With the clock ticking and the federal government hours away from closing it’s doors, the Senate voted 74-26 to raise the debt ceiling and cut trillions of dollars in spending. After months of partisan bickering, backroom deals, and constant media coverage both houses of Congress agreed to pass the Budget Control Act of 2011 (S.365) (the “Act”), essentially raising the debt ceiling by $2.1 trillion and reducing spending by nearly the same amount.
Soon after signing the bill, President Obama embarked on a three-day bus tour of the Midwest, and government employees around the country breathed a sigh of relief. Unfortunately, provisions in the Act and an upcoming Presidential campaign will necessitate a return to this “debt crisis,” but political hounds and avid news readers can relax for at least a month. As it stands right now, most of the questions surrounding the national budget are about the government’s AAA credit rating and each party’s ability to maintain a consistent message.
As Capitol Hill begins to pick up the wreckage left from one of the largest political fights in recent memory and Congress takes its recess, the discussion has shifted to new faces in the GOP race for a presidential nominee. However, the writers on the LexBlog Network have just begun to analyze the nitty-gritty details of the Budget Control Act. While the only way to have missed the overarching details of the debt debacle would have been to hide underneath the nearest rock for three months, many of the finer points were either lost in translation or completely ignored by many media outlets.
Kicking things off, one of the best financial blogs on the Network, Blank Rome‘s Financial Reform Watch, looks at what the Act means for the upcoming months:
“Overall, President Obama and Congressional Democrats successfully secured debt limit increases large enough to extend through the 2012 elections, while Congressional Republicans were equally successful in preventing deficit reduction by way of revenue increases. However, the Act’s creation of a 12-member Joint Select Committee on Deficit Reduction, tasked with reducing the deficit by at least $1.2 trillion through fiscal 2021 virtually guarantees that a thorny debate over the national debt—particularly as it relates to taxes and entitlement spending—will resume quickly when Congress returns from its month-long August recess.”
Greg Jacobs, on Reed Smith’s Global Regulatory Enforcement Law Blog takes a more jaded view of the proceedings with a post titled “The Satan Sandwich is in the Details: Breaking Down the Budget Control Act of 2011 and the Role of the Joint Select Committee on the Deficit Reduction.” where he talks about some of the Act’s problems:
“Some pain now, more pain later. The Act immediately gave President Obama the authority to raise the debt ceiling by $400 billion. A second $500 billion adjustment in the debt ceiling, which is subject to a congressional vote of disapproval that can be vetoed by President Obama, will likely come this September 2011. These first two increases, totaling $900 billion, are offset by $917 billion in 10-year savings in non-defense federal discretionary spending – i.e. funding not mandated by federal law, such as through the Medicare or Social Security programs. This will be achieved by cutting annual appropriations down to $1.043 trillion in 2012 and then slowing the rate of future growth in following fiscal years to a fraction of inflation.
The Act also mandates another $1.2 trillion to $1.5 trillion in deficit reduction. This will happen one of two ways: either through the recommendations of a Joint Committee of House and Senate members or by automatic across-the-board cuts that would be split equally between mandatory programs, including Medicare and Social Security, and defense.”
In a similar vein but with a different perspective, The Shriver Brief questions the effectiveness of raising the debt ceiling without cutting revenue, and looks at some of the programs effected by the Act:
“All of these cuts will be made to “discretionary spending”. Entitlement spending, including safety-net entitlement programs for low-income people, is exempt from being cut. In addition to the “big three” entitlement programs – Social Security, Medicare and Medicaid – other non-discretionary programs exempted from being cut include:
- child care mandatory assistance;
- child nutrition entitlement programs, e.g., school meals;
- Children’s Health Insurance Program (CHIP);
- child support enforcement and family support programs;
- Pell Grants;
- foster care and permanency programs;
- Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps);
- Supplemental Security Income (SSI);
- refundable tax credits, including the Earned income Tax Credit and Child Tax Credit; and
- Temporary Assistance for Needy Families (TANF).
Discretionary programs that are subject to the caps that will result in $900 billion in cuts over the next 10 years include:
- discretionary (non-mandatory) child care assistance;
- Head Start;
- Women, Infants and Children (WIC) nutrition program for low-income women, infants and small children;
- maternal and child health;
- Title X family planning services;
- low-income housing assistance;
- low-income energy assistance; and
- Older Americans Act congregate and home-delivered meals.”
The Ohio Environmental Law Blog, authored by Joe Koncelik, takes an even closer look at the spending reductions and how it directly impacts the EPA:
“Both Republican and Democrat lawmakers have indicated that funding for EPA and other federal agency programs that benefit the environment and renewable energy are surely to get hit and get hit hard. EPA staffing cuts in programs implementing climate regulations, air programs and water infrastructure will result from the first round of the $917 billion in cuts called for in the debt-ceiling deal. The Department of Energy will likely see less funding for grants, loans and other programs for renewable energy.”
Finally, Total Bankruptcy examines the changes in how student loan debt will be handled in the future:
“Media attention to the fallout from the Congress’s last-minute decision to raise the debt ceiling has mostly gone to the downgrade in America’s debt rating by credit rating agency Standard & Poor’s. But another potential side effect may have a more direct impact on some American consumers.
As part of the debt compromise, Congress agreed to cut nearly a trillion dollars in spending – and one casualty was federal subsidies for student loans. That means that people interested in borrowing money for higher education may see a higher price tag for that privilege in the near future.”
It’s obvious that a sizeable percentage of Americans will be effected, either directly or otherwise, by Congress’s decision to cut spending and raise the debt ceiling, even if that only means the evening news will have something else to cover. A national campaign and a new congressional session will also force this issue back into the limelight soon enough, but the long-term implications are more interesting to consider as a new “supercommittee” will evaluate the national deficit and government spending. What’s next is anyone’s guess.