Quick summary of the Budget Control Act

Quick summary of the Budget Control Act

This is the first of three posts on the bill agreed to by the President and the bipartisan bicameral leaders of Congress (Speaker Boehner, and Leaders Reid, McConnell, and Pelosi). The bill is called the Budget Control Act of 2011.

The two other posts are:

  1. Understanding the Budget Control Act; and
  2. Strategic analysis of the Budget Control Act.

The “understanding” post covers in some detail a few critical details for insiders and experts. The strategic analysis post tries examine how this deal came together and what might result from it this fall.

Preliminary sources:

Everything below assumes the new Budget Control Act of 2011 bill passes the House and Senate and is signed into law by the President.

I’m going to try to be neutral in this description and put my analysis in a separate post.

Debt limit

  • The debt limit will be increased by $2.1 T no matter what Congress does.
  • The debt limit can be increased up to an additional $300 B depending on what Congress does on deficit reduction and a Balanced Budget Amendment (BBA).
  • The debt limit increase will happen in three steps: $400 B immediately, then +$500 B, then the remainder after Congress tries to enact further deficit reduction and pass a BBA.
  • Assuming the economy doesn’t go into the tank, this should eliminate the risk of another cash flow crisis for about 18 months, into early 2013. (No, it was never a “default” crisis.)

Spending cuts, tax increases, and deficit reduction

  • Whether or not Congress successfully enacts another deficit reduction law in the fall, the total deficit reduction will exceed the debt limit increase available to the President. If Congress fails this fall, some of that deficit reduction will happen through automatically triggered spending cuts.
  • As soon as the Budget Control Act becomes law, discretionary spending (aka annual appropriations) will be cut and capped, with projected savings of $917 B over 10 years, more than the initial $900 B of debt limit increase allowed the President. This is measured relative to a traditional inflation baseline for discretionary spending, without using the “Iraq/Afghanistan war baseline gimmick.”
  • In addition to these immediately enacted spending cuts from the cut and spending caps, a complex process will lead to additional deficit reduction of $1.2 – $1.5 T (or in theory more) over the next 10 years. That additional deficit reduction will result either from a new law enacted by the end of 2011, or from automatically triggered spending cuts written into the Budget Control Act (or from a combination of the two). The last leg of the President’s debt limit increase is tied to this additional deficit reduction.
  • How that additional deficit reduction is achieved is uncertain:
    • The bill creates a new Joint Committee of 12 Members of Congress (6 R, 6 D), whose goal is to produce a bill that would reduce the deficit by $1.5 T over 10 years. If 7 or more Members of that Committee approve a bill by November 23rd, it is guaranteed a straight up-or-down vote in the House and Senate by December 23rd.  No amendments and no Senate filibuster are allowed of this bill. It’s take-it-or-leave-it to everyone.
    • If this new Joint Committee legislative process fails to result in a law, then there will be no tax increases and there will be triggered $1.2 T of across-the-board spending cuts in discretionary spending, Medicare, farm subsidies, and a few smaller entitlements. These triggered spending cuts would hit defense more deeply than other types of spending.
    • The additional deficit reduction could include tax increases, but only if:
      • 7 of 12 Members of a new Joint Committee of Congress agree to raise taxes, including at least one Republican Member of the Committee;
      • and a majority of the House and Senate vote for the Committee’s recommendations;
      • and the President signs the bill into law.
    • For more details on tax increases in the Joint Committee process, please see my other two posts today.

Assuming the language has been tightly drafted enough, this process should result in $1.2 T – $1.5 T of additional deficit reduction no matter what. There are four possible outcomes from this process to produce that deficit reduction:

  1. across-the-board spending cuts automatically happen in defense and non-defense discretionary spending (deeper in defense), Medicare, farm and housing subsidies and a few smaller entitlements; or
  2. a bill becomes law that cuts spending only, with the makeup of the spending cuts determined entirely by the new Joint Committee (and including any spending the Committee wants); or
  3. a bill that cuts spending and raises taxes comes out of the Joint Committee and becomes law; or
  4. some combination of (1) with (2) or (3).

As stated above, the President gets $900 B of debt limit increase effectively immediately.  The amount of the President’s last “leg” of debt limit increase depends on what happens with this Joint Committee and a Balanced Budget Amendment:

  • If the Joint Committee process implodes or produces less than $1.2 T of deficit reduction, then the President can get a final debt limit increase of $1.2 T;
  • If the Joint Committee process results in a law that reduces the deficit between $1.2 T and $1.5 T, then the President can get a debt limit increase of the same amount;
  • If the Joint Committee process results in a law that reduces the deficit by more than $1.5 T (don’t hold your breath) or if a Balanced Budget Amendment passes the House and Senate and is sent to the States, then the President can get a final debt limit increase of $1.5 T.

Balanced Budget Amendment

The House and Senate will each vote on a Balanced Budget Amendment between October 1 and December 31 of this year. If the House passes a version of the BBA, the Senate must “consider” that version.

Senate budget resolution deemed

The Senate, which has not passed a budget resolution in two years, will be “deemed” to have passed a budget resolution for this year and next year. In other words, for the purpose of budget points of order on the Senate floor, it will be as if the Senate had done a budget resolution. This will apply to both FY12 (this year) and FY13 (next year), meaning there will be no pressure for the Senate to consider a budget resolution on the floor before 2013.

Senate Budget Committee Chairman Conrad will reportedly commit to at least a committee markup of next year’s budget resolution.

That’s your quick summary of this bill.  If you’d like to learn more, I have two additional posts:

  1. Understanding the Budget Control Act of 2011. (This is an advanced topics post, not for the faint of heart.)
  2. Strategic analysis of the Budget Control Act of 2011.
(photo credit: Dustin Moore)
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