On Tuesday, July 19, 2011, the House is scheduled to begin consideration of H.R. 2560, the Cut, Cap, and Balance Act of 2011.  The bill was introduced on July 15, 2011, by Rep. Jason Chaffetz (R-UT) and referred to the Committee on the Budget, as well as the Committees on Rules, and Ways and Means.  The bill is scheduled to be considered under a rule (H.Res. 355) providing for four hours of debate equally divided and controlled by the chair and ranking minority member of the Committee on the Budget.

TITLE I—CUT

Discretionary Spending Limits:  H.R. 2560 would prohibit the House or Senate from considering any bill that would increase discretionary spending beyond limits set forth in the bill.  The bill would limit discretionary budget authority to $1.019 trillion in FY 2012, a reduction of $30.38 billion below the FY 2011 amount.  The bill would limit total FY 2012 outlays to $1.224 trillion.  Excluding funding for Defense, Homeland Security, and Military Construction/Veterans Affairs, discretionary budget authority for FY 2012 would be reduced below FY 2008 levels.  However, these levels would serve as discretionary spending ceilings, not floors.  Thus, Congress would still have the authority to lower discretionary spending further.  H.R. 2560 would provide for discretionary budget authority to be adjusted by $126 billion in FY 2012 for spending related to the global war on terrorism.

Mandatory Spending Limits:  H.R. 2560 would establish a cap on direct (mandatory) spending for FY 2012 at $680.7 billion—excluding certain mandatory spending categories.  H.R. 2560 would exempt spending on Social Security, Medicare, veterans’ benefits and net interest from the cap.

Enforcement of Spending Limits:  The bill would, if necessary, enforce spending cuts through sequestration which would automatically cut spending in order to maintain the caps.  Under the legislation, mandatory funding for Social Security, Medicare, veterans’ benefits and net interest would be exempted from sequestration. The bill would establish a point of order against a bill that would waive a sequestration order unless the measure achieves the same amount of spending reductions as the sequestration itself.

TITLE II—CAP

Limit on Total Spending:  H.R. 2560 would place caps on total spending after FY 2012 as a percentage of GDP, as estimated by the Office of Management and Budget (OMB).  The bill would cap spending as a percentage of GDP as follows:

• 21.7 percent for fiscal year 2013;
• 20.8 percent for fiscal year 2014;
• 20.2 percent for fiscal year 2015;
• 20.1 percent for fiscal year 2016;
• 19.9 percent for fiscal year 2017;
• 19.7 percent for fiscal year 2018;
• 19.9 percent for fiscal year 2019;
• 19.9 percent for fiscal year 2020; and
• 19.9 percent for fiscal year 2021.

Caps on spending as a percentage of GDP would be enforceable by sequestration, with exemptions for military personnel, veterans’ benefits, Social Security, Medicare and net interest.  While these programs would be exempt from sequestration, they would be subject to the limitation on total federal outlays.

TITLE III—BALANCE

Balanced Budget Amendment:  H.R. 2560 would prohibit the Secretary of Treasury from increasing the debt limit until the Archivist of the United States transmits to the states a qualifying Balanced Budget Amendment (BBA) to the Constitution that has been approved in both chambers of Congress and is ready to be presented to the states for ratification.  Under the legislation, a qualifying BBA would include a balanced budget amendment to the Constitution, contain a spending limitation as a percentage of GDP, and require that tax increases be approved by a two-thirds vote by both chambers of Congress.  The following BBAs would qualify for consideration under the bill: H.J. Res. 1 in the form reported on June 23, 2011, S.J. Res. 10 in the form introduced on March 31, 2011, or H.J. Res. 56 in the form introduced on April 7, 2011. 

Alternative Versions of Balanced Budget Amendments:

S.J. Res. 10, Sponsored by Sen. Hatch (R-UT)—47 Senate co-sponsors.  The amendment includes the following provisions:

• Balanced Budget Amendment requiring a 2/3 vote for outlays to exceed receipts in any given year.
• Limits total outlays to 18% of GDP with an exception for a 2/3 vote.
• Requires a 2/3 vote to raise taxes.
• Requires a 3/5 vote to raise the debt limit.
• Allows these requirements to be waived during a declared war.
• Takes effect in the 5^th fiscal year after ratification.

H.J.Res. 56, Sponsored by Rep. Walsh (R-IL)—59 House co-sponsors: Identical to S.J.Res. 10.

H.J.Res. 1, Sponsored by Rep. Goodlatte (R-VA)—133 House co-sponsors:  The resolution was amended and reported out of the Judiciary Committee on June 23, 2011.  The resolution includes the following provisions: 

• Balanced Budget Amendment requiring a 3/5 vote for outlays to exceed receipts in any given year.
• Limits total outlays to 18% of GDP, with an exception for a 2/3 vote.  This section originally limited spending to 20% of
• GDP but was amended in Committee.
• Requires a 3/5 vote for debt limit increase.
• Requires a 2/3 vote for tax increases.  This section originally required a 3/5 vote but was amended in Committee.
• Allows these requirements to be waived during a declared war.
• Takes effect in the 2^nd fiscal year after ratification.

Debt Limit Increase:  Effective the date on which a qualifying BBA is sent to the states for ratification, H.R. 2560 would automatically increase the debt limit by $2.406 trillion, from $14.294 trillion to $16.7 trillion.

The statutory national debt limit sets the legal ceiling for how much money the federal government may borrow.  The national debt combines both the total debt held by the public (money owed to U.S. debt holders) and intergovernmental holdings (debt held by the U.S. government in certain trust funds).  The current debt limit is $14.294 trillion, set at that level by H.Res. 45 in the 111^th Congress.

Our nation is in a spending-driven debt crisis that threatens job growth today and the prosperity of future generations. Our national debt is nearly $14.3 trillion—higher than anytime in American history—and growing.  Our national debt already equals more than 95 percent of our entire economy.  We are currently borrowing roughly 40 cents of every dollar we spend and sending the bill to our children and grandchildren.  Since President Obama took office on January 20, 2009, the national debt has increased by $3.7 trillion.[1]  To put that in perspective, it took the U.S. from 1776 until 1992 to accumulate the same amount of debt that Obama has borrowed in two and a half years.[2]   While spending and debt skyrocket, revenues are expected to remain at their historic averages.  According to CBO’s estimates, without raising taxes as Democrats have called for, revenues will return to their post-World War II average of 18 percent by 2017 and remain there indefinitely.[3]  Spending, however, will continue to grow to 34 percent of GDP and drive public debt to 187 percent of GDP by 2035.[4]  As a result of this spending, interest payments on the debt will increase from 1.4 percent of GDP in 2011 to 8.9 percent of GDP by 2035—an increase of 536 percent.  Our government’s runaway spending is paralyzing the jobs market, causing uncertainty among job-creators, and causing the worst economic recovery since the Great Depression.  According to CBO, “Growing debt also would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget.”  Unless serious action is taken today, our country is at risk of losing its status as the most powerful nation in the world and future generations will have less opportunity than their parents.

A CBO cost estimate for H.R. 2560 was not available as of press time.

Talking Points—Cut, Cap and Balance:  The Right Approach to Control Spending

Too Much Spending is the Problem; Controlling Spending is the Only Solution

• Our debt crisis is a result of Washington spending money it doesn’t have and leaving the American people—both today and future generations —with the devastating tab.

• Spending is the problem, and controlling Washington’s spending must be the solution.  

• Our national debtis nearly $14.3 trillion—higher than any time in American history, and growing—and already equals more than 95 percent of our entire economy.
  • We are currently borrowing roughly 40 cents of every dollar we spend, much of it from the Chinese, and sending the bill to our children and grandchildren.
  • Every child born today already owes more than $46,000 to our creditors.
  • The Chairman of the Joint Chiefs of Staff has named our record-high debt “the single biggest threat to our national security.”

• In order to restore certainty in our economy to bolster job growth and keep America competitive, we need to stop spending money we don’t have.

The Cut Cap and Balance Act will put three spending measures in place to ensure that real spending reforms are met:

Immediate Spending Cuts:

• Since President Obama took office on January 20, 2009, the national debt has increased by $3.7 trillion.   To put that in perspective, it took the U.S. from 1776 until 1992 to accumulate the same amount of debt that President Obama accumulated in two and a half years.

• The President is now requesting that Congress raise the debt ceiling.  House Republicans are willing to meet his request only if the President agrees to cut up the credit cards. We have hit this point not because the debt ceiling is too low, but because spending is too high.

• The time to act is now. Our debt crisis is a legitimate threat to the future of our children and grandchildren, and extraordinary problems call for extraordinary action. America cannot afford to wait any longer.

Enforceable Spending Caps:

• Spending as a percentage of GDP has averaged around 20 percent since the end of World War II.   But spending is now averaging 23 percent of the GDP, bringing us to this debt crisis.

• Current projections indicate that federal spending is set to double.  As any family or business can tell you, long-term spending beyond the amount of revenues is economically unsustainable and makes no economic sense. 

• The credit rating agency Moody’s has indicated if budget cuts associated with a debt limit increase are not credible and lead to a balance in the ratio of debt to GDP, then they will likely face a downgrade.  “To retain a stable outlook, such an agreement should include a deficit trajectory that leads to stabilization and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years.”

Cut, Cap and Balance puts into place statutory, enforceable caps to ratchet down the amount the government is allowed to spend each year, bringing spending into line with the historic average of 20% of GDP by 2021.

Balancing the Budget:

“We don’t need a constitutional amendment to do our jobs.”  -- President Obama, July 15, 2011

• This president clearly does.  A constitutional mandate to pass a balanced budget every year would legally force(not simply “urge” or “encourage”) the government to only spend what it takes in.  American families do what they have to do to live within their means; so too should their representatives in Washington.

• All other options have been exhausted, including the Graham-Rudman-Hollings Act (1985), the Budget Enforcement Act (1990), and the Pay-As-You-Go requirements (2010).  Cuts, caps, and “commitments” are important tools to control spending, but they are temporary. What one Congress passes, another Congress (or even the same one) can always undo. A constitutional amendment is permanent.  

• Balancing budgets is not an untested idea, as 49 states currently abide by some form of a balanced budget requirement.

Cut, Cap and Balance requires passage of a Balanced Budget Amendment in order to raise the debt limit.  It provides that the president can request a debt ceiling increase only if a qualifying BBA passes Congress and is sent to the states for ratification.