Transcript Inside Deficit Reduction: What Now? Budget Control Act of 2011 – Post Super Committee Katherine Hayes, JD Associate Research Professor December 2, 2011

Inside Deficit Reduction:
What Now?
Budget Control Act of
2011 – Post Super
Committee
Katherine Hayes, JD
Associate Research Professor
December 2, 2011
Discretionary v. Direct Spending
• Discretionary Spending
– Spending that must be appropriated each year by
Congress
– 12 regular appropriations bills (e.g., Labor-HHS)
• Direct or Mandatory Spending
– Spending for programs that may continue, usually
without reauthorization (e.g., Social Security,
Medicare, and Medicaid)
– Not dependent on annual appropriations
Budget Control Act of 2011
(P.L. 112-25)
• Debt ceiling
• Balanced Budget Amendment vote
• Joint Select Committee on Deficit Reduction
or “Super Committee”
• Enforcement
– Title I Discretionary spending caps ($900 billion)
– Section 302 – Revised caps and sequestration ($1.2
trillion)
• Education provisions
Fallback Enforcement
• $1.2 trillion spending reduction process begins
on January 2, 2013 (unless the law is changed)
• Statutory spending limits (appropriations caps)
are revised and extended through FY 2021
• Evenly split between defense (budget function
50) and nondefense
• Proportional division between discretionary
and direct spending in each of the two
categories (defense v. nondefense)
Sequestration Continued
• FY 2013 – Sequestration applies to both discretionary
and direct spending since reductions start after 1st
quarter of fiscal year (October 1, 2012)
• FY 2014-2021 – President issues sequestration
preview report (OMB estimates)
– Discretionary spending achieved by adjusting
statutory caps
– Direct spending achieved through sequestration of
non-exempt programs
• Medicare reductions limited to 2 percent
Exempt Programs
Section 255 of the Balanced Budget and
Emergency Deficit Control Act of 1985 (as
amended)
2 U.S.C § 905 - Exempt Programs and
Activities
http://www.gpo.gov/fdsys/pkg/USCODE-2010title2/pdf/USCODE-2010-title2-chap20subchapI-sec905.pdf
Exempt Programs and Activities
a) Social Security and tier I railroad retirement
benefits
b) Veterans programs
c) Net interest
d) Refundable income tax credits (e.g., EITC, ACA
premium tax credits)
e) Non-defense unobligated balances (prior year
carry over)
f) Option: military personnel account (Presidential
discretion with notification to Congress)
Exempt Programs and Activities
g) Other programs and activities
1(A) list of 72 programs (including payments to
health care trust funds)
(B) Federal retirement and disability accounts
and activities (34 programs)
2) Prior legal obligations of the U.S. government
h) Low-income programs (14 programs including
Medicaid, TANF, SNAP, SSI, foster care, child
care)
CBO Estimates FY 2013-2021
• Revised Discretionary Spending Caps
– Defense - $454 billion
– Nondefense - $294 billion
• Reductions in Direct Spending
– Defense - $150 million
– Nondefense - $170 billion
• Medicare - $123 billion
• Other - $47 billion
Source: Congressional Budget Office
Savings from Automatic
Reductions
Source: Congressional Budget Office
Recap
• Effective January 2, 2013, automatic spending
reductions of $1.2 trillion (assuming no
intervening change in law)
• Discretionary caps revised and extended through
FY 2021 (defense and non-defense)
• Within each category, proportional division
between discretionary and direct spending for
“non-exempt” programs subject to sequestration
• Medicare limited to 2 percent to remainder of cuts
split between other non-defense, non-exempt
programs
Additional Resources
• CRS Report: The Budget Control Act of 2011
http://www.fas.org/sgp/crs/misc/R41965.pdf
• Congressional Budget Office
– Testimony before the Joint Select Committee on
Deficit Reduction
http://www.cbo.gov/doc.cfm?index=12490
– Estimated Impact of Automatic Budget
Enforcement Procedures Specified in the Budget
Control Act
http://www.cbo.gov/doc.cfm?index=12414