How much does the US debt limit deal save? It’s complicated

NEW YORK – A crucial question for

the bipartisan debt limit deal

is deceptively complicated: How much would it actually reduce federal spending?

The answer depends on whether you are considering the entire deal – including side agreements not written into the legislative text – or just what is technically in the Bill.

And the tally grows or shrinks dramatically depending on what you think a future United States Congress will do about spending.

The New York Times estimates that, after accounting for all its spending limits and related accounting tricks, the agreement will actually reduce discretionary spending by about US$55 billion (S$74.5 billion) in 2024, compared with baseline forecasts, and by an additional US$81 billion in 2025.

That is the bottom-line savings: US$136 billion, compared with what the government was projected to spend, spread over two years. Everything else is in flux.

Republicans claim a much higher total spending cut: US$2.1 trillion over a decade.

That is based on an analysis of the agreement by the US Congressional Budget Office. And it is based on a tonne of policy decisions going the Republicans’ way for the next several years.

Most important, that number assumes Congress votes to implement four years of optional, non-enforceable spending caps that follow the two years of hard caps in 2024 and 2025. It is possible, but the deal in no way requires it to happen.

The budget office also offered a score of the Bill just based on the two enforceable years of caps.

It found that over a decade, the caps would save the government about US$1.5 trillion in spending and interest on the debt.

Most of that savings, though, come in the last eight years of the decade, after the caps lift.

The budget office assumes that when the caps are gone, Congress will just go back to essentially increasing spending in line with rising prices.

So if you reduce spending for a couple of years, as the caps do, that ratchets down spending, because it just starts growing again off a lower base.

That is a possible outcome for the next decade, but Congress could very well decide to go right back to big spending increases – which would negate those projected savings.

So what about the two years where the caps are binding?

The budget office finds significant savings there – about US$250 billion in total for the two years.

But even that number might be too high, because the analysis does not account for the added spending included in the side deals.

Factoring in that added spending – using White House estimates of where it would leave base discretionary spending levels in 2024 and 2025 – reduces the projected savings to about US$136 billion.

That is probably the floor of what the spending caps will translate to, in terms of spending cuts. NYTIMES