The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Congressional research reportNov 29, 2011

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The Budget Control Act of 2011: Effects on

Spending Levels and the Budget Deficit

Marc Labonte

Specialist in Macroeconomic Policy

Mindy R. Levit

Analyst in Public Finance

November 29, 2011

Congressional Research Service

7-5700

www.crs.gov

R42013

CRS Report for Congress

Prepared for Members and Committees of Congress

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Summary

The Budget Control Act of 2011 (BCA) was signed into law by President Obama on August 2,

2011 (P.L. 112-25). In addition to increasing the debt limit, the BCA contained a variety of

measures intended to reduce the deficit by at least $2.1 trillion over the FY2012-FY2021 period.

These included $917 billion in savings from statutory caps on discretionary spending and the

establishment of a Joint Select Committee on Deficit Reduction.

The BCA discretionary spending caps are projected to result in $917 billion in deficit reduction

over the FY2012-FY2021 period. Some types of spending are not subject to the caps, including

for spending on Overseas Contingency Operations and emergencies. The precise programmatic

impact of these reductions in discretionary spending will be determined in the annual

appropriations process. Under the Congressional Budget Office’s (CBO’s) August 2011 baseline,

which incorporates the effects of the BCA, the discretionary spending caps result in a decline in

spending in nominal dollar terms in FY2012 and FY2013. Discretionary spending under the caps

is projected to decline from 9.0% of GDP in FY2011 to 6.2% of gross domestic product (GDP) in

FY2021. Since FY1962, the first year for which data are available, discretionary spending as a

percentage of GDP has only been that low in one other year (FY1999).

Beyond the BCA’s deficit reduction achieved via the discretionary spending caps, the Joint

Committee was created to find additional deficit reduction. On November 21, 2011, the co-chairs

of the Joint Committee announced that they were unable to reach an agreement before the

committee’s deadline. As a result, a $1.2 trillion automatic spending reduction process has been

triggered to begin in January 2013 unless Congress and the President act to eliminate or change

the process before then. The automatic reduction would be divided evenly between defense and

non-defense spending. Many large mandatory programs are exempt from this process. The

automatic reduction in spending for non-exempt accounts in FY2013 is projected to be 10% for

defense, 2% for Medicare, and 7.8% for other mandatory and non-defense discretionary, resulting

in further deficit reduction of $1.1 trillion between FY2013 and FY2021. Overall, 85% of the

automatic spending cuts in FY2014 are projected to fall on discretionary programs. Cuts to

discretionary spending through the automatic reduction would be in addition to those cuts

resulting from the discretionary spending caps. After taking those two provisions into account,

total discretionary spending would not regain its 2011 level until 2021 in nominal terms.

While the BCA is projected to reduce the deficit, it does not eliminate budget deficits or growth in

the federal debt over the 10-year budget window. Using a current law baseline (where a series of

tax cuts are assumed to expire and controls on Medicare payments to doctors are allowed to take

effect), budget deficits are estimated to total $3.6 trillion and the federal debt is projected to

increase by $4.4 trillion over the next 10 years. Under a current policy baseline (where a series of

tax cuts are extended and controls on Medicare payments to doctors are not allowed to take

effect), deficits over the next 10 years total $8.6 trillion and the debt would continue to rise faster

than GDP. Since the debt cannot perpetually rise faster than GDP, additional spending cuts or

revenue increases would eventually be needed.

Since deficit reduction under the BCA is relatively small in FY2012, the short-term effects on the

economy should be limited. In the long run, economic theory suggests that large deficits would

have negative effects on interest rates, investment spending, trade deficits, and GDP.

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Contents

Statutory Limits on Discretionary Spending.................................................................................... 2

What Happens to Discretionary Spending Under the BCA Relative to Historical

Trends? ................................................................................................................................... 4

Comparing Discretionary Savings Relative to Other Measures ................................................ 8

The Joint Select Committee on Deficit Reduction ........................................................................ 11

Automatic Spending Reduction Process.................................................................................. 11

Effects of the BCA on the Budget Deficit ..................................................................................... 18

Effects of the BCA on the Economy.............................................................................................. 23

Figures

Figure 1. Discretionary Spending as a Percentage of GDP, 1971-2021 .......................................... 7

Figure 2. Projected Percentage of Budgetary Resources, by Major Programmatic Area,

FY2014 ....................................................................................................................................... 13

Figure 3. Percentage of Automatic Spending Reduction in Each Major

Programmatic Area for a $1.2 Trillion Reduction, FY2014 ....................................................... 14

Tables

Table 1. Discretionary Spending Levels and BCA Caps ................................................................. 5

Table 2. Reductions in Discretionary Spending from the BCA Relative to Selected

Alternatives................................................................................................................................. 10

Table 3. $1.2 Trillion Automatic Spending Reduction by Major Category ................................... 15

Table 4. Selected Programs and Activities Exempt from an Automatic Spending

Reduction.................................................................................................................................... 16

Table 5. Budget Deficit Projections With and Without the BCA................................................... 19

Table 6. Current Law and Current Policy Baseline Projections .................................................... 21

Table A-1. Effects on Budget Deficit of Selected Legislation in Billions of Dollars .................... 27

Table A-2. Effects on Budget Deficit of Selected Legislation as a Percentage of GDP ................ 27

Appendixes

Appendix. The Relative Size of the Deficit Reduction in the Budget Control Act

Compared to Earlier Acts............................................................................................................ 26

Contacts

Author Contact Information........................................................................................................... 28

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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Acknowledgments ......................................................................................................................... 28

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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

ollowing a lengthy debate over raising the debt limit, the Budget Control Act of 2011

(BCA; P.L. 112-25) was signed into law by President Obama on August 2, 2011.1 In

addition to including a mechanism to increase the debt limit, the BCA contained a variety

of measures intended to reduce the deficit, including caps on discretionary spending and an

automatic spending reduction process.2

According to estimates by the Congressional Budget Office (CBO), the BCA will reduce

discretionary spending by $741 billion over the FY2012-FY2021 period, achieved via savings of

$756 billion as a result of caps on discretionary spending and $15 billion in increased program

integrity spending. Further reductions are achieved in mandatory spending through $16 billion in

savings from program integrity initiatives (if the maximum allowable adjustment is subsequently

provided) and $5 billion from student loan programs (through higher Pell grant spending and

eliminating certain subsidies and incentives for Stafford loans) over 10 years.3 In addition, all of

these changes will lower future debt service costs by $156 billion over 10 years for total spending

reductions of $917 billion over the FY2012-FY2021 period.

On November 21, 2011, the co-chairs of the Joint Committee announced that they were unable to

reach a deficit-reduction agreement before the committee’s deadline. As a result, a $1.2 trillion

automatic spending reduction process has been triggered to begin in January 2013 unless

Congress and the President enact legislation to eliminate or change the process before then. The

automatic reduction (“trigger”) would be divided evenly between defense and non-defense

spending. The automatic reduction in spending for non-exempt accounts in FY2013 would be

10% for defense, 2% for Medicare, and 7.8% for other mandatory and non-defense discretionary.

CBO estimates that this automatic process will reduce outlays by $1.1 trillion over nine years.

Together, the discretionary caps and automatic spending reduction process were estimated by

CBO to reduce the deficit by $2 trillion over the FY2012-FY2021 period.4

The BCA was enacted in response to congressional concern about unsustainable growth in the

federal debt and deficit. The federal budget has been in deficit (spending exceeding revenue)

since FY2002, but became significantly larger in FY2009. That year, the deficit topped $1 trillion

for the first time ever, and it is estimated to remain above $1 trillion in FY2011.5 Relative to the

For an overview of changes to the debt limit in the Budget Control Act, see CRS Report RL31967, The Debt Limit:

History and Recent Increases, by D. Andrew Austin and Mindy R. Levit.

For an overview of the Budget Control Act, see CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff

Jr., Elizabeth Rybicki, and Shannon M. Mahan.

Student loan provisions of the BCA are analyzed in CRS Report R41965, The Budget Control Act of 2011, by Bill

Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan. For more information on student loan programs, see CRS

Report R40122, Federal Student Loans Made Under the Federal Family Education Loan Program and the William D.

Ford Federal Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole and CRS Report

R41437, Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current

Legislative Issues, by Shannon M. Mahan.

These savings are measured relative to the March 2011 Adjusted Baseline as detailed in CBO Analysis of August 1

Budget Control Act Letter to the Honorable John Boehner and the Honorable Harry Reid, August 1, 2011, Table 3,

available at http://www.cbo.gov/ftpdocs/123xx/doc12357/BudgetControlActAug1.pdf in Congressional Budget Office,

Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act, September 12,

2011. For details on the effects of specific provisions of the BCA on the deficit, see Table 5.

All budget data presented in this report are from Congressional Budget Office, The Budget and Economic Outlook:

An Update, August 2011 (hereinafter referred to as “CBO baseline”), Preliminary Analysis of the President’s Budget

for FY2012, March 2011 and The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, or Office

of Management and Budget, FY2012 Budget of the U.S. Government, February 2011. The budget deficit is the excess

of outlays over revenues in a given year, broadly similar to the amount borrowed from the public that year. The debt

(continued...)

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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

overall size of the economy, budget deficits from FY2009 to FY2011 have been significantly

larger than in any other year since World War II. From FY1946 to FY2008, budget deficits

averaged 1.7% of gross domestic product (GDP) and exceeded 5% of GDP only three times

(7.2% in FY1946, 6.0% in FY1983, and 5.1% of GDP in FY1985). From FY2009 to FY2011,

budget deficits will average roughly 9.4% of GDP. The federal debt held by the public has grown

from 40% of GDP in FY2008 to an estimated 69% of GDP in FY2011. The recent growth in

deficits is the result of spending reaching its highest level as a share of GDP since FY1945 and

revenues reaching their lowest level as a share of GDP since FY1950. This has occurred largely

due to the budgetary effects of the recent recession and policies implemented in response to it.6

This report focuses on how the BCA will affect spending and the budget deficit through the “first

round” effects, related to discretionary spending caps and student loan provisions, and the

“second round” effects of additional deficit reduction, related to the work of the Joint Committee.

The report also examines short and long run effects of deficit reduction on the economy. The

Appendix compares the BCA to past deficit-reduction legislation.

Statutory Limits on Discretionary Spending

The BCA sets in statute specific discretionary spending caps on new budget authority between

FY2012 and FY2021.7 Upward revisions to the caps are permitted for purposes of future

legislation providing spending designated as “emergency,” Overseas Contingency Operations

(OCO), program integrity initiatives to curb fraud and abuse in Social Security and federal health

programs, and disaster relief.8 Revisions to the caps for program integrity initiatives are limited to

$15 billion over 10 years. Disaster relief funding (defined by the BCA as activities carried out

under section 102(2) of the Stafford Act9) likewise cannot exceed the average funding provided

for disaster relief over the 10 previous fiscal years, excluding the highest and lowest funding

years. OMB estimated this figure to be $11.3 billion for the 10 years between FY2002 and

FY2011.10 The levels of emergency and OCO spending are not limited by the BCA.11 Exempting

(...continued)

held by the public is the accumulation of all past borrowing from the public. The gross debt is the debt held by the

public and the intragovernmental debt (the debt that one part of the federal government owes to another part of the

government, mainly government trust funds). For background information on the debt and deficit, see CRS Report

WKS0001_Overview, Federal Debt and Deficit: Key Sources, by Justin Murray.

For an overview of causes of large deficits and policy options to reduce them, see CRS Report R41778, Reducing the

Budget Deficit: Policy Issues, by Marc Labonte and CRS Report R41685, The Federal Budget: Issues for FY2011,

FY2012, and Beyond, by Mindy R. Levit.

Appropriations acts provide new budget authority. The budget deficit represents the level of spending, as measured by

outlays, in excess of revenues. The outlays for a fiscal year result from the budget authority provided in that fiscal year

as well as some budget authority provided in previous fiscal years. Included in the outlay level are all types of spending

(i.e., emergency, non-emergency, overseas contingency operations) occurring during the fiscal year.

Revisions are also permitted to be made once a year by the Office of Management and Budget (OMB), which can

adjust the discretionary caps to reflect changes in budget concepts and definitions in consultation with the Committees

on Appropriations and Budget.

For more information, see CRS Report RL33053, Federal Stafford Act Disaster Assistance: Presidential

Declarations, Eligible Activities, and Funding, by Francis X. McCarthy.

Office of Management and Budget, OMB Report on Disaster Relief Funding to the Committees on Appropriations

and the Budget of the U.S. House of Representatives and the Senate, September 1, 2011, available at

http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/disaster_relief_report_sept2011.pdf

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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

emergency spending from the caps offers flexibility to future Congresses to respond to unforeseen

circumstances, but it also offers a potential avenue for future Congresses to diminish the spending

reductions intended by the BCA. Although the BCA allowed for certain policy related

adjustments to the caps, the legislation did not allow for any economic adjustments, specifically if

inflation turns out to be higher or lower than expected. This means that a higher (lower) than

expected rate of inflation would reduce (increase) the purchasing power of discretionary spending

permitted under the caps. The BCA did not place similar caps on mandatory spending, which

amounted to 56% of total spending in FY2011.

Between FY2012 and FY2013, there are specific caps on new budget authority for the categories

of security and non-security spending. For purposes of the discretionary caps, security spending is

defined by the BCA as discretionary appropriations associated with agency budgets for the

Departments of Defense, Homeland Security, Veterans Affairs, the National Nuclear Security

Administration, the intelligence community management account, and all budget accounts in the

budget function for international affairs (Function 150).12 Non-security spending comprises the

portion of discretionary spending outside the security category. The largest amounts of spending

in the non-security category are tied to the Departments of Health and Human Services,

Education, and Housing and Urban Development. In FY2014 and beyond, one cap covers overall

discretionary spending.13

Outside of the separate caps on security and non-security spending in FY2012 and FY2013, the

BCA does not otherwise restrict spending for specific appropriation subcommittees, budget

accounts, or functional categories. The Obama Administration stated that the caps would cut

approximately $420 billion in security spending over 10 years. Further,

Assuming roughly proportional cuts, we project that of that $420 billion, $350 billion would

be from the budget category of defense, and approximately $330 billion of that would be

specifically from the Department of Defense. In sum, this agreement would be consistent

with the President’s goal for security and Department of Defense savings as laid out in his

fiscal framework in April.14

(...continued)

Section 101 of the BCA defines emergency spending to be spending that “the Congress designates as emergency

requirements in statute on an account by account basis and the President subsequently so designates.” Section 101 of

the BCA also defines Overseas Contingency Operations as spending that “the Congress designates for Overseas

Contingency Operations/Global War on Terrorism in statute on an account by account basis and the President

subsequently so designates.”

The security/non-security division of discretionary spending was first used by President George W. Bush and was

continued under the Obama Administration. However, the Obama Administration changed the definition of security

spending. The definition used by the Obama mirrors the definition used in the BCA, though it does not include the

intelligence community management account, which totaled approximately $700 million in discretionary budget

authority FY2010. CBO has not regularly reported discretionary spending in terms of security and non-security

spending. For more information, see CRS Report RL34424, Trends in Discretionary Spending, by D. Andrew Austin

and Mindy R. Levit.

Upward revisions to the discretionary spending caps in FY2014 and beyond are also permitted as discussed above.

As a result of the Joint Committee being unable to reach an agreement, the BCA specifies that the automatic spending

reduction process categorize spending into defense and non-defense groupings from FY2013 onward, rather than the

security/non-security split discussed here.

U.S. Office of Management and Budget, Security Spending in the Deficit Agreement, OMBlog, August 4, 2011,

available at http://www.whitehouse.gov/blog/2011/08/04/security-spending-deficit-agreement.

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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

However, the BCA does not specify how spending will be allocated across appropriations bills,

and which specific programs will be cut to achieve the required savings under the caps,

particularly beyond FY2014. This authority is reserved for Congress. If the appropriations

process does not result in spending levels that adhere to the cap levels and the cap levels are

breached, the BCA stipulates automatic cuts to non-exempt discretionary programs through a

sequestration process. Actual total discretionary spending levels over the next 10 years will be

determined partly by future Congress’s commitment to adhering to the caps and partly by the

level at which spending occurs in categories excluded from the caps, such as OCO or emergency

spending.15

What Happens to Discretionary Spending Under the BCA

Relative to Historical Trends?

The BCA was enacted after a period of rapid growth in discretionary spending. (Mandatory

spending has also grown and revenue has fallen rapidly relative to GDP in recent years.) Between

FY2000 and FY2009, discretionary spending rose by 8.0% per year, on average. Discretionary

spending rose by 8.9% in FY2010.16 Increases in discretionary spending since FY2000 can be

attributed primarily to a rise in defense spending throughout the decade, and an increase in

spending as a result of economic stimulus programs since 2009.17 The discretionary funding in

the economic stimulus programs was designed such that most discretionary outlays under the act

will occur by FY2012.

Table 1 summarizes the discretionary outlay levels in CBO’s August 2011 baseline, which

incorporate the BCA discretionary spending caps as well as baseline OCO levels and other small

adjustments to provide a projection of total discretionary spending.18 These levels are shown in

nominal and real (adjusted for inflation) dollars. Since some categories of discretionary spending

are exempt from the caps, total discretionary spending over the next 10 years is unlikely to match

the cap levels. Under the August 2011 CBO baseline, discretionary spending in nominal dollars

(real dollars) declines by 2.8% (4.0%) in FY2012 and 1.1% (2.4%) in FY2013, but increases

(decreases) annually by 1.5% (0.3%), on average, for the rest of the 10-year budget window.

Emergency spending received a similar exemption from discretionary spending caps in earlier deficit reduction

legislation, and after remaining relatively low in the first eight years that this legislation was in effect, emergency

budget authority averaged $38.5 billion per year from 1999 to 2002. U.S. Congressional Budget Office, The Budget

and Economic Outlook: Fiscal Years 2003 to 2013, January 2003, Table A-2.

U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, p. 17.

For more information, see CRS Report RL34424, Trends in Discretionary Spending, by D. Andrew Austin and

Mindy R. Levit.

Because the level of OCO funding was not specified in the BCA, the current CBO baseline maintains OCO funding

at FY2011 levels in inflation-adjusted terms. As a result, current baseline levels are likely to differ from actual

spending levels since OCO spending is not anticipated to remain equal to FY2011 real levels for the next 10 years. The

August 2011 baseline does not include spending permitted under the BCA on disasters, emergency, or program

integrity initiatives. Although the BCA caps budget authority rather than outlays, this report generally discusses the

change in discretionary outlays over the next decade as outlay levels are used to calculate the budget deficit and reflect

what is actually spent in a given year.

Congressional Research Service

Table 1. Discretionary Spending Levels and BCA Caps

(Outlays)

2008

Actual

2011

Actual

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021

BCA Spending Caps, Nominal

$s Billion

n/a

$1,241

$1,170

$1,148

$1,149

$1,164

$1,179

$1,196

$1,226

$1,252

$1,278

BCA Spending Caps, Real 2011

$s Billion

n/a

$1,226

$1,141

$1,104

$1,089

$1,085

$1,078

$1,072

$1,078

$1,079

$1,080

Total Discretionary, Nominal

$s Billiona

$1,135

$1,353

$1,315

$1,300

$1,301

$1,311

$1,332

$1,350

$1,370

$1,404

$1,434

$1,464

-2.8%

-1.1%

0.1%

0.8%

1.6%

1.4%

1.5%

2.5%

2.1%

$4,319

$4,158

$4,071

$4,035

$4,027

$4,053

$4,068

$4,089

$4,152

$4,201

$4,249

$1,353

$1,299

$1,268

$1,252

$1,243

$1,241

$1,235

$1,228

$1,234

$1,236

$1,237

-4.0%

-2.4%

-1.3%

-0.7%

-0.2%

-0.5%

-0.6%

0.5%

0.2%

0.1%

$4,319

$4,107

$3,971

$3,883

$3,818

$3,776

$3,722

$3,666

$3,649

$3,621

$3,590

9.0%

8.4%

8.0%

7.7%

7.2%

7.0%

6.7%

6.5%

6.4%

6.3%

6.1%

Yr-Yr, Percent Change

Per Capita ($s)

Total Discretionary, Real 2011

$s Billiona

$1,174

Yr-Yr, Percent Change

Per Capita ($s)

Total Discretionary,

Percent of GDPa

7.9%

Source: CRS calculations based on Congressional Budget Office, CBO Analysis of August 1 Budget Control Act, Letter to the Honorable John Boehner and the Honorable

Harry Reid, August 1, 2011; Congressional Budget Office, Budget and Economic Outlook: An Update, August 2011; U.S. Census Bureau, Projections of the Population and

Components of Change for the United States: 2010 to 2050.

Notes: Spending caps adjusted for inflation using GDP deflator (FY basis). The BCA caps budget authority. This table presents CBO’s estimates of outlays based on the

BCA cap levels with certain adjustments. Table does not include the effects of the BCA’s automatic spending reduction process.

CRS-5

Levels in the August 2011 CBO Baseline (indicated as “Total Discretionary” in this table) assume the BCA cap level adjusted to include real levels of OCO funding

based on current law.

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Examining levels of discretionary spending going forward may not provide the full picture of

changes over time. Between FY2008 and FY2011, total discretionary spending rose from $1,135

billion to $1,353 billion in nominal terms. In nominal terms, total discretionary spending between

FY2012 and FY2021 would be above FY2008 levels even if all spending not limited by the caps

(such as OCO spending) were zero. Total discretionary spending under the baseline would also be

below FY2011 levels until FY2018, in nominal terms. Since FY1962, the first year for which data

are available, discretionary spending has fallen in nominal terms only three times, most recently

in FY1996. In each case, the previous spending level was surpassed in the following year. If a

drawdown of troops occurs as proposed in certain overseas operations, future spending levels will

be lower than the baseline levels, absent any other policy changes. Alternatively, if future OCO

funding exceeds the levels assumed in the baseline or if there is rapid growth in spending not

subject to the caps (such as emergency spending), the overall level of discretionary spending

could exceed the level in the baseline over the next 10 years, absent other policy changes.

However, a comparison of nominal spending levels over time arguably understates the effects of

the discretionary caps on policy for a number of reasons. First, projected inflation over the next

10 years means that a dollar will have less purchasing power in 2021 than it does today. The

BCA’s nominal discretionary caps do not account for inflation so the declines in spending are

larger when converted to real terms (see Table 1). If actual inflation turns out to be higher (lower)

than projected, real spending cuts will be greater (smaller).

Relative to FY2011, projected spending under the caps in real (inflation-adjusted) terms falls each

year until FY2017, and then stays roughly constant. In real terms, total discretionary spending

under the baseline, which includes the spending caps and current real levels of OCO, will remain

above its FY2008 level but never regain its FY2011 level over the next 10 years.19 Since FY1997,

discretionary spending has only fallen in real terms in one year (FY2007). Since FY1962, there

were only two periods where real discretionary spending fell for several years in a row–FY1969FY1974 and FY1992-FY1996. In the FY1969-FY1974 period, sustained high inflation masked

(in real terms) relatively large annual nominal increases. Between FY1992 and FY1996,

discretionary spending caps were included as part of the Omnibus Budget and Reconciliation

Acts of 1990 and 1993, which contributed to lower overall discretionary spending during that

period.

The second reason why the growth in nominal spending levels may understate the effects of the

discretionary spending caps is that the population of the United States is projected to rise over the

next 10 years. Therefore, the caps will lead to lower discretionary spending per capita than

nominal growth rates would indicate for certain functional categories, such as education, training,

housing assistance, or health. For these categories, per capita spending would arguably give a

better sense of the potential impact of the caps on services than overall spending because it

indicates the change in benefits or services available to each individual. However, it remains

unknown how any specific program will be impacted by the discretionary spending caps.

As shown in Table 1, per capita discretionary spending in nominal terms decreases by 0.2% per

year, on average, over the FY2012-FY2021 period. Throughout this period, discretionary

spending per capita never regains its FY2011 level and falls from $4,319 in FY2011 to $4,249 in

If spending outside the caps, notably OCO spending, were very low, then total discretionary spending in real terms

would remain below FY2008 levels for the next 10 years.

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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

FY2021. After adjusting for inflation and population growth, per capita discretionary spending

declines by 1.8% annually, on average, from $4,319 in FY2011 to $3,590 in FY2021.

Finally, the cuts in discretionary spending over the next 10 years would be much larger if

discretionary spending is measured as a share of GDP, or relative to the size of the economy. As a

percentage of GDP, discretionary spending in FY2008 stood at 7.9%, rising to 9.0% in FY2011.20

As a percentage of GDP, discretionary spending falls below the FY2008 level in FY2014 and

remains below it through FY2021. By FY2021, discretionary spending as a percentage of GDP

would be at its lowest level since FY1999.

In the last decade, discretionary spending grew rapidly relative to GDP, taking it back to pre1990s levels. Figure 1 illustrates that discretionary spending under the caps is projected to

decline from 9.0% of GDP in FY2011 to 6.2% of GDP in FY2021, assuming that OCO outlays

(which are not subject to the cap) remain at FY2011 levels in real terms. This would reverse the

preceding growth in discretionary spending, taking discretionary spending back down to the

historically low levels that prevailed in the late 1990s. Since FY1962, the first year for which data

are available, discretionary spending has only been as low as 6.2% of GDP in one other year

(FY1999), when OCO spending was nearly zero. If OCO spending declines sufficiently relative

to FY2011 levels, at some point during the projection period, discretionary spending would reach

its lowest share of GDP ever.

Figure 1. Discretionary Spending as a Percentage of GDP, 1971-2021

Source: Congressional Budget Office Director’s Blog, Discretionary Spending Under the Budget Control Act of 2011,

August 8, 2011.

Notes: For illustrative purposes, the figure assumes that discretionary outlays will be equal to the BCA cap

amount plus $160 billion to $190 billion each year for overseas contingency operations (which are not subject to

the cap).

Discretionary spending as a percentage of GDP peaked in FY2010 at 9.3%.

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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Most of the decline in discretionary spending as a percentage of GDP was projected to have

occurred in the baseline anyway, even in the absence of the BCA caps, due to the baseline

assumption that discretionary spending in future years grows at the rate of inflation, which is less

than the growth in nominal GDP. Thus, the BCA spending caps represent a reduction in

discretionary spending that is in addition to the reductions that result from the assumption that

discretionary spending is constant in real terms. That baseline would have already shown a

significant drop in discretionary spending relative to its current share of GDP as shown in Figure

1. If the baseline were to assume that discretionary spending grew at the same rate as GDP, the

reduction in discretionary spending as a result of the BCA caps would be greater than in the CBO

score.

In addition to the discretionary caps shown in Table 1, discretionary spending would be cut

further by the automatic spending reduction process described below.

Comparing Discretionary Savings Relative to Other Measures

Baseline projections of spending, revenue, and the deficit are used as a benchmark to provide an

indication of how new legislation, if enacted, would change the projected level relative to current

law. For example, when a policy is enacted to cut spending in FY2012, the reduction is measured

relative to the baseline projection of spending for FY2012, as opposed to the actual spending

level for FY2011. Savings are generally not measured relative to previous year totals since,

particularly for mandatory programs and revenue provisions, those levels can change from year to

year with no change in law, while discretionary spending is generally subject to the enactment of

annual appropriations.21

Baselines are used because decisions on the level of discretionary spending are made annually

through the appropriations process and it is impossible to know what level of spending will be

enacted from one future year to the next. For purposes of the baseline, CBO generally assumes

that the level of discretionary spending in future years increases at the rate of inflation.22 For

example, the baseline assumes overseas contingency operations will remain at a constant

inflation-adjusted level each year for 10 years. If discretionary spending actually increases at rates

above inflation, which it has historically done, then the amount of discretionary spending above

inflation is recorded as an increase to discretionary spending relative to the baseline. Other

baselines would be equally valid conceptually, such as ones that freeze discretionary spending in

nominal terms or as a percentage of GDP, but are not generally used to score the cost of

legislation before Congress.

Compared to the adjusted March 2011 CBO baseline, which accounted for the final FY2011

enacted appropriations bills, the BCA caps make relatively small cuts to discretionary outlays in

FY2012. Discretionary spending cuts rise every year thereafter such that the reduction in outlays

For more information regarding baselines and how they are constructed, see CRS Report 98-560, Baselines and

Scorekeeping in the Federal Budget Process, by Bill Heniff Jr. and CRS Report R41778, Reducing the Budget Deficit:

Policy Issues, by Marc Labonte.

As a result of the BCA, the new baseline discretionary spending levels are set as the discretionary spending caps

created in the legislation, with modifications made for exempt categories such as overseas contingency operations.

Going forward, the costs of future policy proposals will be evaluated against this new baseline. Prior to the enactment

of the BCA, CBO utilized the baseline rules contained in Section 257 of the Balanced Budget and Emergency Deficit

Control Act of 1985, as amended (Title II of P.L. 99-177).

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

is nearly five times larger in nominal terms in FY2021, relative to FY2012. However, it is also

possible to measure the impact of changes in spending relative to other measures. Table 2

provides comparisons of the discretionary cap levels to the January 2011 CBO baseline, the

FY2012 House Budget Resolution (H.Con.Res. 34), and the President’s FY2012 budget request.

(For each comparison, OCO outlays and discretionary spending cuts resulting from the trigger are

excluded.) The comparison to the January 2011 CBO baseline gives a rough estimate of the

combined effects on discretionary spending of the final appropriations for FY2011 and the BCA.

For that reason, the spending cuts relative to the January 2011 CBO baseline are somewhat larger

than relative to the adjusted March 2011 CBO baseline.

What is a baseline?

The House Budget Resolution (H.Con.Res.

34) called for lower spending levels than those Baselines provide a benchmark for comparing how

proposed budget policy changes would affect existing

imposed by the BCA caps each year. Thus,

policies. The calculation of a baseline can be instrumental

were the levels of spending called for in the

to the evaluation of these policies. Conventional scoring

House Budget Resolution to be enacted,

procedures would measure a legislative proposal relative

spending would decline further than it would

to CBO’s official baseline, which is a current law baseline.

under the BCA. The larger size of the

In the current law baseline, CBO assumes that certain

policies set to expire under current law will do so as

spending cuts relative to President’s budget is

scheduled.

partly attributable to the final FY2011

However, changes in policy can also be measured relative

appropriations and to the BCA. The President

to other proposals and baselines. Several of these

requested similar levels of discretionary

alternative proposals and their effects are illustrated in

spending, in terms of budget authority

Table 2. Other baselines, sometimes referred to as a

(excluding OCO), compared to the January

current policy baseline, assume that certain current

2011 CBO baseline levels between FY2012

policies are likely to be extended.

and FY2016, and lower levels between

FY2017 and FY2021. The BCA cap levels are lower than the President’s request for each year.

Congressional Research Service

Table 2. Reductions in Discretionary Spending from the BCA Relative to Selected Alternatives

(Outlays in billions of dollars and as a percentage of GDP)

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021

$1,241

$1,170

$1,148

$1,149

$1,164

$1,179

$1,196

$1,226

$1,252

$1,278

CBO January 2011 Baseline

-$33

-$60

-$76

-$84

-$93

-$101

-$110

-$118

-$126

-$134

CBO Adjusted March 2011

Baseline

-$25

-$47

-$59

-$67

-$74

-$81

-$89

-$97

-$104

-$112

House FY2012 Budget

Resolution

$73

$56

$53

$60

$71

$81

$91

$99

$107

$110

President’s FY2012 Budgeta

-$73

-$91

-$92

-$89

-$95

-$98

-$100

-$107

-$101

CBO January 2011 Baseline

-2.6%

-4.9%

-6.2%

-6.8%

-7.4%

-7.9%

-8.4%

-8.8%

-9.1%

-9.5%

CBO Adjusted March 2011

Baseline

-2.0%

-3.9%

-4.9%

-5.5%

-6.0%

-6.4%

-6.9%

-7.3%

-7.7%

-8.1%

House FY2012 Budget

Resolution

6.3%

5.0%

4.8%

5.5%

6.5%

7.4%

8.2%

8.8%

9.3%

9.4%

President’s FY2012 Budgeta

-6.6%

-8.0%

-7.9%

-7.6%

-7.9%

-7.8%

-8.1%

-7.6%

BCA Discretionary Caps

Dollar Difference from:

Percent Difference from:

Source: CRS calculations based on U.S. Congressional Budget Office, CBO Analysis of August 1 Budget Control Act Letter to the Honorable John Boehner and the

Honorable Harry Reid, August 1, 2011, Table 1; U.S. House of Representatives, Budget Committee, Path to Prosperity, Table S-3; Office of Management and Budget,

Budget of the U.S. Government FY 2012, February 2011, Table S-11.

Notes: A negative change indicates a decrease from the comparison point (i.e., in FY2012, the CBO January 2011 Baseline level of discretionary spending was $33 billion

higher than the FY2012 BCA discretionary cap level). A positive change indicates an increase from the comparison point. All comparisons omit OCO spending.

CRS-10

The President’s Budget only provides a level of discretionary budget authority, not outlays, that excludes OCO. Therefore, the figures in the table showing the level of

change in discretionary spending between the BCA discretionary caps and the President’s Budget are in terms of terms of budget authority. Table does not include the

effects of the BCA’s automatic spending reduction process.

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

The Joint Select Committee on Deficit Reduction

In addition to the deficit reduction achieved through the statutory caps on discretionary spending

discussed above, the BCA calls for the Joint Committee,23 composed of 12 Members of Congress,

to propose legislation that reduces the deficit by at least $1.5 trillion over 10 years, from FY2012FY2021. If legislation reducing the deficit by at least $1.2 trillion over 10 years is not enacted, an

automatic spending reduction process, which is discussed in the next section, goes into effect.

There were no restrictions on the types of spending or revenue proposals that the Joint Committee

could recommend. On November 21, 2011, the co-chairs of the Joint Committee announced that

they were unable to reach an agreement before the committee’s deadline. As a result, an

automatic spending reduction process has been triggered to begin in January 2013 unless

Congress and the President act to eliminate or change the process before then.

Automatic Spending Reduction Process

The BCA set the amount of the automatic spending reduction based on how much deficit

reduction resulted from the work of the Joint Committee. Because no deficit reduction legislation

was proposed, the amount required from the automatic spending reduction process will be $1.2

trillion. CBO estimates that the deficit reduction achieved by this $1.2 trillion process is $1.1

trillion, for reasons discussed in the next section.

Of the $1.2 trillion in deficit reduction, the BCA specifies that 18% of the total ($216 billion) be

credited to debt service savings that would result from the spending reduction.24 Therefore, the

amount of the reduction in budget authority would equal the remaining 82% of the required

deficit reduction total. The amount of the automatic spending reduction under the BCA is spread

evenly over the nine years from FY2013 to FY2021 and applied to defense (defined as budget

function 050) and non-defense spending categories and applied proportionally to discretionary

and mandatory programs within each of these categories. The automatic spending reduction

would amount to a reduction in budget authority of $109.3 billion each year for nine years, with

$54.7 billion of the reduction to be applied to defense and $54.7 billion applied to non-defense

programs. Within the defense and non-defense categories, some programs are exempted from an

automatic spending reduction and the cuts to other programs are limited by statute.25 For

example, an automatic spending reduction to Medicare is limited to 2% of total program

spending.26 While the annual amount of the total automatic spending reduction would not be

revised in subsequent years, the amount applied to any given budget account could be

The Committee’s website can be accessed at http://deficitreduction.senate.gov/public/.

The actual amount of debt service savings will depend on future interest rates and the timing of the deficit reduction;

18% was set by the BCA. As described in CBO’s analysis of the net budgetary savings resulting from an automatic

$1.2 trillion reduction in the event a Joint Committee bill is not enacted, debt service savings amount to 16% of the

total between FY2013 and FY2021. See Congressional Budget Office, Estimated Impact of Automatic Budget

Enforcement Procedures Specified in the Budget Control Act, September 12, 2011.

These exemptions and special sequester rules are found in 2 USC 905 and 2 USC 906, Section 255 and 256 of the

Balanced Budget and Emergency Deficit Control Act of 1985, as amended.

Some Medicare spending is exempt from automatic spending reductions, including Medicare Part D low-income and

catastrophic subsidies and qualified individual (QI) premiums. For more information see 2 USC 906(d)(7).

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

recalculated, if the relative size of budget accounts changes or the exempt/non-exempt status of

an account changes.

In FY2013, the automatic spending reduction is carried out through an across-the-board sequester

(cancellation) of previously authorized budgetary resources. After the first year (FY2013), the

automatic spending reduction is carried out through a sequester for mandatory spending and

through reductions in the overall discretionary caps, rather than a sequester, for discretionary

spending. The sequester is applied proportionately to all non-exempt accounts, while it is left to

future Congresses to determine how to apply the reductions to discretionary accounts within the

caps. For purposes of the automatic reductions, the BCA creates new discretionary cap levels for

defense (defined as budget category 050) and non-defense for the 10-year budget window. The

amount of the automatic reduction is then subtracted from the new defense/non-defense cap

levels. Table 3 shows the defense and non-defense cap levels after the $1.2 trillion automatic

spending reduction, based on current projections.27 For purposes of the caps, the distinction

between exempt and non-exempt discretionary accounts does not apply. However, certain

categories of discretionary spending, such as OCO, would still not apply to the caps. Cuts to

discretionary programs as a result of the automatic spending reduction process would be in

addition to the cuts resulting from the BCA discretionary caps.

Figure 2 shows the projected percentage of budgetary resources tied to each major programmatic

area in FY2014, the first year for which the automatic spending reduction is carried out through

revisions to the discretionary caps.28 Of total gross budgetary resources for FY2014, 51% are

mandatory spending that is exempt from the automatic reduction. The other 49% of budgetary

resources is subject to the automatic spending reduction process. The mandatory share of nonexempt budgetary resources is subject to a sequester, and the discretionary share is subject to

reduction as a result of lower discretionary spending caps. Overall, only $71 billion, or 2%, of

budgetary resources in FY2014 are mandatory programs that are subject to a sequester without

limits, mostly falling into the non-defense category. The non-exempt portion of Medicare, which

also falls into the non-defense category and accounts for 16% of total gross budgetary resources

in FY2014, is capped at a maximum reduction of 2% by the BCA. Discretionary spending

composes 31% of total budgetary resources in FY2014, 16% in defense and 15% in non-defense.

For non-defense discretionary, actual cap amounts for each year will not be determined until that year.

OCO is excluded from Figure 2 and Figure 3. If it were included at 2011 levels, defense discretionary would rise to

20% of total budgetary resources and overall mandatory spending would decline to 66% of total budgetary resources

(see Figure 2).

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Figure 2. Projected Percentage of Budgetary Resources,

by Major Programmatic Area, FY2014

Source: CRS Calculations based on Congressional Budget Office, Estimated Impact of Automatic Budget

Enforcement Procedures Specified in the Budget Control Act, September 12, 2011, Table 2.

Note: Categories labeled exempt are not subject to a spending reduction. Other categories are subject to a

spending reduction. Does not include OCO spending.

Figure 3 shows the percentage share of the reduction in FY2014 for each category shown in

Figure 2 under the $1.2 trillion automatic spending reduction process. Most exempt spending is

within the non-defense mandatory category, so the automatic spending reductions would fall most

heavily, in percentage terms, on discretionary programs. In FY2014, discretionary spending is

projected to account for 31% of budgetary resources (see Figure 2), but receives 85% of the

automatic spending reductions (see Figure 3). Defense discretionary spending would be

particularly affected because the defense spending category would receive 50% of all automatic

cuts (see Figure 3) but accounts for 16% of total gross budgetary resources (see Figure 2) and

33% of total non-exempt budgetary resources. By contrast, mandatory programs account for 69%

of budgetary resources in FY2014, but would bear 15% of the spending reduction (10% on

Medicare and 5% on other mandatory programs).

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Figure 3. Percentage of Automatic Spending Reduction in Each Major

Programmatic Area for a $1.2 Trillion Reduction, FY2014

Source: CRS Calculations based on Congressional Budget Office, Estimated Impact of Automatic Budget

Enforcement Procedures Specified in the Budget Control Act, September 12, 2011, Table 3.

Note: Does not include OCO spending.

Table 3 shows the reductions in spending from FY2013 to FY2021 to different portions of the

budget in dollar terms and percentage terms from the $1.2 trillion automatic spending reduction

process. Exempting large parts of the budget from an automatic reduction means that the effect on

non-exempt programs is much larger than if the same cut were spread over all programs (i.e.,

there were no exemptions). For example, in Table 3, total spending (gross outlays) would be

reduced by about 2.5% in FY2014, but it would reduce discretionary caps for defense by 9.8%

and non-defense by 7.4% in FY2014. (The percentage cut from the pre-cap baseline would be

larger.) It would reduce non-exempt mandatory outlays by 2% for Medicare (because of the BCA

2% limit) and 7.4% for other non-defense, non-exempt mandatory accounts in FY2014. (The

reduction in non-exempt defense mandatory would be less than $1 billion.)29

Data from CBO referenced in this section can be found in Congressional Budget Office, Estimated Impact of

Automatic Budget Enforcement Procedures Specified in the Budget Control Act, September 12, 2011. Two other

estimates of the cuts under a $1.2 trillion automatic spending reduction by non-governmental organizations can be

found at Bipartisan Policy Center, How the Sequester Works if the Joint Select Committee Fails, August 5, 2011,

available at http://www.bipartisanpolicy.org/blog/2011/08/how-sequester-works-if-joint-select-committee-fails; Center

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

August 8, 2011, available at http://www.cbpp.org/cms/index.cfm?fa=view&id=3557.

Congressional Research Service

Table 3. $1.2 Trillion Automatic Spending Reduction by Major Category

(Budget Authority, FY2013 to FY2021)

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021

Defense Reductiona

$55

Non-Defense Reduction

$55

Medicare (Mandatory)

$11

$12

$13

$14

$15

$16

$17

Other Non-Exempt Mandatory

Discretionary

$39

$38

$37

$36

$34

$33

10.0%

9.8%

9.7%

9.5%

9.3%

9.1%

8.9%

8.7%

8.5%

Medicare (Mandatory)

2.0%

Other Non-Exempt Mandatory

7.8%

7.4%

7.1%

6.8%

6.6%

6.4%

6.1%

5.8%

5.5%

Discretionary

7.8%

7.4%

7.1%

6.8%

6.6%

6.4%

6.1%

5.8%

5.5%

Defense

$491

$501

$511

$522

$535

$548

$561

$575

$589

Non-Defense

$462

$472

$483

$494

$505

$517

$532

$545

$557

Amount of Reduction in

Billions of Dollars

Percentage Reduction

Defense Reduction

Non-Defense Reduction

Projected Discretionary Cap

Levels in Billions of Dollars

Under $1.2 Trillion Reduction

Source: Congressional Budget Office, Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act, September 12, 2011, Table 3; CRS

calculations.

Notes: Totals may not sum due to rounding. Figures are projected; actual amounts for each year will not be determined until that year.

CRS-15

Mandatory reductions of defense spending account for less than $500 million.

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Medicare spending is projected to rise in dollar terms over the next 10 years and therefore, the 2%

cut will result in an increase in dollar terms of the amount of the automatic spending reduction

being borne by Medicare. Since the total dollar amount of the automatic reduction affecting the

non-defense category would be the same each year from FY2013 to FY2021 and the dollar

amount borne by Medicare rises, the dollar amount of the reduction that would be borne by the

other non-exempt, non-defense programs would fall over the course of the budget window. In the

example illustrated by Table 3, cuts to Medicare rise from $11 billion in FY2013 to $17 billion in

FY2021, while cuts to other non-defense categories fall from $44 billion to $38 billion in those

years.

Table 3 also shows the projected discretionary cap amounts for defense and non-defense after the

$1.2 trillion automatic spending reduction has been applied. Total discretionary budget authority

was $712 billion for defense and $511 billion for non-defense in FY2011. To compare FY2011

levels to projected future levels shown in Table 3, some adjustment must be made for activities

that are not subject to the cap, namely overseas contingency operations (OCO), emergency

spending, and disaster spending. Assuming OCO budget authority were maintained at current

levels (adjusted for inflation) and emergency and disaster budget authority were set at zero,

defense and non-defense budget authority under the trigger would be below 2011 levels until

2018 in nominal terms. Because of timing differences between budget authority and outlays, total

discretionary outlays after the automatic cuts would be below its 2011 level until 2021 in nominal

terms.

Table 4 provides a list of some of the largest exempt programs and activities and their FY2010

spending levels, the last year of historical data available for these programs. The programs and

activities are classified into defense and non-defense categories. Budget authority for each line

item is further classified by type of spending, mandatory or discretionary. For purposes of the

automatic spending reduction process, Veterans Programs, for example, are classified as nondefense spending, with $71.2 billion in mandatory budget authority and $53.1 billion in

discretionary budget authority in FY2010. Within the defense category, the President has the

discretion to exempt or include budget authority for military personnel in the automatic spending

reduction process. As previously discussed, the exemptions for discretionary programs are

relevant under the sequester in FY2013. From FY2014 to FY2021, the discretionary changes

occur through a reduction in the discretionary caps. For purposes of the caps, the distinction

between exempt and non-exempt discretionary accounts does not apply.

Table 4. Selected Programs and Activities Exempt

from an Automatic Spending Reduction

(FY2010 budget authority in billions of dollars and percentage of category total)

Program or Activity

Mandatory

Discretionary

% of Total

Defense

(050)

$121.3

16.8%

% of Total

Non-Defense

Defense (050) Programs:

Military Personnela

Non-Defense Programs:

Social Security

Tier I Railroad Retirement Benefits

Congressional Research Service

$701.0

25.4%

$6.9

0.3%

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Program or Activity

% of Total

Defense

(050)

% of Total

Non-Defense

Mandatory

Discretionary

Veterans Programs

$71.2

$53.1

Refundable Income Tax Credits

$108.9

3.9%

GSE Preferred Stock Purchase Agreementsb

$52.3

1.9%

Federal Retirement and Disability Accounts

and Activities

$151.7

$5.7

Child Nutrition Programs (with the exception

for special milk programs)

$16.9

$0.2

Children’s Health Insurance Fund

$12.6

0.5%

Family Support Programs

$4.7

0.2%

Grants to States for Medicaid

$292.7

10.6%

Supplemental Nutrition Assistance Program

$69.0

$0.4

2.5%

Supplemental Security Income Program

$47.1

$3.5

1.8%

Temporary Assistance to Needy Families

$17.1

0.6%

Federal-Aid Highwaysc

$39.7

1.4%

4.5%

5.7%

0.6%

Source: Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2012, Budget Appendix,

available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/appendix.pdf; Public Budget

Database, available at http://www.whitehouse.gov/omb/budget/Supplemental; and Historical Tables, Table 5.1,

available at http://www.whitehouse.gov/omb/budget/Historicals/. For a full list of exempt programs and special

sequester rules, see 2 USC 905 and 2 USC 906, Section 255 of the Balanced Budget and Emergency Deficit

Control Act of 1985, as amended.

Notes: The total percentage of exempt budget authority for all programs and activities would likely exceed the

levels shown in this table. Figures in this table are expressed in terms of budget authority because that is what

would be automatically reduced if reductions occurred. The table illustrates total spending for each program

unless otherwise noted, not necessarily the exempt portion of a program.

Military personnel accounts can be made exempt from an automatic spending reduction only if the

President notifies Congress of their exemption before August 10 for the budget year. The accounts can be

made entirely exempt or can be reduced by a lower uniform percentage than would otherwise apply.

This figure is in terms of outlays, rather than budget authority because budget authority for this program

was not limited by statute.

Funding for Federal-Aid Highways (account 69-8083-0-7-401) is exempt to the extent that the budgetary

resources of the program are subject to obligation limitations in the appropriations bill. The figure shown

here is the obligation limitation for FY2010 for this account.

The BCA gives the Office of Management and Budget sole authority for allocating the automatic

spending reduction across non-exempt accounts under a sequester and calculating the amount of

the reduction in the discretionary caps. Were the spending reduction to occur, the cuts to nonexempt account would most likely differ from current estimates because actual program spending

levels will change and as a result of both future policy decisions and technical adjustments to

projections.

The automatic spending reduction process is not meant to ensure that a certain actual deficit or

spending level is attained over time or that deficit saving accomplished by the automatic spending

reduction is not undone by future legislation. The amount of automatic spending reduction does

not change if future budget deficits turn out to be larger or smaller than projected at the time the

automatic spending reduction is determined. Future budget deficits could turn out to be larger or

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

smaller than projected because of subsequent legislative changes or because of forecasting errors,

which have historically been large.30

Effects of the BCA on the Budget Deficit

CBO estimates that the discretionary caps in the BCA will reduce the baseline deficit by $917

billion over 10 years. The estimated budgetary savings increase from $27 billion in FY2012 to

$153 billion in FY2021 (shown in Table 5).31 The effects of the education provisions of the BCA

on the deficit are negligible, slightly increasing the deficit in the first three years and then

decreasing it for the rest of the projection.

For more information on the accuracy of projections, see Congressional Budget Office, CBO’s Economic

Forecasting Record: 2010 Update, July 2010, available at http://www.cbo.gov/ftpdocs/115xx/doc11553/

ForecastingAccuracy.pdf. CRS Report R41134, The Impact of Major Legislation on Budget Deficits: 2001 to 2010, by

Marc Labonte and Margot L. Crandall-Hollick also examines the reasons why the budget balance changed over time

between FY2001, when surpluses were projected by CBO throughout the decade, and FY2010, when the budget deficit

was large.

Cutting spending or raising taxes causes the government to borrow less, which results in lower interest payments on

the debt. Table 5 includes the effects of lower debt service on the deficit for each policy change; for the discretionary

caps, $778 billion of deficit reduction comes from lower discretionary spending and $140 billion comes from lower

debt service over 10 years.

Congressional Research Service

Table 5. Budget Deficit Projections With and Without the BCA

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021

FY2012FY2021

Billions of $

Baseline Deficit Prior to the Enactment

of the BCA (Current Law)

$997

$667

$441

$399

$489

$462

$529

$570

$596

$5,615

Effects of Discretionary Caps on Deficit

-$27

-$50

-$64

-$74

-$85

-$97

-$110

-$122

-$137

-$153

-$917

Effects of Education Provisions on Deficit

+$3

+$6

+$3

-$2

-$3

-$5

Effects of Automatic Spending Reduction

on Deficit

-$68

-$94

-$105

-$114

-$122

-$129

-$135

-$142

-$148

-$1,057

Baseline Deficit Including BCA (Current

Law)

$973

$555

$286

$218

$288

$241

$221

$270

$289

$292

$3,634

Deficit Including BCA (Current Policy)

$996

$815

$658

$647

$773

$787

$832

$949

$1,044

$1,129

$8,630

% of GDP

Baseline Deficit Prior to the Enactment

of the BCA (Current Law)

6.4%

4.1%

2.6%

2.2%

2.6%

2.3%

2.2%

2.4%

2.5%

n/a

Effects of Discretionary Caps on Deficit

-0.2%

-0.3%

-0.4%

-0.5%

-0.6%

n/a

Effects of Education Provisions on Deficit

n/a

Effects of Automatic Spending Reduction

on Deficit

-0.4%

-0.6%

n/a

Baseline Deficit Including BCA (Current

Law)

6.2%

3.4%

1.7%

1.2%

1.5%

1.2%

1.1%

1.2%

1.3%

1.2%

n/a

Deficit Including BCA (Current Policy)

6.4%

5.0%

3.9%

3.6%

4.1%

3.9%

4.0%

4.3%

4.6%

4.7%

n/a

Source: CRS calculations based on CBO data.

Notes: Includes effects of lower debt service. Negative numbers reduce deficit, positive numbers increase deficit. Columns may not sum due to rounding. Deficit effect of

caps is calculated here using CBO’s August baseline; the original score was calculated using CBO’s adjusted March baseline and was $890 billion over 10 years. * = <0.1% of

GDP. See Table 6 for bridge from Current Law Baseline to Current Policy Baseline.

CRS-19

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

CBO estimated that the automatic spending reduction process would reduce the deficit by $1.1

trillion over nine years, rather than the $1.2 trillion called for in the BCA. The distribution of

deficit reduction over the nine years would rise from $68 billion in 2013 to $148 billion in 2021.

The difference in amount and timing from what is called for in the BCA is due to three issues.

First, the automatic spending reduction process reduces budget authority, but the deficit is

influenced by outlays. A change in budget authority leads to a gradual change in outlays because

of the time lag between when spending is authorized and when it occurs. As a result, CBO

projects some reduction in outlays after 2021. Second, CBO projects that the interest savings

would be less than the $216 billion (18% of $1.2 trillion) assumed in the BCA. Third, “reductions

in budgetary resources for some programs and activities … would have effects that would offset

some of the original savings…”32

Is the deficit reduction achieved by the BCA insufficient, requiring additional policy changes in

the future to further reduce the deficit? Or does it reduce deficits excessively? It depends on the

policy goal. A goal of the deficit reduction provisions of the BCA was to match the BCA’s multistep increase in the debt limit, although the savings is over a different timeframe than the debt

limit increase and the deficit reduction achieved in the BCA in isolation would not prevent the

need for future debt limit increases. In any case, matching deficit reduction with debt limit

increases is a intermediate goal, but not an ultimate goal of fiscal policy. Two other potential

goals of deficit reduction could be to balance the budget or place the deficit on a sustainable path.

In order to evaluate whether the BCA accomplishes either goal, it is first necessary to discuss the

range of projections of future deficits.

Projections of future deficits depend on underlying assumptions, particularly the treatment of

expiring provisions. In the “current law” baseline, certain policies set to expire under current law

will do so as scheduled.33 For example, the baseline assumes that expiring tax provisions, such as

the 2001/2003/2010 (“Bush”) tax cuts that are set to expire at the end of calendar year 2012, will

expire as scheduled. Other provisions, such as the indexing of the alternative minimum tax

(AMT) to inflation and the “doc fix” that Congress has enacted annually to prevent significant

cuts to Medicare physician payments, are also assumed to expire as scheduled.34 Baseline deficits

could potentially be projected under several other alternative assumptions. For example, Table 6

illustrates how the extensions of “current policy” would change the deficit outlook relative to the

current law baseline, by assuming that the tax cuts are extended, the AMT is indexed to inflation,

and the doc fix is enacted. Under these assumptions, the budget deficit would be $5 trillion

greater over the FY2012-FY2021 period than under the current law baseline.35

Congressional Budget Office, Estimated Impact of Automatic Budget Enforcement Procedures Specified in the

Budget Control Act, September 12, 2011.

Mandatory programs enacted on or before the date of enactment of the Balanced Budget Act of 1997 and with

estimated outlays of greater than $50 million are assumed to continue in the current year and the outyears for purposes

of the baseline.

For more information on the “doc fix” and the cost of extending it, see CRS Report R40907, Medicare Physician

Payment Updates and the Sustainable Growth Rate (SGR) System, by Jim Hahn and Janemarie Mulvey.

U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, Table 1-8. Besides

these changes, other modifications to the baseline to account for current policy are possible. Besides the AMT and tax

cuts, extending other expiring tax provisions would add an additional $920 billion to the budget deficit over 10 years.

The baseline could also have included disaster spending at current levels, adjusted for inflation.

Congressional Research Service

Table 6. Current Law and Current Policy Baseline Projections

(billions of dollars)

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021

FY2012FY2021

Current Law Baselinea

$973

$555

$286

$218

$288

$241

$221

$270

$289

$292

$3,634

+ Extend Tax Cuts and Index

AMT to Inflation

$11

$241

$348

$402

$453

$510

$570

$633

$702

$778

$4,648

+ Extend Doc Fix

$12

$19

$24

$27

$32

$36

$41

$46

$53

$59

$349

= Current Policy Baseline

$996

$815

$658

$647

$773

$787

$832

$949

$1,044

$1,129

$8,630

Source: CRS calculations based on Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, Tables 1-1 and 1-8.

Note: AMT = alternative minimum tax

CRS-21

Includes the effects of the deficit reduction provisions of the Budget Control Act.

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

If the ultimate policy goal is a balanced budget or budget surpluses or to avoid increasing the

federal debt, then the BCA does not reduce deficits enough to achieve that goal. Even under a

current law baseline, the BCA’s $2.1 trillion in deficit reduction under current law would leave

projected deficits of $3.6 trillion over 10 years, relative to the $5.6 trillion over 10 years prior to

the enactment of the BCA (see Table 5). Because the budgetary savings in FY2012 is only $24

billion ($27 billion savings from the cap and $3 billion cost of student loan provisions), the

baseline deficit in FY2012 is still projected to be $1 trillion.

Likewise, the $2 trillion in deficit reduction relative to the baseline contained in the BCA does not

mean that the total debt of the U.S. will decrease by $2 trillion relative to today’s levels. Rather, it

means that the cumulative deficit over the FY2012-FY2021 period will be $2.1 trillion less than it

otherwise would have been. Since the budget is projected to remain in deficit after the BCA, the

publicly held debt will continue to rise in dollar terms each year, from a projected $10.2 trillion in

FY2011 to $14.6 trillion in FY2021 under the current law baseline.

While the BCA is not projected to result in a balanced budget, another policy goal may be to

place the deficit on a sustainable path, meaning a level that would stabilize the debt as a share of

GDP. Economists believe that the budget will eventually need to be placed on a sustainable path

since debt service cannot rise faster than income indefinitely.36 Whether or not the BCA’s forecast

accomplishes this depends on what assumptions are used in the baseline.

Under the current policy baseline that incorporates the effects of the BCA, deficits are projected

to be $8.5 trillion—$5 trillion larger than the current law deficits—over 10 years. Under the

current policy baseline, deficits never get lower than 3.9% of GDP (rising to 4.7% of GDP by

FY2021) and the debt continues to rise relative to GDP each year, reaching 82% of GDP by

FY2021.37 If one believes that current policies will be maintained, additional policy changes

beyond the BCA would be required to put the deficit on a sustainable path.

Under current law, budget deficits fall to 1% of GDP in FY2018 (rising slightly thereafter) and

the publicly held debt falls as a share of GDP over the next 10 years—although it will still remain

at levels that are historically high for the post-World War II period—placing policy back on a

sustainable path. In other words, allowing the “Bush tax cuts,” AMT “patch,” and “doc fix” to

Medicare to expire would be one set of policy changes that would place the deficit on a

sustainable basis. CRS cannot recommend whether these policy options are more or less desirable

than various alternatives. (Indeed, even without the BCA, budget deficits were projected to have

become low enough under current law to temporarily stabilize the debt relative to GDP.) Beyond

the 10-year budget window, unsustainably large budget deficits are projected to reappear,

primarily driven by the assumption that health care costs will continue to grow faster than GDP.38

For more information, see CRS Report R40770, The Sustainability of the Federal Budget Deficit: Market Confidence

and Economic Effects, by Marc Labonte.

Congressional Budget Office, Budget and Economic Outlook: Update, August 2011, p. xv.

For more information, see CRS Report RL32747, The Economic Implications of the Long-Term Federal Budget

Outlook, by Marc Labonte.

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Effects of the BCA on the Economy

Gross domestic product, the total output of the economy, consists of spending on consumption,

investment, net exports, and by government. In the short run, policy changes that reduce the

budget deficit by reducing government spending would directly reduce that component of gross

domestic product.39 As a result, in an economy that is significantly below full employment (as is

the case today), standard macroeconomic theory predicts that reducing the deficit would reduce

spending and employment in the overall economy, all else equal. To fully offset these effects,

other spending in the economy would need to rise. Yet in an economy where overall spending is

already too low to fully employ all available labor and capital resources, other spending is

unlikely to increase sufficiently.40 Theory predicts that, in an open economy, the short-term effects

of changes in the budget deficit on overall spending in the economy would be diminished by

cross-border capital flows.41 Theory also predicts that these effects would be temporary–

eventually, market forces would return the economy to full employment. This would happen more

slowly if the budget deficit were reduced, compared to if the budget deficit were maintained.42

CBO is projecting that the economy will be back to full employment around 2016.

This analysis assumes that investors will continue to be willing to finance large budget deficits at

low interest rates in the short term regardless of whether the budget deficit is reduced. If the

United States entered a “debt spiral,” the standard macroeconomic analysis may no longer apply.

A “debt spiral” is a scenario similar to that recently experienced in Greece, where investors lose

faith in the government’s ability to service its debt, and therefore require much higher interest

rates to be willing to hold government debt. In this scenario, policy changes to reduce the budget

deficit could potentially stimulate the economy, if it restored investor confidence and, as a result,

interest rates declined. There is no evidence that the United States is about to enter a debt spiral at

this time, and most economists consider the likelihood of a debt spiral to be small. While

investors may be willing to finance large budget deficits at low interest rates for several more

years, the risk of a crisis remains for as long as the United States continues to run unsustainably

large budget deficits.43

Reducing the budget deficit through spending cuts would also be expected to affect the economy

in the long run. In standard macroeconomic theory, budget deficits “crowd out” private

investment spending on plant and equipment by pushing up interest rates. In other words, the

government’s borrowing places upward pressure on all interest rates, leading private businesses to

undertake fewer investment projects. Lower investment spending would reduce long run GDP

relative to if the budget were balanced, all else equal. Alternatively, standard theory predicts that

higher interest rates could be avoided if the government or private sector increases its borrowing

from abroad. By accounting identity, this borrowing from abroad comes to the United States in

Economists refer to these policy changes as reducing the structural budget deficit, as opposed to cyclical reductions

in the deficit caused by more rapid economic growth.

Reducing the deficit through higher taxes would be expected to have a similar effect on the overall economy.

Theory predicts that the increase in spending from the change in the deficit would be offset by a change in the

balance of trade caused by capital flows. By accounting identity, capital flowing into (out of) a country must enter

(exit) in the form of a trade deficit (surplus).

For more information, see CRS Report R41849, Can Contractionary Fiscal Policy Be Expansionary?, by Jane G.

Gravelle and Thomas L. Hungerford.

These issues are discussed in more detail in CRS Report R40770, The Sustainability of the Federal Budget Deficit:

Market Confidence and Economic Effects, by Marc Labonte.

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

the form of a trade deficit.44 Chronically low domestic savings rates and chronically high trade

deficits in the past two decades suggest that the crowding out problem could become an issue

once investment demand rebounds from the economic downturn, if large deficits remain.

Reducing budget deficits would reverse such crowding out effects.45 In addition to the deficit

channel, reductions in spending could have positive or negative effects on long-term growth,

depending on what type of spending is cut. For example, reducing public investment spending

could have negative effects on long-term growth.

The magnitudes of both the short-run and long-run effects described in this section depend mostly

on the size of the deficit reduction. Relatively small spending reductions would be expected to

have a relatively small effect on the economy, and larger ones would have a larger effect. The

magnitude of the short-run effects would also depend on timing. For example, if spending cuts

were enacted today but did not go into effect until future years, they would not be expected to

have any effect on the economy this year.46 If the economy were closer to full employment by the

time a phased-in spending reduction went into effect, the effects on overall spending in the

economy would be expected to be smaller. Eventually, the budget deficit can be restored to

sustainability only through spending cuts, tax increases, or both. In that sense, a comparison

between reducing the deficit and the status quo is a false comparison in the long run. The size of

current deficits should make crowding out effects greater than they have been historically; the

weakness in the economy and financial system should make them smaller than historically for the

time being.

For determining the short-run macroeconomic effects, the magnitude of the incremental change in

the structural deficit each year is a relevant measure. As seen in Table 5, the “first round” cuts

relative to the baseline caused by the discretionary spending caps and student loan provisions

reduce the deficit by $24 billion in FY2012. They rise around $20 billion each year after that,

reaching $156 billion by FY2021. A spending cut of $24 billion amounts to about two-tenths of

one percent of GDP in FY2012. Thus, the first round cuts would be expected to be too small to

have a noticeable effect on the economy. JPMorgan Chase estimates that the first round cuts

would reduce GDP growth by 0.14 percentage points in FY201247–this is relatively small

compared to the expected rate of GDP growth that year. On the other hand, GDP growth was

already expected to be too slow to significantly reduce the high rate of unemployment in FY2012.

Further, some economists fear that the U.S. may be heading back into a recession. If so, deficit

reduction in FY2012 could make a recession more likely.48 Including the automatic spending

reduction, spending would be cut by 0.6% of GDP each year (in addition to the first round cuts),

beginning in 2013. The two rounds combined amount to about 1% of GDP each year.

The trade deficit increases because one country can only borrow from another by buying more of the creditor

country’s goods and services than the creditor buys from the debtor country.

These issues are discussed in more detail in CRS Report R40770, The Sustainability of the Federal Budget Deficit:

Market Confidence and Economic Effects, by Marc Labonte.

Reducing the deficit could have positive effects on household and business confidence about the sustainability of

fiscal policy that helped the economy. It is not clear that households and businesses currently lack confidence because

of future deficits, however, since interest rates on federal debt are unusually low.

JPMorgan, “Let the Pea-Eating Begin,” North America Economic Research, newsletter, August 2011. JPMorgan

assumes a multiplier of 1 in this calculation, meaning GDP would increase by the same amount as the change in the

deficit.

For more information, see CRS Report R41444, Double-Dip Recession: Previous Experience and Current Prospect,

by Craig K. Elwell.

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

The deficit-reduction effects of the Budget Control Act are occurring at the same time that other

temporary fiscal stimulus measures are being withdrawn. Thus, the overall stance of current fiscal

policy is more contractionary than the BCA viewed in isolation. CBO estimates the combined

effects of the BCA and the expiration of the tax cuts (assuming Congress did not extend them)

would reduce real GDP by 1.5%-3.5% from what it otherwise would be in FY2013.49 J.P. Morgan

Chase estimates that the structural deficit (adjusting for the business cycle) will decline by 2.3%

of GDP in FY2012 overall, and this will reduce GDP growth by 1.7 percentage points, all else

equal. In other words, even before the BCA was enacted, the tightening of fiscal policy would

have reduced GDP growth by 1.4 percentage points of GDP in FY2012.50 Similarly, Goldman

Sachs estimates that fiscal policy will contract by 1.7% of GDP overall in FY2012, mostly

because of expiring provisions.51

For determining the long-run macroeconomic effects, the magnitude of the overall decline in the

deficit is a relevant measure. As seen in Table 5, the BCA reduces deficits by about 1% of GDP

from 2013 on. This would reduce the crowding out effects, but leave unsustainably large deficits

in place using a current policy baseline. Including the automatic spending reduction, the deficit

would still be above a sustainable level under a current policy baseline. Thus, the Budget Control

Act would be expected to reduce the long-term crowding out problem, but under a current policy

baseline the problem would still be significant, and some risk of a debt spiral would remain. By

contrast, under a current law baseline, crowding out would remain, but it would be smaller, and

the deficit would be sustainable over 10 years (although large deficits would eventually be

projected to reappear in the long run), further reducing the risk of a debt spiral.

Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, p. 38.

J.P. Morgan, “Let the Pea-Eating Begin,” North America Economic Research, newsletter, August 2011. J.P. Morgan

assumes a multiplier of 1 in this calculation, meaning GDP would increase by the same amount as the change in the

deficit.

Goldman Sachs, “Some Early Thoughts on Upcoming Fiscal Proposals,” U.S. Daily Newsletter, August 19, 2011.

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Appendix. The Relative Size of the Deficit

Reduction in the Budget Control Act Compared to

Earlier Acts

The BCA is not the first piece of legislation enacted with the main purpose of reducing the budget

deficit. Since the early 1980s, there have been seven major deficit reduction packages which are

summarized below.

The Omnibus Budget and Reconciliation Act of 1981 (OBRA 1981; P.L. 97-35) contained major

spending changes to certain programmatic areas such as health program block grants, Medicaid,

television and radio licenses, Food Stamps, dairy price supports, energy assistance, education

program block grants, student loans, the Social Security minimum benefit, and others. It was

projected to reduce the deficit by $131 billion over three years.

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA 1982; P.L. 97-248) had various

provisions that on net increased tax revenue and reduced entitlement spending. It was projected to

reduce the deficit by $116 billion over three years.

The Deficit Reduction Act of 1984 (DRA 1984; P.L. 98-369) had various provisions that, on net,

increased tax revenue and reduced outlays. It was projected to reduce the deficit by $125 billion

over five years.

The Omnibus Budget and Reconciliation Act of 1987 (OBRA 1987; P.L. 100-203) contained

major changes to spending and revenue programs. Major spending changes affected such areas as

Medicare, Medicaid, agricultural target prices, farm income support payments, deferral of lumpsum retirement payments to federal employees, Postal Service payments into retirement and

health benefit funds, and others. Major revenue changes affected such areas as home mortgage

interest deduction, deduction of mutual fund expenses, accelerated payments of corporate

estimated taxes, and others. It was projected to reduce the deficit by $76 billion over two years.

The Omnibus Budget and Reconciliation Act of 1990 (OBRA 1990, P.L. 101-508) had various

provisions that on net increased tax revenue and reduced mandatory spending. In addition, it set

discretionary spending targets below baseline levels for future years with enforcement

mechanisms to ensure the targets were met. It was projected to reduce the deficit by $423 billion

over five years.

The Omnibus Budget and Reconciliation Act of 1993 (OBRA 1993, P.L. 103-66) had various

provisions that on net increased tax revenue and reduced mandatory spending. In addition, it set

discretionary spending targets for 1996-1998 below baseline levels for future years, using the

same enforcement mechanisms put in place in 1990. It was projected to reduce the deficit by

$386 billion over five years.

The Balanced Budget Act of 1997 (BBA 1997; P.L. 105-33) had various provisions that, on net,

reduced mandatory spending and reduced the deficit through asset sales. The legislation also

contained caps on discretionary spending through FY2002. The BBA was projected to reduce the

deficit by $217 billion over five years.

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

The Deficit Reduction Act of 2005 (DRA 2005; P.L. 109-171) had various provisions that on net

reduced mandatory spending and was projected to reduce the deficit by $39 billion over five

years.

Table A-1 and Table A-2 compare the amount of projected deficit reduction relative to the

baseline achieved by various legislation enacted since the 1980s. Over five years, the Budget

Control Act of 2011 is projected to be larger in nominal dollars than any other deficit reduction

package since 1980. It is smaller than all but two (the Deficit Reduction Act of 1984 and the

Deficit Reduction Act of 2005) in the first year, however, due to the fact that the automatic

spending reductions are not scheduled to occur until year two. Most of the reason it is larger than

previous deficit reduction packages is because the economy is larger. As a percent of GDP, it is

smaller than the 1981, 1982, 1990, and 1993 packages.

Table A-1. Effects on Budget Deficit of Selected Legislation in Billions of Dollars

Deficit in

Year of

Enactment

Year 1

Year 2

Year 3

Year 4

Year 5

5 Year

Total

OBRA 1981

$35

$44

$51

n/a

$79

TEFRA 1982

$25

$40

$51

n/a

$128

DRA 1984

$15

$21

$28

$29

$32

$125

$185

OBRA 1987

$30

$46

n/a

$150

OBRA 1990

$32

$65

$79

$114

$133

$423

$221

OBRA 1993

$32

$53

$75

$104

$122

$386

$255

BBA 1997

-$11

$14

$49

$50

$115

$217

$22

DRA 2005

-$4

$21

$12

$39

$318

BCA 2011

$22

$108

$148

$169

$181

$628

$1,299

Source: CRS Report RS22098, Deficit Impact of Reconciliation Legislation Enacted in 1990, 1993, 1997, and 2006;

CRS Report R40480, Budget Reconciliation Measures Enacted Into Law: 1980-2010, by Megan Suzanne Lynch;

Congressional Budget Office, Effects of Changes in Taxes and Benefit Payments Resulting from the Tax Equity and

Fiscal Responsibility Act of 1982, Staff Memorandum, July 1982; Congressional Budget Office, Budget and Economic

Outlook: An Update, Congressional Budget Office, Budgetary Implications of the Balanced Budget Act of 1997, Staff

Memorandum, Dec. 1997; Congressional Budget Office, S. 1932 Deficit Reduction Act of 2005, Cost Estimate,

January 27, 2006.

Notes: Table does not include effects of debt service savings on the budget deficit. Positive numbers indicate an

decrease in the deficit. Negative numbers indicate a increase in the deficit. Deficit reduction estimates are

projected at time of enactment.

Table A-2. Effects on Budget Deficit of Selected Legislation as a Percentage of GDP

Deficit in

Year of

Enactment

Year 1

Year 2

Year 3

Year 4

Year 5

5 Year

Average

OBRA 1981

1.1%

1.3%

n/a

2.6%

TEFRA 1982

0.7%

1.0%

1.2%

n/a

4.0%

DRA 1984

0.4%

0.5%

0.6%

0.5%

4.8%

OBRA 1987

0.4%

0.6%

n/a

3.2%

Congressional Research Service

The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit

Deficit in

Year of

Enactment

Year 1

Year 2

Year 3

Year 4

Year 5

5 Year

Average

OBRA 1990

0.5%

1.0%

1.2%

1.6%

1.8%

1.3%

3.9%

OBRA 1993

0.5%

0.7%

1.0%

1.3%

1.4%

1.0%

3.9%

BBA 1997

-0.1%

0.2%

0.5%

1.1%

0.4%

0.3%

DRA 2005

0.2%

0.1%

2.6%

BCA 2011

0.2%

0.7%

1.0%

1.1%

0.8%

8.7%

Source: CRS Report RS22098, Deficit Impact of Reconciliation Legislation Enacted in 1990, 1993, 1997, and 2006;

Congressional Budget Office, Effects of Changes in Taxes and Benefit Payments Resulting from the Tax Equity

and Fiscal Responsibility Act of 1982, Staff Memorandum, July 1982; Congressional Budget Office, Budget and

Economic Outlook: An Update, Congressional Budget Office, Budgetary Implications of the Balanced Budget Act

of 1997, Staff Memorandum, Dec. 1997; Congressional Budget Office, S. 1932 Deficit Reduction Act of 2005, Cost

Estimate, January 27, 2006.

Notes: Table does not include effects of debt service savings on the budget deficit. Positive numbers indicate an

decrease in the deficit. Negative numbers indicate a increase in the deficit. Deficit reduction estimates are

projected at time of enactment. * = < 0.1%

Table A-1 provides estimates of the deficit effects of this legislation relative to the baseline, in

isolation of other legislation enacted in the same year that increased or decreased the deficit.

(Table A-2 shows the effects of the deficit reduction legislation in terms of GDP.) Whether the

actual deficit rose or fell compared to the previous year following the enactment of this

legislation depends on the other legislation enacted at the time, as well as factors outside of

congressional control, such as economic conditions or increases in mandatory spending as a result

of demographic changes.

Author Contact Information

Marc Labonte

Specialist in Macroeconomic Policy

mlabonte@crs.loc.gov, 7-0640

Mindy R. Levit

Analyst in Public Finance

mlevit@crs.loc.gov, 7-7792

Acknowledgments

The authors wish to thank Bill Heniff Jr., for his helpful comments on this report.

Congressional Research Service

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.