The “Doomsday Scenario”

When the President and Congress failed to reach a budget deal several months ago, they created a “supercommittee” to get the job done. Hanging over that supercommittee’s head was what some had termed the “doomsday scenario,” a series of automatic spending cuts that would be triggered upon failure to produce a deal by November 23rd. Since leaders from both parties on that committee have announced failure, these cuts are now scheduled to go into effect in 2013.

90 Second Summaries: Season 2, Episode 29
The Budget Control Act: Automatic Spending Cuts
Enacted 8/2/2011
Click here to download this summary (pdf)

Status: Due to failure of the Supercommittee to produce a proposal, automatic cuts are slated to be implemented in 2013. Currently unclear whether Congress will act beforehand to prevent or modify these cuts, although both President Obama and leadership of both parties is supporting their implementation.

Purpose: Upon taking control of the House in 2010, Republicans threatened to prevent an increase the national debt ceiling unless deep spending cuts were enacted. As a deadline for default on federal debts approached, Congress and President Obama agreed to a comprehensive deal that included a debt ceiling increase of $2.1 trillion and steps to achieve at least that amount in deficit reduction over 10 years.

In addition to $917 billion of immediately effective spending cuts*, a special “Supercommittee” was created to recommend at least $1.2 trillion in further deficit reduction measures. But just in case the Supercommittee failed to reach agreement on a deal, $1.2 trillion in automatic across-the-board cuts were included as a backup plan. With Supercommittee leaders announcing a failure to meet the panel’s November 23rd deadline, the automatic cuts are now scheduled to go into effect at the start of 2013.

Summary: The across-the-board cuts are drawn equally from defense and nondefense spending. The sequestrations of $984 billion ($109 billion per year) break down in the following manner:

• $55 billion per year (10.0% of total in 2013) from defense discretionary spending limits.
• $39 billion (7.8%) in 2013 from nondefense discretionary spending limits, declining to $33 billion (5.5%) by 2021.
• 2% per year ($10.8 billion) from Medicare, increasing to $17.2 billion by 2021.
• Roughly $5 billion per year from other mandatory programs.
• Exempts Social Security, Medicaid, federal retirement and disability programs, various income assistance programs, and the wars in Iraq and Afghanistan from the cuts.

Note: The Budget Control Act specifies that $216 billion is deducted off the top to account for savings in net interest generated by the cuts. However, CBO estimates that figure will come to just $169 billion.

CBO Score: The cuts would result in total 10-year deficit reduction of $1.057 trillion, less than the targeted amount. See the full analysis: http://cbo.gov/ftpdocs/124xx/doc12414/09-12-BudgetControlAct.pdf
* All dollar estimates via the Congressional Budget Office

Given that the automatic cuts were designed to provide incentive for the Supercommittee to reach a deal, their dislike is nearly universal. However, reasons for such disapproval break down into three basic categories:

1) Many members from both parties strongly oppose the across-the-board cuts to defense spending, and suggest they will harm national security. Republican members of Congress are nearly unanimous in this stance.
2) Centrist austerity advocates such as Third Way believe the automatic cuts, while generally better than nothing, are deeply inadequate. They still champion a “grand bargain” that includes both new revenues and entitlement cuts.
3) Most progressives believe the focus on deficits is misguided at best, and dangerously counterproductive at worst. They believes Congress should be focusing on job creation and not cut the budget until the economy improves.

Further links
Full Budget Control Act text: http://www.govtrack.us/congress/billtext.xpd?bill=s112-365
Official CRS summary of the Budget Control Act: http://www.govtrack.us/congress/bill.xpd?bill=s112-365&tab=summary
Supercommitee announcement of inability to reach a deal: http://bit.ly/v5DJQf
Third Way on the Supercommittee’s failure: http://www.thirdway.org/publications/454
CBPP breakdown of the cuts: http://www.cbpp.org/cms/index.cfm?fa=view&id=3557
NYTimes on the fate of the military cuts: http://www.nytimes.com/2011/11/23/us/automatic-military-cuts-may-stand-in-congress.html

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