In recent weeks, much of the nation’s attention was focused on the negotiations between the White House and Congress over the conditions under which Congress would pass legislation to raise the federal government’s statutory borrowing authority. As was widely reported, on August 2, the president signed into law the Budget Control Act of 2011 (BCA), which authorized a $900 billion increase of the debt ceiling. This includes an immediate $400 billion increase and an additional $500 billion increase in September unless Congress has the votes to pass a Resolution of Disapproval with a veto-proof majority. In return, the statute provides for $917 billion in designated cuts in discretionary spending over a ten-year period, and it also creates a process designed to ensure another $1.2 to $1.5 trillion in deficit reduction over the same period. The BCA also requires a vote by the House and Senate on a balanced budget amendment by December 31, 2011. In the unlikely event that Congress adopts a balanced budget amendment, the debt ceiling can be raised by $1.5 trillion.

While some news outlets have treated the enactment of the BCA as the end of a process, in reality, it is supposed to represent the beginning of a process, and one that could have far-reaching implications for many business sectors, and for the larger U.S. and global economies. Financial markets are watching this process closely, and the recent S&P downgrade of the federal government’s credit rating is evidence of the importance of fiscal reform to Wall Street.

Next Steps

The BCA stipulated that a 12 member bipartisan Joint Select Committee on Deficit Reduction (Super Committee) be established to identify and an additional $1.2 to $1.5 trillion in deficit reduction in the form of additional cuts in spending or new revenue over the 2012 to 2021 fiscal period to be submitted to Congress for a straight up or down vote. The Super Committee members have been appointed, and comprise 6 members each from the House and Senate, 3 Democrats and 3 Republicans from each chamber. The Super Committee includes two co-chairs, one appointed by the Majority Leader of the Senate and the other by the Speaker of the House. The Super Committee is required to report its recommendations to Congress by November 23, 2011. The 12 Super Committee members include:

• House Speaker John Boehner (R-OH) appointed Representatives Jeb Hensarling (R-TX), Dave Camp (R-MI) and Fred Upton (R-MI). Congressman Hensarling will serve as Co-Chair of the Committee.
• House Minority Leader Nancy Pelosi (D-CA) appointed Representatives Chris Van Hollen (D-MD), Jim Clyburn (D-SC) and Xavier Becerra (D-CA).
• Senate Majority Leader Harry Reid (D-NV) appointed Senators Max Baucus (D-MT), John Kerry (D-MA), and Patty Murray (D-WA). Senator Murray will serve as Co-Chair of the Committee.
• Senate Minority Leader Mitch McConnell (R-KY) appointed Senators Pat Toomey (R-PA), Jon Kyl (R-AZ), and Rob Portman (R-OH).

The Super Committee has authority to issue subpoenas and to hold hearings and public meetings. The Super Committee must hold its first formal meeting by September 16, 2011, and may consider all proposals regarding deficit reduction including, but not limited to, defense and non-defense discretionary spending, new revenue and cuts to entitlement programs such as Social Security, Medicaid and Medicare. A majority vote in the Super Committee is required for approval of a deficit reduction proposal and the committee is required to vote by November 23, 2011, and if a proposal is approved by the committee, the committee’s report and legislative language is required to be issued by December 2, 2011. The BCA requires that the Super Committee’s legislative recommendations get “fast track” consideration by Congress. “Fast track” consideration mandates a straight up or down, filibuster-proof, simple majority vote, without amendments, in either chamber by December 23, 2011.

The BCA also includes an enforcement mechanism in the form of an across-the-board “sequestration” of federal funds that strongly encourages Congress to reach a deal identifying at least $1.2 trillion in spending cuts or new revenue. If Congress does not reach a deal, then “sequestration” forces automatic spending reductions of $1.2 trillion, divided equally among defense and non-defense programs except that reductions in Medicare are limited to a two percent reduction and Medicaid is exempt from sequestration entirely. Regardless of whether Congress passes new debt reduction legislation or whether “sequestration” is triggered the BCA gives the president the authority to raise the debt ceiling but the amount of the increase depends on what happens.

If the Super Committee fails to reach agreement or produces less than $1.2 trillion in deficit reduction, then the president can increase the debt ceiling by $1.2 trillion. If the Super Committee produces a plan that is enacted to reduce the deficit between $1.2 trillion and $1.5 trillion, then the president can increase the debt ceiling by that amount. If the Super Committee produces a plan that is enacted to reduce the deficit by $1.5 trillion (or more) or if a Balanced Budget Amendment passes the House and Senate and is sent to the States, then the president can increase the debt ceiling by $1.5 trillion. In any case, the BCA gives the president the ability to raise the debt ceiling to a sufficient amount to allow the government to operate beyond the 2012 elections.

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