On Monday, August 1, 2011, the House approved the Budget Control Act of 2011 (S. 365), by a vote of 269-161.   Among other things, the bill would create and enforce discretionary spending caps to cut and restrain spending over the next ten years, provide a mechanism for increasing the debt limit in two steps (subject to congressional disapproval and more than dollar-for-dollar spending cuts), establish a Joint Committee to produce deficit reduction legislation, and provide for sequestration of mandatory and discretionary spending to achieve cuts equal to a debt limit increase if the committee’s legislation is not enacted or falls short of the amount of the debt limit increase.  The following is a summary of the sequestration provisions in the bill.

Discretionary Sequestration Related to the First Debt Limit Increase:   The legislation would establish discretionary spending limits, subject to the automatic spending cuts (sequestration) that would be imposed if the discretionary spending limit is breached.  Discretionary spending limits in the bill would set separate spending limits for security and non-security in 2012 and 2013 and then apply globally to all discretionary spending from FY 2014 – FY 2021.  Under the bill, discretionary budget authority would be $1.043 trillion in FY 2012.   If the discretionary spending caps were breached, 15 days after Congress adjourns at the end of a session, a sequestration would occur to automatically reduce discretionary spending by any amount over the cap.  The bill would also provide the president with the authority to exempt spending for military personnel from sequestration.  Under the bill, security spending would include discretionary appropriations associated with agency budgets for the Department of Defense, the Department of Homeland Security, the Department of Veterans Affairs, the National Nuclear Security Administration, the intelligence community management account, and all budget accounts for international affairs.

Mandatory and Discretionary Related to the Second Debt Limit Increase:  The Budget Control Act of 2011 provides for a debt limit increase of up to $1.5 trillion if the Joint Deficit Committee produces enacted deficit reduction of $1.5 trillion or a balanced budget amendment is sent to the states for ratification.  However, if neither of those conditions is met, the bill would allow the president to borrow an additional $1.2 trillion, subject to a congressional resolution of disapproval.  Specifically, the bill states, “Unless a joint committee bill achieving an amount greater than $1,200,000,000,000 in deficit reduction… is enacted by January 15, 2012, the discretionary spending limits listed in section 251(c) shall be revised, and discretionary appropriations and direct spending shall be reduced.”

Unlike the discretionary sequestration process which would occur if discretionary spending caps are breached, mandatory and discretionary sequestration related to the second debt ceiling increase would only occur if the deficit reduction plan established by the Joint Select Committee on Deficit Reduction is not enacted or if the enacted plan does not reduce the deficit in an amount equal to the $1.2 trillion.  If a balanced budget amendment is sent to the states, the president would have the authority to raise the debt limit to $1.5 trillion, but the $1.2 trillion in sequestration would still apply if the Committee failed to reduce the deficit by an equal or greater amount.  Under the bill, OMB would be required to allocate half of the annual sequestration under this section from defense accounts (budget function 050) and half from non-defense accounts. Unlike the sequestration process related to discretionary spending levels, this provision does not define “security” spending as funding for the Department of Defense, the Department of Homeland Security, the Department of Veterans Affairs, the National Nuclear Security Administration, the intelligence community management account, and all budget accounts for international affairs.  Rather, this sequestration would define security as only Department of Defense spending and require that at least half of the automatic cuts come from defense if the deficit committee fails to enact at least $1.2 trillion in savings.  The other half of the funding would come from across the board cuts to mandatory and discretionary spending which would apply to Medicare expenditures, but not to Social Security, Medicaid, Medicare beneficiaries, civil and military employee pay, or veterans.  Therefore, programs targeting low-income individuals and families would largely be exempt from the sequester, as they were under Gramm-Rudman. Medicare cuts would be restricted to no more than 2 percent of the program’s outlays, and would only affect payments to providers, not beneficiaries.