan that balances economic considerations with deficit reduction.

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