The Budget Control Act of         2011                       The New Debt DealDate: August 2, 2011
The Budget Control Act of 2011•   Overview•   Terms•   Projections•   Debt Ceiling Increase•   Balanced – Budget Amendment...
Overview• Debate centers around the amount of increase of the  debt ceiling and a dollar for dollar decrease in the defici...
Terms• Security spending – includes spending on Department of  Defense, Homeland Security, Veteran’s Affairs, Intelligence...
Projections• Debt ceiling will need to be raised $2.1 – 2.4 trillion by 2013    – Will be raised $400 billion automaticall...
Debt Ceiling Increase                              Under Compromise• Two Step Process to increase $14.3 trillion debt ceil...
Balanced-Budget Amendment• Plan requires both House and Senate to vote on a  proposed balanced-budget amendment (joint  re...
Spending Cuts – First Round• These match the debt ceiling increases dollar for dollar• Immediate spending cuts of about $9...
Spending Cuts – Second Round                        By December 23, 2011• Special joint committee of 12 to propose further...
Spending Cuts – Second Round• Mandate and Goal of Special Committee   – Mandate: Make recommendations to meaningfully     ...
Enforcement Trigger for Panel’s          Recommendations• Similar to 1985 Gramm-Rudman anti-deficit law  – Goal of law was...
Details of Enforcement Trigger for      Panel’s Recommendations• Goal is to come up with 1.5 trillion in savings. If recom...
Entitlement Cuts and Taxes• Supercommittee is likely to look closely at entitlement  spending to reach its goal of $1.5 tr...
Conclusion• Actions by the Congress   – House passed the Budget Control Act of 2011 on     August 1, 2011 with a 269 – 161...
Debt briefing 8 2
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Debt briefing 8 2

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Debt briefing 8 2

  1. 1. The Budget Control Act of 2011 The New Debt DealDate: August 2, 2011
  2. 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. 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. 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. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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

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