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Wednesday, November 21, 2012

The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the FY2013 Sequester

Mindy R. Levit
Analyst in Public Finance

The Budget Control Act of 2011 (BCA; P.L. 112-25) provided for an increase in the statutory limit on the public debt in conjunction with a variety of measures to reduce the budget deficit. Included in these measures was the creation of a Joint Select Committee on Deficit Reduction, which was tasked to develop and submit a plan to Congress containing deficit reduction to total at least $1.2 trillion over the FY2012-FY2021 period. However, because the committee did not report out recommendations, the BCA’s automatic spending reduction process was triggered. This process, set to begin on January 2, 2013, would reduce federal outlays over the next decade unless legislation is enacted to prevent it.

Both President Obama and some Members of Congress have offered proposals for repealing or modifying the automatic spending reductions. The President’s FY2013 Budget Proposal eliminates the automatic spending reductions for all nine years and replaces them with alternative measures to reduce the deficit. The largest of these proposals include allowing the 2001/2003/2010 tax cuts for singles making over $200,000 and households making over $250,000 to expire; savings generated from changes to Medicare, Medicaid, agriculture, and other mandatory programs; and placing caps on spending on Overseas Contingency Operations (OCO). Together, this proposal totals $2,221 billion more in deficit reduction than what would be achieved by the BCA’s automatic spending reduction process between FY2012 and FY2022.

The Sequester Replacement Reconciliation Act of 2012 (H.R. 5652), agreed to by the House on May 10, 2012, would cancel the sequester of approximately $98 billion in discretionary defense, discretionary non-defense, and mandatory defense FY2013 funding scheduled to take place on January 2, 2013; would lower the current FY2013 cap on discretionary budget authority set by the BCA of $1,047 billion to $1,028 billion; and would cut other mandatory non-defense programs. (The sequestration of FY2013 non-defense mandatory funding would remain in place.) If enacted, this measure would reduce the deficit by $262 billion more than what would be achieved by the BCA’s FY2013 automatic spending reductions over the FY2012 to FY2022 period.

Representative Chris Van Hollen offered a substitute amendment to H.R. 5652. His proposal would replace the entire FY2013 sequester with a series of revenue increases and spending reductions. If enacted, this measure would reduce the deficit by $30 billion more than what would be achieved by the BCA’s FY2013 automatic spending reductions over the FY2012 to FY2022 period. This measure was not made in order by the House Rules Committee.

On September 13, the House passed the National Security and Job Protection Act (H.R. 6365), introduced by Representative Allen West, by a vote of 223-196. The act cancels the FY2013 sequester on discretionary defense, discretionary non-defense, and mandatory defense contingent upon enactment of H.R. 5652, or an alternative measure that would achieve outlay reductions equal to those to be achieved by the FY2013 sequester in those categories. This legislation was determined by CBO to not have a budgetary impact.

In addition to the measures proposed above to replace the BCA’s automatic spending cuts, President Obama signed into law the Sequestration Transparency Act of 2012 (H.R. 5872) on August 7, 2012. This legislation requires OMB, in consultation with the House and Senate Appropriations Committees, to submit a detailed report within 30 days of enactment containing information on how the BCA’s FY2013 automatic spending reductions will affect each nonexempt program, project, and activity. The STA report was released on September 14, 2012.

Date of Report: November 9, 2012
Number of Pages: 13
Order Number: R42675
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