Here is an analysis of the bill that became law this past Tuesday is by two of the top Elderlaw Attorneys in the country, Brian Lindberg and Fay Gordon, who conduct research on behalf of the National Association of Elderlaw Attorneys (NAELA):
The Basics: A two installment agreement with a down payment, congressional committee and a sequester:
The parties agreed to a two part installment of debt ceiling increases and spending reductions, totaling approximately $2.4 trillion in spending cuts over ten years.
In the first installment, Congress will immediately vote to increase the debt by $900 billion. The debt ceiling increase is accompanied by an immediate, ten year cap on discretionary spending, generating $1 trillion in savings.
In the second installment, a bipartisan, bicameral committee (Joint Committee) is created to find cuts that match the next increase to the debt limit. This second increase of $1.2 trillion to $1.5 trillion is also subject to a vote of disapproval from Congress, which the president can veto. As a critical incentive, or threat, to urge the committee to create a plan, if the committee does not agree to a plan for long-term deficit reduction, then Congress will enact a trigger to automatically reduce entitlement and discretionary spending.
Specifics: First installment-the down payment:
In the first installment of the debt-ceiling plan, Congress and the president will agree to increase the debt limit by $900 billion. At the same time, Congress will realize equal savings by capping discretionary spending for the next ten years. The savings in this down payment is balanced between defense and non-defense discretionary spending, with each facing 50 percent of the cut. Specifically, this is about $350 billion in reductions to defense spending, and about $400 billion in reductions to non-defense spending over the next ten years. According to a briefing sheet from the White House, this will reduce discretionary spending levels to their lowest levels since President Dwight Eisenhower.
Interestingly, although the discretionary spending cap is a concern, the cap will lead to a higher overall discretionary spending limit for fiscal year 2012 (FY 2012) than was approved in the House budget (also known at the Ryan budget). Under the agreement, discretionary spending will be capped at $1.04 trillion for FY 2012, which means funding levels will be $24 billion more than was approved in the House budget.
Of comfort to aging advocates is the “firewall” that is enacted for discretionary spending. With a firewall, any reductions in spending must be balanced between defense and non-defense discretionary spending, meaning, aging and poverty programs cannot be reduced to shoulder increased defense spending.
The Bipartisan Committee: Second installment
In addition to the immediate $900 billion debt ceiling increase and ten-year discretionary spending cap, the agreement authorizes President Obama to increase the debt limit once more before 2013. However, the president can only enact a second increase if one of two events occur: 1) Congress approves a balanced budget amendment, or 2) a bicameral, bipartisan Congressional committee approves a federal savings plan in an amount greater than the debt-ceiling increase.
The second installment is certainly thornier than the first, and it lends itself to different interpretations. It is likely that Congress will not approve a balanced budget amendment when they vote on it later this year. When it fails, a bipartisan, bicameral committee (the Joint Committee) will be tasked with creating a plan for federal savings by November 23, 2011, for a vote in Congress before December 23, 2011. According to the White House, in order to avoid the recent failures of deficit reduction committees, the Joint Committee’s recommendations will be given fast-track privileges in the House and Senate, and will be assured of an up or down vote in both chambers.
The Joint Committee is given few guidelines regarding requirements for deficit reduction. Both discretionary and mandatory savings, meaning entitlements, can be included in the committee’s proposal for savings. Also, according to the White House, President Obama will push the committee to include revenues and tax reform. This counters a presentation from Speaker of the House John Boehner (R-OH) which says the committee is required to use current law as its baseline, effectively making it impossible for the committee to increase taxes.
History has demonstrated the difficulty of bipartisan committees in drafting a federal savings plan that can be translated into viable legislation. Because of this, the proposal includes something that is referred to as a “sequester,” which is essentially an enforcement mechanism to encourage Congress to pass the Joint Committee’s plan.
The enforcement mechanism: the sequester
The inclusion of a sequester means that if the Joint Committee fails to meet the November 23 deadline for a deficit reduction plan, then automatic, across the board spending cuts will go into effect. The idea behind a sequester is that it is so drastic, and such a threat to both parties, that the Joint Committee will be forced to enact a proposal that can pass in the House and Senate, and that the President will sign. It is important to note that the sequester included in this proposal only enacts across the board spending cuts, but does not automatically raise taxes or increase revenues.
While the details on the sequester are sparse, there are a few guidelines. First, the automatic, across the board cuts would not go into effect until July 1, 2013. This is the same day that the Bush-era tax cuts will expire. The sequester also has a firewall, meaning that all automatic spending reductions must be balanced between defense and non-defense spending.
The most critical element of the sequester is what it includes and what it does not include. Unlike the down payment in the first installment of the plan, the sequester is not limited to discretionary spending. The sequester will automatically cut from discretionary and mandatory spending, which includes entitlements. For this reason, the negotiators have set certain limitations and exemptions for sequester cuts. First, several programs and populations are exempt from automatic cuts. The exemptions include Social Security, Medicaid, veterans, military and civil pay. Medicare is not exempt from cuts under a sequester, however, the agreement limits Medicare cuts to 2% and requires cuts come from providers and not beneficiaries. In addition, under a sequester, defense spending would automatically be reduced by 8%, while non-defense spending would be cut by 4%. This amounts to nearly $500 billion in automatic cuts to defense spending. Advocates of this proposal believe that the sequester will be so damaging to each party that they will approve the Joint Committee’s plan.