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The Debt Deal Summary, Is It A Win?

August 01, 2011

President Obama contributed no plan for reining in our nation’s deficits in order to gain an increase in spending, so the debt ceiling agreement resembled proposals from House Speaker John Boehner (R-OH) and Senate Majority Leader Harry Reid’s “last train out of the station” proposal.  Ladies and Gentleman, our politicians give us the Budget Control Act of 2011.

Coincidentally, the proposal is very similar to the “Cut, Cap and Balance” act that was passed by the House, killed by the Senate and deemed unrealistic by the Obama administration. 

Immediate Spending Cuts

The proposal achieves spending cuts through a two-part process.  We will see an immediate spending cut of up to $900 billion over two years if the Budget Control At of 2011 is passed.

There will be immediate spending caps placed on discretionary spending (non entitlement programs) for FY 2012 through 2021.  This will save $756- $935 billion over 10 years according to the CBO.  The spending cap for FY 2012 is $1.043 trillion and the cap for FY 2013 is $1.047 trillion.  For both years, there cannot be a slash in cuts to defense to achieve savings.  Military pay is also exempt from the immediate cuts.

Future Spending Cuts

A Joint Select Committee made up of 12 members of Congress equally divided with 3 House Republicans, House Democrats, Senate Republicans, and Senate Democrats will be formed from this act with the task of finding ways to reduce the deficit by at least $1.5 trillion. 

The Joint Select Committee must vote by a simple majority by November 23, 2011 on legislation to reduce the deficit by at least $1.5 trillion.   Any legislation proposed by this Committee will be voted on by December 23rd by both Chambers of Congress.    If the Committee approves legislation that achieves $1.2 trillion or more in cuts, the President has the authority to increase the debt limit again by up to $1.5 trillion. The President also has the authority to veto the cuts that Congress puts forth.

Balanced Budget Amendment

The Budget Control Act will require Congress to vote on a balanced budget amendment no sooner than October 1, 2011 and no later than December 31, 2011.   If the House or Senate passes that amendment, the prospective Chamber is required to consider it.  The House will most likely pass a balanced budget amendment as they passed the “Cut, Cap, and Balance Act” a few weeks ago.  If this happened again before November 3rd, Harry Reid would be required to consider putting it up for a vote.  Politically, this provision favors the House GOP as it would require Democrats to come out publically and state why they disagree with being required to balance the budget.   We can’t wait to hear those excuses…

In the event that the House and Senate approve the balanced budget amendment and it is sent to the States for a vote, the President would have the authority to request a debt limit increase of $1.5 trillion, subject to disapproval and veto, no matter what the Joint Select Committee decides.  This would never happen because as long as Democrats have the majority, there will be no balanced budget amendment.  See this for proof.

More On The Joint Select Committee

Let’s say the Joint Select Committee can not find a way to cut at least $1.2 trillion and the balanced budget amendment fails (which it will), the President has the authority to request a $1.2 trillion debt limit raise which Congress can disapprove and the President can veto.

If the Committee fails to cut $1.2 trillion, it would be regained by whatever savings were enacted after the Joint Committee process if there were any at all AND an across-the-board spending cut using the House’s original general language.  If the Committee fails to save anything, an expanded process from the original language would recover the full $1.2 trillion used by the House to cut.  This scenario would happen regardless of whether or not a balanced budget amendment was sent to the States.

This general cut in spending would be split evenly from defense and non-defense spending.  The non-defense cuts are subject to a limited amount of Medicare and some mandatory spending.  This happens if and only if the Joint Select Committee fails to find savings.

More Rules For The Budget Control Act of 2011

 Basically, everything rides on the Joint Select Committee. If they fail to come up with $1.5 trillion in savings, the debt ceiling will be raised at a minimum of $2.1 trillion.  If they succeed in passing $1.5 trillion in cuts, the maximum the debt ceiling can be raised if $2.4 trillion.  No matter if the debt ceiling is raised by $2.1 trillion or $2.4 trillion, there has to be a dollar for dollar cuts coupled with the debt ceiling increase.

There will be no tax hikes or increased revenues no matter what decision the Joint Select Committee comes to.  If the Joint Committee fails, the total debt limit increase is capped at $2.1 trillion, which raises the possibility of having to raise the debt ceiling again before the election. 

Conclusion: Our current $14.3 trillion debt ceiling will be increased by an amount between $2.1 trillion and $2.4 trillion depending on what the Joint Select Committee is able to accomplish.  This amount will give the Treasury the ability to borrow enough money to operate beyond the 2012 election into 2013, taking the issue off the table for Obama during elections.  There will be $900 billion in immediate cuts and up to $1.5 trillion in cuts decided later on by the Joint Select Committee.  If two thirds of both House and Senate adopt a balanced budget amendment and send to States for approval, the second debt limit increase would be $1.5 trillion.

The White House called this a “Win for the Economy and Budget Discipline.” At the end of day, we have a $14.5 trillion national debt.  This debt deal increased our spending by roughly $2.4 trillion while cutting $2.4 trillion in a two-step process.  We are still left with $14.5 trillion and growing national debt.  This debt deal adopted a process by which our national debt crisis is becoming more serious by a lesser amount.  You tell us, is this a win?  The House is expected to vote on the deal tonight.

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