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The Debt Ceiling/Deficit Agreement: What It All Means

The first stage has been completed in one of the biggest and riskiest legislative battles our nation has seen in recent years. On Monday, President Obama signed into law the Budget Control Act of 2011, passed earlier by the House of Representatives (269-161) and the Senate (74-26). The bill, which prevented economic collapse, attempts to lower our country’s deficit while also raising the debt ceiling. The legislation puts into place two significant phases, which will play out for the reminder of the year.

Phase 1

First, the law allows the debt ceiling to be raised by as much as $2.4 trillion into 2013. $400 billion is made available immediately and the rest is subject to a Congressional vote of disapproval in coming months. The raise in the debt ceiling is not tied to approval of any additional piece of legislation, such as the balanced budget amendment, and therefore guarantees the government’s borrowing power to pay bills into 2013.

The legislation initially creates between $900 billion and $1 trillion in spending cuts over the next ten years through caps in discretionary spending. There are no immediate cuts to Medicaid, Medicare, or Social Security but there may be in the future. For the first two years there are different caps for security and non-security spending (what many refer to as a firewall). Security programs are identified as homeland security, veteran’s affairs, State Department, and foreign assistance programs. Non-security discretionary programs include many important low-income assistance programs such as Head Start, WIC, housing assistance, and LIHEAP.

Phase 2

A 12-member bipartisan, bicameral “super committee” is set up to make $1.5 trillion in additional deficit cuts. The Committee of 12 can consider any part of the budget for its plan—both tax reform and entitlement changes. The members have yet to be named, but Speaker of the House of Representatives John Boehner (OH-R), House Minority Leader Nancy Pelosi (CA-D), Senate Majority Leader Harry Reid (NV-D), and Senate Minority Leader Mitch McConnell (KY-R) are expected to announce the appointees in the coming days. Each member of the leadership gets to appoint three members from his/her party and chamber. The committee is tasked with reducing the deficit by at least $1.5 trillion through 2021. The committee has a November 23rd, 2011 deadline for voting on a proposal. Only a simple majority is needed to adopt a plan. Then the House and Senate must vote on the plan (with no opportunity for amendments) by December 23rd, 2011.

If any of these steps fail to happen (the Committee of 12 doesn’t report a deal of at least $1.2 trillion, or either chamber of Congress fails to pass the plan) automatic across the board cuts go into effect on January 1st, 2013 (this is referred to as the trigger). See this flow chart from FamiliesUSA for a clearer picture of the various steps that need to be taken to avoid the trigger from going into effect.

As the trigger is set up, the caps would reduce spending in order to ensure $1.2 trillion in savings is reached over nine years. The cuts would be split evenly (a firewall) between security and non-security spending and would apply to discretionary and mandatory spending. There are some exemptions/protections in place for programs important to vulnerable communities. For example Medicaid, SNAP (formerly known as food stamps), Social Security, and veteran’s benefits are exempt from the across the board cuts. And Medicare cannot be reduced by more than 2% each year. This situation could still be devastating for other human needs programs, a number of which will already have experienced severe cuts from previous years.

Finally, the signed bill states that a balanced budget amendment must be voted on by the House and Senate between October 1st and December 31st, 2011. While a vote is required, balanced budget amendment legislation is not tied to anything (in previous House bills approval of the balanced budget amendment was tied to a future raise in the debt limit) and if the vote fails there are no consequences.

What It All Means!

First and foremost, deficit and budget battles are what Congress is going to be debating for the remainder of the year. Barring a major catastrophe, it is unlikely that any other major piece of legislation will be considered for the rest of the year. There has been a lot of negativity circling this debate. The United States came incredibly close to defaulting on our debt and setting in motion a global economic crisis. While the final legislation is far from perfect, there are a couple positive pieces to note.

First, we were able to protect important programs like Medicaid and SNAP from deeper cuts and structural changes. That said, many experts believe that Medicaid has the single biggest bull’s-eye on its back. This program is one of the big reasons the discussions between President Obama and Speaker Boehner broke down. Speaker Boehner and the House majority wanted Medicaid to no longer be exempt from across the board cuts and President Obama felt it should be protected. This issue is bound to come up again with the Committee of 12. The firewalls put into place are extremely important, and guarantee a more balanced approach and that all the spending cuts are not taken primarily from safety-net programs.

In general though, this is an incredibly risky time for human needs programs. Considering the political dynamics, it is still unclear whether or not the Committee of 12 will be able to reach a decision and send a plan to Congress. It is incredibly important that advocates for low- and moderate-income people be placed on the committee. Also once the committee is named, this will be our prime opportunity for engagement and focused advocacy. It is not only important to express your concerns to the twelve members but to also encourage other Members of Congress to weigh in with the Committee of 12 and try to influence them on the programs about which we care most. There is going to be enormous pressure for the committee to cut entitlement programs like SNAP and Medicaid, especially if the committee is unable to reach an agreement on revenue. Please make sure to bring this issue up when you meet with your Members of Congress over August recess.

Additional Resources

Earlier today the JCPA co-hosted a webinar for the faith community explaining the deal and discussing what role religious organizations could have in the coming months. A recording of the webinar can be found here.

The JCPA released this statement upon passage of the deal.

Bloomberg Government, the Washington Post, and Bread for the World have all created summary charts that you might find useful. Also Bob Greenstein, founder and President of the Center for Budget and Policy Priorities, released this statement on his view of the months ahead.

And because everyone needs a laugh during these difficult times: The Debt Ceiling as Explained by 6th Graders!

If you have any questions on the debt ceiling/deficit reduction legislation or would like to be added to this list please contact Elyssa Koidin, Senior Policy Associate.

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