Supercommittee: "No Deal"

Nov 22, 2011

See a printable PDF version of this report.

The co-chairs of the Joint Select Committee on Deficit Reduction conceded on November 22 that the committee was unable to agree on a deal that would:

• cut the federal debt by $1.2 trillion over the next ten years and
• be acceptable to both houses of Congress and both political parties.

What happens now?

The Budget Control Act (BCA) adopted in August this year describes the next steps:

First, Look at Fiscal Year (FY) 2012

Spending for FY 2012 (which started October 1 of this year) is not affected by the supercommittee process. Congress is working on appropriations measures of various sorts (individual bills, "minibuses" and "omnibuses") to fund the government for the next ten months.

FY 2012 spending is limited, however, by the caps (limits) set in the Budget Control Act this summer:

• Combined discretionaryⁱ spending on the Departments of Defense, Homeland Security, Veterans Affairs, National Nuclear Security Administration, intelligence community management account, and all international affairs accounts cannot exceed $684 billion, and
• Combined discretionary spending on all other discretionary accounts cannot exceed $359 billion.

In FY 2011, the Departments of Defense, Homeland Security, Veterans Affairs, National Nuclear Security Administration, intelligence community management account and all international affairs accounts spent about $688 billion combined (not including spending on Overseas Contingency Operations). In FY 2012, those agencies will share a cut of about $4 billion (less than one percent of their combined total for FY 2011).ⁱⁱ

If Congress appropriates funds that breach the caps for the security or non-security categories, the President is required to issue a "sequestration order" 15 days after the end of the congressional session. The order would cancel the excess budget authority in the category (security or non-security) that breached the cap.

Members of Congress can also control and limit spending by raising "points of order" during debate on any appropriations measure that would exceed the cap that applies to that category of spending. This means that the order in which appropriations bills are considered in 2012 will be very important. Suppose, for example, that the appropriations bills for the Departments of Defense and Homeland Security and the Veterans Administration are all approved, and that those departments take less than their proportionate share of the cuts intended for the "security" category. Then, when the appropriations bill for international relations programs comes up for debate, there might not be enough money left in that category to fully fund international assistance programs, and a "point of order" could be raised against their consideration. The House can waive a point of order with a simple majority vote; the Senate needs a 3/5 majority (60 votes).

FY 2013 is a Little Different

Beginning in FY2013 - in the absence of a joint committee bill - a different kind of budget control goes into effect.

First, the discretionary spending categories are changed. "Security" now means the "050 function" in the budget. In includes nearly all of the Department of Defense, plus nuclear weapons, and a few small independent programs. It no longer includes international assistance or the Veterans Administration or most of Homeland Security. The non-security category is everything else. The total amount of discretionary spending cuts (mandated in August) is divided equally between the new security and non-security categories.

Second, a new scheme for additional spending cuts comes into play. The goal is to cut another $1.2 trillion from the national debt between 2013 and 2021.

• The Office of Management and Budget subtracts 18 percent from the goal, to account for savings in interest payments due to a decreasing debt; the adjusted goal is $984 billion ($1.2 trillion - $216 billion). That amount is divided by nine, to spread the cuts evenly over nine years, and each year's portion is divided in half - one half for the security category and one half for the non-security category.
• In FY 2013, an automatic sequester would cut $54.7 billion from Pentagon and other military programs and $54.7 billion from all other programs. The additional spending reductions would apply proportionately to discretionary spending and direct or mandatory spending. In the "050" accounts, there are very few mandatory programs. They tend be payments into retirement and health care funds, and they amount to about 1 percent of the security category.
• The non-security side of the budget includes large entitlement programs, which are considered mandatory spending.
• Some large entitlement programs on the non-security side of the budget are exempt from sequestration. These include Social Security, Medicaid, federal retirement and disability programs. Spending reductions for Medicare and a few other health programs are limited to 2 percent, and cuts to other non-exempt programs will be increased as necessary to offset the limit on Medicare reductions.
• On January 2, 2013, the president is required to issue the sequestration order for the remainder of FY2013, according to amounts determined by the Office of Management and Budget. The order for FY2013 only is expected to apply across-the-board (within each category) to all non-exempt programs.
• In FY2014 through 2021, the Office of Management and Budget will issue a "sequestration preview report" when the president submits his budget for the next fiscal year, showing how much will have to be cut in the coming year from security and non-security categories to avoid a sequester. Appropriators will be expected to make decisions about how to implement the cuts.

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ⁱ Discretionary spending is spending that Congress handles through the appropriations process each year. Mandatory or direct spending include "must pay" bills such as the interest on the national debt, and entitlements (programs that establish benefits for anyone who qualifies). Veterans' benefits, government employee pensions, Medicaid and Medicare are examples of entitlements.

ⁱⁱ Appropriations for Overseas Contingency Operations [OCO] are not included in the cap. Several other adjustments in the cap, for emergencies, disaster aid, and other purposes are also allowed. See Congressional Research Service report number 42013, The Budget Control Act of 2011: Effects on Spending and Deficit Reduction.