After nearly three months of debate, on Tuesday, August 2, the risk-of-default deadline set by the U.S. Treasury Department, President Obama signed into law a debt limit and deficit reduction bill in order to avert a government default. The House passed the legislation on Monday, August 1, by a vote of 269-161. The Senate passed the legislation on Tuesday August 2, by a vote of 74-26, clearing the bill for the President.
The “Budget Control Act of 2011” (P.L. 112-25) raises the $14.3 trillion debt ceiling through 2012 and immediately cuts $900 billion, of which $500 billion would be subject to a congressional resolution of disapproval. It sets up a joint congressional committee which will recommend more than $1.5 trillion in further cuts. It also requires congressional votes on a proposal for a balanced-budget amendment to the Constitution by the end of 2011.
Statutory caps will be placed on discretionary appropriations for fiscal years 2012 through 2021. These savings will amount to $917 billion over 10 years, starting with a $25 billion reduction in FY2012 and a $47 billion reduction in FY2013.
The overall discretionary spending cap for FY2012 will be $1.043 trillion, $6 billion less than FY2011 levels. Defense spending will be capped at $684 billion in FY2012 and $686 billion in FY2013, compared with $689 billion in FY2011. Non-defense spending will be capped at $359 billion in FY2012 and $361 billion in FY2013, compared with $360 billion in FY2011.
The 12-member joint congressional committee, with equal numbers of Republican and Democratic members, will recommend legislation to cut future deficits by at least $1.2 trillion over 10 years. The committee must send its recommendations to Congress by December 2 with final votes in the House and Senate on the proposal by December 23. If the committee does not complete its work, automatic, across the board spending cuts would be initiated. The first automatic cuts would take effect January 2, 2013, and would fall equally on defense and non-defense accounts.
The law will cut federal spending by approximately $2.1 trillion over the next decade.