Last week, the House of Representatives and the Senate each voted to pass the Budget Control Act of 2011 (“Act”) raising the nation’s debt limit and averting the real threat of a default on our debt obligations. President Barack Obama promptly signed it into law the same day, narrowly averting default (Public Law 112-35). However, a compromise called by some as a “Satan Sandwich” still has major ramifications on federal spending priorities for months to come.
Some pain now, more pain later. The Act immediately gave President Obama the authority to raise the debt ceiling by $400 billion. A second $500 billion adjustment in the debt ceiling, which is subject to a congressional vote of disapproval that can be vetoed by President Obama, will likely come this September 2011. These first two increases, totaling $900 billion, are offset by $917 billion in 10-year savings in non-defense federal discretionary spending – i.e. funding not mandated by federal law, such as through the Medicare or Social Security programs. This will be achieved by cutting annual appropriations down to $1.043 trillion in 2012 and then slowing the rate of future growth in following fiscal years to a fraction of inflation.
The Act also mandates another $1.2 trillion to $1.5 trillion in deficit reduction. This will happen one of two ways: either through the recommendations of a Joint Committee of House and Senate members or by automatic across-the-board cuts that would be split equally between mandatory programs, including Medicare and Social Security, and defense.
Why some are calling this a “Super Committee”. No later than November 23, 2011, the Joint Committee is required to vote on a report that contains a detailed statement of its findings, conclusions, and recommendations for what programs should be cut. There are a number of provisions in place to give the Joint Committee additional powers to come to a decision on cuts and get that enacted into law. For example, they have a freedom to include matters not ordinarily included in similar legislation, such as policy issues that do not impact the federal debt, for example changes in the recently heath care reform or Dodd-Frank financial regulatory reform laws. Also, any legislation reported would not face amendments and only require a simple majority in each house of Congress for final passage. For these reasons, the Joint Committee is also being known as the “Super Committee”.
The “Automatic Trigger”. A lesser of two evils? Failure by the Joint Committee to hit at least $1.2 trillion in savings would trigger automatic cuts in both discretionary and mandatory programs, including Medicare, from 2013 through 2021. The cuts would be 50-50, between defense and non-defense. However, the Medicare cut could not exceed 2% in any given year. So for all those who rely on Medicare – from the pharmaceutical industry, to hospitals, to nursing homes, to doctors – it would likely make sense to hope the Joint Committee does not come to a consensus on cuts. Given the lobbying expected by the Defense Industry, it is highly possible that the Joint Committee could make non-defense programs suffer the greater amount of cuts.
This also guarantees that lobbying activity of Congress will be at a fever pitch for the next six months.