Budget Control Agreement of 2011 (The Short Version)

In case you have a severe case of insomnia, you can read the entire 74 page text of the Budget Control Agreement of 2011 here. Note we're not saying you SHOULD read it, only that you can if you so choose. Unless you've been prospecting on the far side of Mars for most of the year, you're probably aware that there has been something of an impasse between congress and the president for most of the year. The sides were long ago staked out. Fiscal conservatives didn't want to raise the debt ceiling without a plan in place to cut America's spend happy ways. Fiscal “progressives” wanted to raise the debt ceiling, raise taxes, and raise the odds that our economy would implode in a cloud of credit rating downgrading.

Well, the smoke has cleared. Republicans, Democrats, and Obamites came to an agreement just as the clock was striking high noon on the day of decision. But since only a sadomasochist would actually read the entire text of the Budget control Agreement, we'd like to bring you a Facebook post from Arkansas Congressman Tim Griffin, which breaks the whole thing down into a more digestible-sized bite.

Here it is…

The final agreement to cut spending and avoid default meets Republicans’ criteria to (1) cut government spending more than it increases the debt limit; (2) implement spending caps to restrain future spending; and (3) advance the cause of a Balanced Budget Amendment – all without tax hikes on families and job creators.  It is largely consistent with the bill House Republicans passed last Friday, and reflects the principles of Cut, Cap, & Balance.  Here is more information on the measure:

NO TAX HIKES

Same as the House-passed bill, the measure includes no tax hikes, a key principle that Republicans have fought for since day one.  As further protection against any tax hikes, the Joint Committee of Congress (described below) will work off a current-law baseline.  The committee would have to raise taxes by more than $3.5 trillion above today’s rates before it would begin to count as ‘deficit reduction.’  Since that is unlikely, there is little chance the Joint Committee will produce a bill that increases taxes.

CUTS THAT EXCEED THE DEBT HIKE

The final agreement is the same as the House-passed bill by including spending cuts that would exceed the amount of the increased debt authority granted to the President.  The bill would cut and cap discretionary spending immediately, saving $917 billion over 10 years – as certified by the nonpartisan Congressional Budget Office CBO) – and raise the debt ceiling by less – $900 billion – to approximately February.  Congress must vote to cut spending FIRST.  Then, the President may ask for debt authority of up to $900 billion, which will be subject to a vote of disapproval by the House and Senate that can be vetoed by the President.

CAPS TO CONTROL FUTURE SPENDING

The final agreement is the same as the House-passed bill by imposing spending caps that would establish clear limits on future spending and serve as a barrier against government expansion while the economy grows.  Failure to remain below these caps will trigger automatic across-the-board cuts (otherwise known as sequestration).  This is the same mechanism used in the 1997 Balanced Budget Agreement.  The one difference between this and the House-passed bill: the House bill had a firewall that separated defense from non-defense spending.  Now the firewall separates security spending from non-security spending.  Thi

s would be for FY 2012 & 2013, and allows Republicans to protect defense funding while cutting other security spending, such as foreign aid.

BALANCED BUDGET AMENDMENT

The bill advances the cause of a Balanced Budget Amendment by requiring the House and Senate to vote on the measure after October 1, 2011 but before the end of the year, allowing the American people time to build sufficient support for this popular reform.  This is the same as the House-passed bill.  Also, similar to the House-passed bill, the measure authorizes the President to request a second tranche of debt limit increase of $1.5 trillion if the Joint Committee’s proposal is enacted OR if a Balanced Budget Amendment is sent to the states.

ENTITLEMENT REFORMS & SAVINGS

The final agreement is the same as the House-passed bill by creating a 12-member Joint Committee of Congress that is required to report legislation – by November 23, 2011 – that would produce a proposal to reduce the deficit by at least $1.5 trillion over 10 years.  Each chamber would consider the proposal of the Joint Committee on an up-or-down basis without any amendments by December 23, 2011.  Similar to the House-passed bill, if the Joint Committee’s proposal is enacted OR if a Balanced Budget Amendment is sent to the states, the President would be authorized to request a debt limit increase of $1.5 trillion.  As further protection against any tax hikes, the Joint Committee will work off a current-law baseline.  The committee would have to raise taxes by more than $3.5 trillion above today’s rates before it would begin to count as ‘deficit reduction.’  Since that is unlikely, there is little chance the Joint Committee will produce a bill that increases taxes.

The final agreement sets up a new sequestration process to cut spending across-the-board – and ensure that any debt limit increase is met with greater spending cuts – IF the Joint Committee fails to achieve at least $1.2 trillion.  If this happens, then the President may request up to $1.2 trillion for a debt limit increase (note: this is less than the $1.5 trillion cited above).  Assuming the President is able to increase the debt limit by $1.2 trillion (contingent upon the congressional disapproval process), then across-the-board spending cuts would result that would equal the difference between $1.2 trillion and the deficit reduction enacted as a result of the Joint Committee.

The across-the-board spending cuts would apply to FYs 2013-2021, and apply to both mandatory and discretionary programs.  The final agreement specifies that total reductions would be equally split between defense and non-defense programs.  The across-the-board cuts would also apply to Medicare.  However, several programs would be exempted from across-the-board cuts, including Social Security.

The sequestration process does NOT trigger increased revenues.  It can only result in spending cuts, not tax increases.

At this point, about all we can say about the thing is that it's a plan, which, when it comes to the rascals in Washington, is often worse than no plan at all. As the blind man said, “We shall see.” Yes, dear readers, we shall definitely see whether this is a step away from the economic madhouse we've been existing in these recent years or simply a sneaky side entrance to get back in.

The American Monetary Association Team

American Monetary Association

(Flickr / HappyHaggis)

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