Deficit Reduction and Debt Ceiling Overview

NCSL Materials

August 1, 2011


Over the weekend, a framework was established between Senate congressional leaders and the White House to avoid a federal government default. The Budget Control Act of 2011 would achieve two results: reducing the deficit between $2.2 and $2.5 trillion; and immediately raising the debt ceiling, along with increasing the limit until after the 2012 elections. In terms of deficit reduction, the deal would cut almost $1 trillion through the establishment of ten-year caps, with additional savings coming from a joint committee commissioned to determine $1.5 trillion in deficit reduction. As for raising the debt ceiling, it would immediately be raised by $400 billion with an additional $500 billion available later this year. The debt ceiling would again be raised by the dollar-for-dollar amount achieved in the second phase of deficit reduction. Additional points of interest include:

  • Limiting discretionary spending, including state-federal programs) in FY 2012 to $1.043 trillion, a decrease of $7 billionfrom FY 2011 spending levels.
  • A provision that if the joint committee does not report legislation, or if Congress does not enact its proposal, a trigger is enforced with half the cuts coming from discretionary spending and half from defense spending.
    • Exemptions to across-the-board cuts include: Social Security, Medicaid, child nutrition, temporary assistance for needy families (TANF), Supplement Security Income, and women, infants, and children programs.
    • If across-the-board cuts are forced, savings from Medicare can only amount to 2% of payments to providers and insurance plans, with no benefit cuts
    • The joint committee is authorized to explore entitmelement and mandatory programs and the federal tax code for savings.
  • Both the House and Senate must vote on a balanced budget constitutional amendment by the end of the calendar year.