2. The Budget Control Act of 2011
• Overview
• Terms
• Projections
• Debt Ceiling Increase
• Balanced – Budget Amendment
• Spending Cuts – First Round
• Spending Cuts – Second Round
• Enforcement Triggers
• Entitlement Cuts and Taxes
• Conclusion
3. Overview
• Debate centers around the amount of increase of the
debt ceiling and a dollar for dollar decrease in the deficit
• Sticking point was how to lower the deficit—by spending
cuts, by increasing tax revenues or a combination of both
• The front end of this plan lowers the deficit by spending
cuts.
• The second part of the plan allows for a combination of
taxes and spending cuts. Up to a super committee of 12
to decide
4. Terms
• Security spending – includes spending on Department of
Defense, Homeland Security, Veteran’s Affairs, Intelligence
community, International Affairs
• Non-security spending – all other types of spending not
related to security. Does not include Social Security,
Medicare, or Medicaid
• Discretionary spending – spending through appropriations
bills.
• Mandatory spending – spending on certain programs which
Congress must spend under current law
• CBO – Congressional Budget Office
– Non partisan office funded by Congress in charge of analyzing
and projecting the economic implications of legislative
initiatives and budgets
5.
6. Projections
• Debt ceiling will need to be raised $2.1 – 2.4 trillion by 2013
– Will be raised $400 billion automatically in Fall 2011
– Will be raised an extra $500 billion before December 31, 2011 unless
Congress disapproves
– Will be raised $1.2 – 1.5 trillion at end of 2011
– Raises in debt ceiling will be matched dollar for dollar with spending
cuts and possible revenue increases
• Two ways to raise debt ceiling to meet $2.1 – 2.4 trillion request:
constitutional amendment or Congressional approval
• Two ways to cut spending to meet dollar for dollar match:
acceptance of supercommittee’s savings recommendation or across
the board budget cuts
• CBO estimates the Budget Control Act will save at least $2.1 trillion
from 2012 – 2021
7. Debt Ceiling Increase
Under Compromise
• Two Step Process to increase $14.3 trillion debt ceiling by $2.1
– 2.4 trillion over two years
– First step: $900 billion increase in debt ceiling
• Treasury can access $400 billion in borrowing immediately
• Debt ceiling would automatically raise by $500 billion after
December 31, 2011 unless Congress passes a resolution of
disapproval - requires a 2/3 vote
– Second step: Remaining $1.2 – 1.5 trillion anticipated increase in
debt ceiling through 2012
• Actual amount of increase depends on actions taken by Congress
this Fall
• Debt ceiling will automatically increase $1.5 trillion if a balanced
budget amendment is passed by 2/3 of Congress
8. Balanced-Budget Amendment
• Plan requires both House and Senate to vote on a
proposed balanced-budget amendment (joint
resolution) to the Constitution by the end of 2011
• If passed by 2/3 of Congress, debt ceiling is
automatically raised by another $1.5 trillion
• To become Constitutional Amendment, ¾ states
must ratify it
9. Spending Cuts – First Round
• These match the debt ceiling increases dollar for dollar
• Immediate spending cuts of about $917 billion over 10 years
– Set discretionary spending caps over which Congress cannot
spend
– Of the $917 billion, 38 % ($350 billion) cut from security over
10 years
– Firewall between security and non-security spending
• Can’t mix and match funds – can’t take security from a non-
security program fund
• Does not assume any savings from winding down Iraq and
Afghanistan wars
10. Spending Cuts – Second Round
By December 23, 2011
• Special joint committee of 12 to propose further cuts/tax
increases of $1.5 trillion, the remaining amount needed to
balance the $2.1 – 2.4 trillion debt ceiling increase
– President Obama will appoint 3 Republicans and 3 Democrats
from both the House and Senate
– For recommendation to pass, it needs equally divided support
from 1/3 of the committee
– Recommendation subject to simple majority vote without
amendment
– Each chamber must vote before December 23, 2011
11. Spending Cuts – Second Round
• Mandate and Goal of Special Committee
– Mandate: Make recommendations to meaningfully
improve short- and long-term fiscal imbalance
– Goal: Cut deficit to match debt ceiling increases dollar for
dollar
• Recommendations should cut deficit $1.5 trillion by 2021
(over 10 years)
• Will look at cuts to Medicare, farm subsidies, educational
assistance, and retirement benefits for federal workers
• If Congress does not accept the recommendations, or the
committee cannot recommend a plan to save at least
$1.2 trillion over 10 years, it would trigger the
enforcement mechanism
12. Enforcement Trigger for Panel’s
Recommendations
• Similar to 1985 Gramm-Rudman anti-deficit law
– Goal of law was to cut the budget deficit in 1985,
which at the time was the largest in history
– Enacted automatic spending cuts (called sequesters) if
the deficit exceeded spending targets
– Produced the first balanced federal budget in a
quarter of a century
13. Details of Enforcement Trigger for
Panel’s Recommendations
• Goal is to come up with 1.5 trillion in savings. If recommendations
do not produce at least $1.2 trillion in savings over 10 years…
– Automatic across-the-board cuts would be enacted to reconcile the
difference to $1.2 trillion in savings, split 50/50 between security and
non-security programs (about $500 billion over ten years for each
category)
– Affected non-security programs: farm price supports, Social Services
block grants, mineral leasing payments to states, other smaller
spending programs
– Exempt non-security programs: Social Security, Medicaid
– Medicare cuts
• Maximum payment cut of 2% of Medicare outlays to Medicare
providers. (A cut of about $14 billion)
• Would only affect payment to providers, not beneficiaries
14. Entitlement Cuts and Taxes
• Supercommittee is likely to look closely at entitlement
spending to reach its goal of $1.5 trillion in savings
• Plan does not include any immediate increase in
revenue, but committee may consider several forms of
revenue increases
– Restructuring of tax code
– Elimination of tax breaks
– Allow Bush tax cuts for high earners to expire in 2013
• One exception to cuts, however: Pell Grants have
increased from $3.1 billion to $13.1 billion; an increase of
10 billion but cut direct Stafford loans for graduate and
professional students
15. Conclusion
• Actions by the Congress
– House passed the Budget Control Act of 2011 on
August 1, 2011 with a 269 – 161 vote
• Yea: 174 Republicans, 95 Democrats
• Nay: 66 Republicans, 95 Democrats
– Senate passed the debt deal on August 2, 2011 with a
74 – 26 vote
• Yea: 28 Republicans, 45 Democrats
• Nay: 19 Republicans, 6 Democrats, 1 Independent
• President Obama signed into legislation on August 2,
2011
