Debt and Deficit Deal Reached
Today, August 2, the Senate approved the Budget Control Act of 2011, following its passage in the House Monday evening. The passage of the Act ensures that government will likely not default on its loan obligations through 2013 by raising the nation's debt ceiling by more than $2 trillion. The Act also sets out guidelines for future deficit reduction.
The Act sets a discretionary spending limit that will save $900 billion over 10 years. In order to avoid hindering the fragile economy, the bulk of these spending cuts will take place after fiscal year (FY) 2013. Federal spending for FY 2012, which begins on October 1, 2011, will be capped at $1.043 trillion, or $7 billion below FY 2011 levels. This level is $98 billion below the total spending amount proposed by the Administration in its FY 2012 Budget Proposal.
In addition, the Act sets up a bipartisan committee, comprised of senators and representatives selected by each chamber's leadership, tasked with reducing the deficit by an additional $1.5 trillion over 10 years. This committee must agree on where the necessary spending cuts or revenue increases will come from by November 23, 2011, and the committee's plans must be approved by both the House and Senate by December 23, 2011. If a deal is not reached by December 23, cuts will automatically be triggered that would cut spending across the board (defense and non-defense spending) by $1.2 trillion spread evenly over 10 years. Programs targeted toward low-income individuals and families would largely be exempt from these automatic cuts, though the specifics of this provision remain unclear.
Congress will move forward with FY 2012 appropriations now that it has a "top-line" number for total discretionary spending. It remains unclear how the $7 billion in cuts for FY 2012 will impact programs targeted toward at-risk and homeless families and individuals. Of the $7 billion, $4 billion in cuts will come from security spending (i.e. defense spending, appropriations for the State Department and Homeland Security, etc.), which includes the Department of Veterans Affairs and programs for veterans. The additional $3 billion will come from non-security spending. Details of the spending bills for the Departments of Housing and Urban Development and Health and Human Services, as well as other agencies, may be released as soon as September.