The Budget Control Act

Introduction

President Obama signing the Budget Control Act, Aug 2, 2011President Obama signed into law the Budget Control Act (BCA) on August 2, 2011. This law creates a three step process to raise the debt ceiling by up to $2.8 trillion and reduce the deficit by $2.3 trillion over 10 years.

The BCA’s reductions in federal spending could include drastic cuts to discretionary programs that people with disabilities rely on to live in the community (like housing, education, and employment).  Alternatives to the BCA, however, are likely to threaten vital entitlement programs (like Medicaid, Medicare, and Social Security).  Therefore, disability advocates must remain engaged throughout the process to help protect funding for these critical discretionary and entitlement programs.

The Three-step Budget Process

1) The debt ceiling is raised and caps are placed on discretionary programs:

The House Appropriations Committee and the Senate Appropriations Committee  are to identify at least $840 billion in spending cuts from discretionary programs over a 10 year period (2012-2021).  These cuts come from applying spending caps which are amounts below what the federal government was projected to have spent (which assumes that program spending increases at the rate of inflation).  They start at $44 billion (4%) in FY 2012 and will accelerate to $119 billion (9%) in FY 2021 as shown below.

Budget Control Act - Step 1

In December, 2011 Congress enacted FY 2012 spending bills that adhere to the $1.043 trillion cap set by the Budget Control Act, an overall 1.5% drop in spending from FY 2011. Disability-related programs were generally level funded, with a few receiving cuts or increases. Click here to see how specific disability-related programs fared in the FY 2012 appropriations package.

2) Joint Select Committee on Deficit Reduction charged with identifying additional deficit reduction

The twelve-member bipartisan Congressional Joint Select Committee on Deficit Reduction (referred to as the “Super Committee”) was charged with identifying at least $1.5 trillion in additional deficit reduction over 10 years.  They could have met this goal by cutting federal spending, increasing revenue (mostly through taxes), or a combination of these. On Nov 21, 2011 the Super Committee announced that it has failed to produce a plan, triggering automatic spending cuts in FY 2013 thru 2021.

3) Across-the-board spending cuts triggered for 2013-2021

Automatic, across-the-board cuts (known as sequestration) are scheduled to take effect for discretionary programs (and a few non-exempt mandatory programs) starting in January 2013, unless Congress changes the law. Fortunately, low income entitlement programs, such as the Medicaid and SSI programs, are exempted from these cuts (although 2% Medicare provider cuts are allowed). Click here for a listing of all exempt programs from the across the board cuts.

The graph below shows the cumulative effect of the discretionary cuts in step 1 and the automatic, across the board cuts in step 3, which combined average about 14% over 10 years. Again, as in step 1, these are average cuts for ALL non-exempt federal programs.

 Step 3: Estimates of Discretionary Spending Caps

Fiscal Year 2013

Much remains to be decided about if and how the across the board cuts would be made in 2013.  Latest projections indicate that the federal budget for FY 2013 is slated to be cut by $110 billion.  These cuts will be broken out as follows:

  • $55 billion from defense (an 8-10% cut)
  • $38 billion non-defense (NDD) discretionary - which includes all disability-related discretionary programs (an 8% cut)
  • $11 billion from Medicare
  • $5 billion from mandatory programs

It is also not known at this time at what budget line item level (program, project, or activity) the cuts will be made or how much discretion federal agencies will have in apportioning cuts between programs.  At whatever level they are made, cuts will be proportional across categories.  The Office of Management and Budget (OMB) is expected to issue guidance clarifying these issues.

Fiscal years 2014- 2021.   The severity of the cuts is lessened somewhat to $984 billion in cuts over 9 years, or approximately $98.4 billion per year compared to the amount the government was projected to have spent.

Current Timeline of Events

Oct 1, 2011
-Beginning of FY 2012
- Cuts resutling from spending caps begin to take effect  (a 4% reduction in 2012)

Oct 1, 2012
- Beginning of FY 2013

Nov 6, 2012
-
Election Day

Jan 2, 2013 
-
Automatic cuts (an additional 8% reduction in 2013) to non-exempt programs begin to go into effect unless Congress enacts legislation repealing all of some of the cuts, and/or enacts alternative deficit reduction plan.

Proposals that Congress May Consider to Avoid the Across the Board Cuts

There is considerable concern in Congress and the Administration about the across the board cuts, particularly for defense programs.  Few believe that the automatic cuts will be allowed to occur.   Congress and the Administration can avoid the automatic cuts by developing other deficit reduction plans.  However, they will have to follow the regular legislative process and will not have the advantage of the special legislative procedures (fast tracking and up-or-down votes with no amendments) of the Budget Control Act.

Existing Deficit Reduction Ideas & Proposals.  There have been a number of deficit reduction efforts in the last few years. Prime among these are:

A number of these included recommendations that would have been very harmful to people with disabilities and their families, such as block granting Medicaid, reducing the federal matching rates for Medicaid services, using a different measure of inflation (the “chained consumer price index (CPI)”) to calculate cost of living adjustments for Social Security.  These efforts laid out general goals and spending targets and have not yet been put into legislative language.

A Balanced Approach to Deficit Reduction

The Arc shares in our Nation’s goal of reducing the deficit and returning to a path of fiscal sustainability. However, this cannot be done through spending cuts alone. Revenues must be part of the equation.

We believe that:

  • Congress must balance deficit reduction between program cuts and revenues.
  • Congress should cancel the across-the-board cuts (known as the “sequester”) and replace them with a more reasonable deficit reduction package that does not come at the expense of Medicaid and Social Security.
  • Congress should fully exempt Non Defense Discretionary programs from any further cuts.

Why Revenues Should Be Considered

1) The tax cuts enacted in 2001 and 2003 during the presidency of George W. Bush have greatly contributed to our national deficits and debt.  Not extending them for the wealthiest Americans (the top 2% of households that earn more that $250,000 per year) would be a first step in reforming the tax system and developing a balanced approach to deficit reduction (all recently enacted deficit reduction has come from spending cuts alone).

2) A large chunk of federal spending takes place through the tax code. The federal government spends more than $1 trillion a year on “tax expenditures” — credits, deductions, and other targeted tax breaks. This is more than is spent on Social Security each year or on Medicaid and Medicare combined.

3) Taking taxes off the table would force devastating cuts in many programs that are critical to people with disabilities.  To achieve $1.2 trillion in savings over the next ten years (as the debt limit deal requires) from the spending side alone would require cutting an average of $110 billion annually, starting in 2013.

Protecting Critical Programs for People with Intellectual and Developmental Disabilities

Get involved in our campaign. Visit The Arc's Don't Cut our Lifeline campaign to learn about how you can help to protect the most critical services our constituents.

 

References:

The Budget Control Act of 2011 (Debt Ceiling Deal) Frequently Asked Questions, OMB Watch 

How the Potential Across-the-Board Cuts in the Debt Limit Deal Would Occur, Center on Budget and Policy Priorities