Debt Ceiling Briefing

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Debt Ceiling Briefing

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

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