The Budget Control Act of 2011 (S.365) was approved by the House (269-161) Monday and the Senate Tuesday (74-26) and signed by the President Tuesday afternoon.  The agreement provides at least one dollar of actual spending cuts for each dollar in debt limit increases.  It does not raise one dollar in taxes.  S.365 includes upfront cuts, a Joint Committee to oversee future debt ceiling negotiations, a balanced budget amendment and put pressure on the President and Congress to continue cutting spending through the next election and beyond.

The following is a summary of the agreement plus a flow chart explanation:

Budget Control Act 2011 Flow Chart

Basics of the Proposal (Similar to House Bill)

  • Upon passage, the President can request an immediate $400 billion increase in the debt limit, to be followed by a further $500 billion increase if a resolution of disapproval is not enacted.
  • This $900 billion increase comes with over $900 billion in savings, according to the Congressional Budget Office (CBO), through tough discretionary caps, enforceable with across-the-board spending cuts that Congress would have to affirmatively vote to turn off.
  • The bill establishes a Joint Select Committee that is tasked with reducing the deficit by at least $1.5 trillion.  The Committee is made up of 12 members of Congress, equally divided with 3 each of House Republicans, House Democrats, Senate Republicans, and Senate Democrats.  By November 23 of this year, the Committee must vote on legislation (simple majority for passage).
  • Any legislation reported from the Committee will receive expedited consideration in both Chambers and will be voted on by December 23. If the Committee produces a bill enacted into law that achieves $1.2 trillion or greater in savings, that would trigger the President’s authority to request a debt limit increase of equal amount (subject to disapproval and veto), capped at $1.5 trillion.
  • The bill requires Congress to vote on a balanced budget amendment no sooner than October 1, 2011, and no later than December 31, 2011.  If one chamber passed an amendment, the other chamber would be required to consider it.
  • If a balanced budget amendment is sent to the states, that would trigger the President’s authority to request a debt limit increase of $1.5 trillion, subject to disapproval and veto, regardless of the success or failure of the Committee.

Trigger Design

  • If the Joint Committee does not produce enacted savings of at least $1.2 trillion and a balanced budget amendment has not been sent to the states, then the President is given the authority to request a $1.2 trillion debt limit increase (subject to disapproval and veto).
  • That $1.2 trillion would be recouped by a combination of whatever savings were enacted pursuant to the Joint Committee process, if any, and an across the board spending cut using an expanded version of the original House sequester language.  If the Joint Committee process failed to enact any savings at all, then the full $1.2 trillion would be recovered via this expanded sequester process.  This sequester process would remain in place even if a balance budget amendment (BBA) were sent to the states.
  • The sequester would hit defense and non-defense spending in equal dollar amounts.  The non-defense category is comprised primarily of non-defense discretionary, a limited amount of Medicare and some mandatory spending.  To the extent that the Joint Committee succeed in enacting any savings, these would reduce – or entirely obviate – the sequester.

Practical Considerations

  • The maximum the debt ceiling can be raised is $2.4 trillion (if the Committee has enacted at least $1.5 trillion in savings or if a BBA has been sent to the States).  The minimum the debt ceiling can be raised is $2.1 trillion (if the Joint Committee fails to meet its target).  In both circumstances, there would be dollar for dollar cuts coupled with the debt ceiling increase.
  • The trigger does not allow for increased revenues.  The trigger can only result in spending cuts through caps and sequesters, not tax increases.
  • The sequester is designed to dig deep enough into programs cherished by both parties that the Joint Committee would have a significant incentive to succeed.
  • Because of CBO scoring conventions, the Committee would not be able to achieve deficit reduction through individual rate increases.
  • If the Committee fails, then the total debt limit increase is capped at $2.1 trillion, which raises the prospect of having to raise it again before the election (depending on the health of the economy).
  • As a practical matter, if the full amount of the sequester were to be triggered, it would force a debate on what spending cuts could replace amounts being proposed to be sequestered.  This debate would occur annually for the next 9 years and keep the focus on the issue of spending well past the next election.