The Budget Control Act of 2011: Effects on
Spending Levels and the Budget Deficit
Marc Labonte
Specialist in Macroeconomic Policy
Mindy R. Levit
Analyst in Public Finance
October 5, 2011
Congressional Research Service
7-5700
www.crs.gov
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CRS Report for Congress
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epared for Members and Committees of Congress
The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Summary
The Budget Control Act of 2011 (BCA) was signed into law by President Obama on August 2,
2011 (P.L. 112-25). In addition to increasing the debt limit, the BCA contained a variety of
measures intended to reduce the deficit by at least $2.1 trillion over the FY2012-FY2021 period.
These included $917 billion in savings from statutory caps on discretionary spending and the
establishment of a Joint Select Committee on Deficit Reduction to identify further budgetary
savings of at least $1.2 trillion over 10 years.
The BCA discretionary spending caps are projected to result in $917 billion in deficit reduction
over the FY2012-FY2021 period. Several adjustments to the caps are permitted, including for
spending on Overseas Contingency Operations and emergencies. The precise programmatic
impact of these reductions in discretionary spending will be determined in the annual
appropriations process. Under the Congressional Budget Office’s (CBO’s) August 2011 baseline,
which incorporates the effects of the BCA, the discretionary spending caps result in a decline in
spending in nominal dollar terms in FY2012 and FY2013. In nominal terms, discretionary
spending does not regain its FY2011 level until FY2018. Discretionary spending has fallen in
nominal terms only three times since FY1962, most recently in FY1996. Discretionary spending
under the caps is projected to decline from 9.0% of GDP in FY2011 to 6.2% of gross domestic
product (GDP) in FY2021. Since FY1962, the first year for which data are available,
discretionary spending has only been that low in one other year (FY1999).
Beyond the BCA’s deficit reduction achieved via the discretionary spending caps, the Joint
Committee was created to find an additional $1.2 trillion in deficit reduction by January 15, 2012.
If the Joint Committee cannot agree to deficit reduction legislation or it is not enacted, then an
automatic spending reduction process would be triggered beginning in January 2013. The
automatic reduction would be divided evenly between defense and non-defense spending. CBO
estimates that if no Joint Committee legislation is enacted, the automatic reduction in spending
for non-exempt accounts in FY2013 would be 10% for defense, 2% for Medicare, and 7.8% for
other mandatory and non-defense discretionary, resulting in further deficit reduction of $1.1
trillion between FY2013 and FY2021. Any cuts to discretionary spending through the automatic
reduction would be in addition to those cuts resulting from the discretionary spending caps.
While the BCA is projected to reduce the deficit, it does not eliminate budget deficits or growth in
the federal debt over the 10-year budget window. Using the CBO current law baseline (where a
series of tax cuts are assumed to expire and controls on Medicare payments to doctors are allowed
to take effect), budget deficits are estimated to total $3.5 trillion and the federal debt is projected
to increase by $4.3 trillion over the next 10 years. Under what some call a more realistic baseline
(where a series of tax cuts are extended and controls on Medicare payments to doctors are not
allowed to take effect), deficits over the next 10 years total $8.5 trillion and the debt would
continue to rise faster than GDP. Since the debt cannot perpetually rise faster than GDP,
additional spending cuts or revenue increases would eventually be needed.
Since deficit reduction under the BCA’s discretionary caps is relatively small in FY2012, the
short-term effects on the economy should be limited. Were Congress to enact a Joint Committee
plan that reduced the deficit significantly in FY2012, this would increase the BCA’s
contractionary effects on the economy. In the long run, economic theory suggests that large
deficits would have negative effects on interest rates, investment spending, trade deficits, and
GDP.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Contents
Statutory Limits on Discretionary Spending.................................................................................... 2
What Happens to Discretionary Spending Under the BCA Relative to Historical
Trends? ................................................................................................................................... 4
Comparing Discretionary Savings Relative to Other Measures ................................................ 8
Additional Policy Changes Resulting from the Joint Select Committee on Deficit
Reduction.................................................................................................................................... 11
Automatic Spending Reduction Process.................................................................................. 13
Effects of the BCA on the Budget Deficit ..................................................................................... 19
Effects of the BCA on the Economy.............................................................................................. 23
Figures
Figure 1. Discretionary Spending as a Percentage of GDP, 1971-2021 .......................................... 7
Figure 2. Projected Percentage of Budgetary Resources by Major Programmatic
Area, FY2014 ............................................................................................................................. 15
Figure 3. Percentage of Automatic Spending Reduction in Each Major Programmatic
Area for a $1.2 Trillion Reduction, FY2014............................................................................... 16
Tables
Table 1. Discretionary Spending Levels and BCA Caps ................................................................. 5
Table 2. Reductions in Discretionary Spending from the BCA Relative to Selected
Alternatives................................................................................................................................. 10
Table 3. Current Law and Current Policy Baseline Deficit Projections ........................................ 12
Table 4. Automatic Spending Reductions Under the Provisions of the BCA by Major
Category...................................................................................................................................... 17
Table 5. Selected Programs and Activities Exempt from an Automatic Spending
Reduction.................................................................................................................................... 18
Table 6. Budget Deficit Projections With and Without the BCA................................................... 21
Table A-1. Effects on Budget Deficit of Selected Legislation in Billions of Dollars .................... 28
Table A-2. Effects on Budget Deficit of Selected Legislation as a Percentage of GDP ................ 29
Appendixes
Appendix. The Relative Size of the Deficit Reduction in the Budget Control Act
Compared to Earlier Acts............................................................................................................ 27
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Contacts
Author Contact Information........................................................................................................... 29
Acknowledgments ......................................................................................................................... 29
Congressional Research Service
The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
ollowing a lengthy debate over raising the debt limit, the Budget Control Act of 2011
(BCA; P.L. 112-25) was signed into law by President Obama on August 2, 2011.1 In
F addition to including a mechanism to increase the debt limit, the BCA contained a variety
of measures intended to reduce the deficit, including caps on discretionary spending and the
establishment of a Joint Select Committee on Deficit Reduction (Joint Committee) to identify
further budgetary savings.2
According to estimates by the Congressional Budget Office (CBO), the BCA will reduce
discretionary spending by $741 billion over the FY2012-FY2021 period, achieved via savings of
$756 billion as a result of caps on discretionary spending and $15 billion in increased program
integrity spending. Further reductions are achieved in mandatory spending through $16 billion in
savings from program integrity initiatives (if the maximum allowable adjustment is subsequently
provided) and $5 billion from student loan programs (through higher Pell grant spending and
eliminating certain subsidies and incentives for Stafford loans) over 10 years.3 In addition, all of
these changes will lower future debt service costs by $156 billion over 10 years for total spending
reductions of $917 billion over the FY2012-FY2021 period. The CBO score also contained a
placeholder for further deficit reduction of $1.2 trillion for the savings to be achieved through
legislation enacted as a result of the work of the Joint Committee or through an automatic
spending reduction process. Together, these savings were estimated by CBO to total $2.1 trillion
over the FY2012-FY2021 period.4
The BCA was enacted in response to congressional concern about unsustainable growth in the
federal debt and deficit. The federal budget has been in deficit (spending exceeding revenue)
since FY2002, but became significantly larger in FY2009. That year, the deficit topped $1 trillion
for the first time ever, and it is estimated to remain above $1 trillion in FY2011.5 Relative to the
overall size of the economy, budget deficits from FY2009 to FY2011 have been significantly
larger than in any other year since World War II. From FY1946 to FY2008, budget deficits
averaged 1.7% of gross domestic product (GDP) and exceeded 5% of GDP only three times
1 For an overview of changes to the debt limit in the Budget Control Act, see CRS Report RL31967, The Debt Limit:
History and Recent Increases, by D. Andrew Austin and Mindy R. Levit.
2 For an overview of the Budget Control Act, see CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff
Jr., Elizabeth Rybicki, and Shannon M. Mahan.
3 Student loan provisions of the BCA are analyzed in CRS Report R41965, The Budget Control Act of 2011, by Bill
Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan. For more information on student loan programs, see CRS
Report R40122, Federal Student Loans Made Under the Federal Family Education Loan Program and the William D.
Ford Federal Direct Loan Program: Terms and Conditions for Borrowers, by David P. Smole and CRS Report
R41437, Federal Pell Grant Program of the Higher Education Act: Background, Recent Changes, and Current
Legislative Issues, by Shannon M. Mahan.
4 These savings are measured relative to the March 2011 Adjusted Baseline as detailed in Congressional Budget Office,
CBO Analysis of August 1 Budget Control Act Letter to the Honorable John Boehner and the Honorable Harry Reid,
August 1, 2011, Table 3, available at http://www.cbo.gov/ftpdocs/123xx/doc12357/BudgetControlActAug1.pdf. For
details on the effects of specific provisions of the BCA on the deficit, see Table 6.
5 All budget data presented in this report are from Congressional Budget Office, The Budget and Economic Outlook:
An Update, August 2011 (hereinafter referred to as “CBO baseline”), Preliminary Analysis of the President’s Budget
for FY2012, March 2011 and The Budget and Economic Outlook: Fiscal Years 2011 to 2021, January 2011, or Office
of Management and Budget, FY2012 Budget of the U.S. Government, February 2011. The budget deficit is the excess
of outlays over revenues in a given year, broadly similar to the amount borrowed from the public that year. The debt
held by the public is the accumulation of all past borrowing from the public. The gross debt is the debt held by the
public and the intragovernmental debt (the debt that one part of the federal government owes to another part of the
government, mainly government trust funds). For background information on the debt and deficit, see CRS Report
WKS0001_Overview, Federal Debt and Deficit: Key Sources, by Justin Murray.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
(7.2% in FY1946, 6.0% in FY1983, and 5.1% of GDP in FY1985). From FY2009 to FY2011,
budget deficits will average roughly 9.4% of GDP. The federal debt held by the public has grown
from 40% of GDP in FY2008 to an estimated 69% of GDP in FY2011. The recent growth in
deficits is the result of spending reaching its highest level as a share of GDP since FY1945 and
revenues reaching their lowest level as a share of GDP since FY1950. This has occurred largely
due to the budgetary effects of the recent recession and policies implemented in response to it.6
This report focuses on how the BCA will affect spending and the budget deficit through the “first
round” effects, related to discretionary spending caps and student loan provisions, and the
“second round” effects of additional deficit reduction, related to the work of the Joint Committee.
The report also examines short and long run effects of deficit reduction on the economy. The
Appendix compares the BCA to past deficit-reduction legislation.
Statutory Limits on Discretionary Spending
The BCA sets in statute specific discretionary spending caps on new budget authority between
FY2012 and FY2021.7 Upward revisions to the caps are permitted for purposes of future
legislation providing spending designated as “emergency,” Overseas Contingency Operations
(OCO), program integrity initiatives to curb fraud and abuse in Social Security and federal health
programs, and disaster relief.8 Revisions to the caps for program integrity initiatives are limited to
$15 billion over 10 years. Disaster relief funding (defined by the BCA as activities carried out
under section 102(2) of the Stafford Act9) likewise cannot exceed the average funding provided
for disaster relief over the 10 previous fiscal years, excluding the highest and lowest funding
years. OMB estimated this figure to be $11.3 billion for the 10 years between FY2002 and
FY2011.10 The levels of emergency and OCO spending are not limited by the BCA.11 Exempting
emergency spending from the caps offers flexibility to future Congresses to respond to unforeseen
circumstances, but it also offers a potential avenue for future Congresses to diminish the spending
reductions intended by the BCA. Although the BCA allowed for certain policy related
adjustments to the caps, the legislation did not allow for any economic adjustments, specifically if
6 For an overview of causes of large deficits and policy options to reduce them, see CRS Report R41778, Reducing the
Budget Deficit: Policy Issues, by Marc Labonte and CRS Report R41685, The Federal Budget: Issues for FY2011,
FY2012, and Beyond, by Mindy R. Levit.
7 Appropriations acts provide new budget authority. The budget deficit represents the level of spending, as measured by
outlays, in excess of revenues. The outlays for a fiscal year result from the budget authority provided in that fiscal year
as well as some budget authority provided in previous fiscal years. Included in the outlay level are all types of spending
(i.e., emergency, non-emergency, overseas contingency operations) occurring during the fiscal year.
8 Revisions are also permitted to be made once a year by the Office of Management and Budget (OMB), which can
adjust the discretionary caps to reflect changes in budget concepts and definitions in consultation with the Committees
on Appropriations and Budget.
9 For more information, see CRS Report RL33053, Federal Stafford Act Disaster Assistance: Presidential
Declarations, Eligible Activities, and Funding, by Francis X. McCarthy.
10 Office of Management and Budget, OMB Report on Disaster Relief Funding to the Committees on Appropriations
and the Budget of the U.S. House of Representatives and the Senate, September 1, 2011, available at
http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/disaster_relief_report_sept2011.pdf.
11 Section 101 of the BCA defines emergency spending to be spending that “the Congress designates as emergency
requirements in statute on an account by account basis and the President subsequently so designates.” Section 101 of
the BCA also defines Overseas Contingency Operations as spending that “the Congress designates for Overseas
Contingency Operations/Global War on Terrorism in statute on an account by account basis and the President
subsequently so designates.”
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
inflation turns out to be higher or lower than expected. This means that a higher (lower) than
expected rate of inflation would reduce (increase) the purchasing power of discretionary spending
permitted under the caps. The BCA did not place similar caps on mandatory spending, which
amounted to 55% of total spending in FY2010.
Between FY2012 and FY2013, there are specific caps on new budget authority for the categories
of security and non-security spending. For purposes of the discretionary caps, security spending is
defined by the BCA as discretionary appropriations associated with agency budgets for the
Departments of Defense, Homeland Security, Veterans Affairs, the National Nuclear Security
Administration, the intelligence community management account, and all budget accounts in the
budget function for international affairs (Function 150).12 Non-security spending comprises the
portion of discretionary spending outside the security category. The largest amounts of spending
in the non-security category are tied to the Departments of Health and Human Services,
Education, and Housing and Urban Development. In FY2014 and beyond, one cap covers overall
discretionary spending.13
Outside of the separate caps on security and non-security spending in FY2012 and FY2013, the
BCA does not otherwise restrict spending for specific appropriation subcommittees, budget
accounts, or functional categories. The Obama Administration stated that the caps would cut
approximately $420 billion in security spending over 10 years. Further,
Assuming roughly proportional cuts, we project that of that $420 billion, $350 billion would
be from the budget category of defense, and approximately $330 billion of that would be
specifically from the Department of Defense. In sum, this agreement would be consistent
with the President’s goal for security and Department of Defense savings as laid out in his
fiscal framework in April.14
However, the BCA does not specify how spending will be allocated across appropriations bills,
and which specific programs will be cut to achieve the required savings under the caps,
particularly beyond FY2014. This authority is reserved for Congress. If the appropriations
process does not result in spending levels that adhere to the cap levels and the cap levels are
breached, the BCA stipulates automatic cuts to non-exempt discretionary programs through a
sequestration process. Actual total discretionary spending levels over the next 10 years will be
determined partly by future Congress’s commitment to adhering to the caps and partly by the
12 The security/non-security division of discretionary spending was first used by President George W. Bush and was
continued under the Obama Administration. However, the Obama Administration changed the definition of security
spending. The definition used by the Obama mirrors the definition used in the BCA, though it does not include the
intelligence community management account, which totaled approximately $700 million in discretionary budget
authority FY2010. CBO has not regularly reported discretionary spending in terms of security and non-security
spending. For more information, see CRS Report RL34424, Trends in Discretionary Spending, by D. Andrew Austin
and Mindy R. Levit.
13 Upward revisions to the discretionary spending caps in FY2014 and beyond are also permitted as discussed above. If
further deficit reduction legislation tied to the work of Joint Committee (as discussed later in the report) is not enacted
or, if enacted, does not reduce the deficit by at least $1.2 trillion, and an automatic spending reduction takes place as a
result, spending is categorized into defense and non-defense groupings from FY2014 onward, rather than the
security/non-security split discussed here.
14 U.S. Office of Management and Budget, Security Spending in the Deficit Agreement, OMBlog, August 4, 2011,
available at http://www.whitehouse.gov/blog/2011/08/04/security-spending-deficit-agreement.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
level at which spending occurs in categories excluded from the caps, such as OCO or emergency
spending.15
What Happens to Discretionary Spending Under the BCA
Relative to Historical Trends?
The BCA was enacted after a period of rapid growth in discretionary spending. (Mandatory
spending has also grown and revenue has fallen rapidly relative to GDP in recent years.) Between
FY2000 and FY2009, discretionary spending rose by 8.0% per year, on average. Discretionary
spending rose by 8.9% in FY2010.16 Increases in discretionary spending since FY2000 can be
attributed primarily to a rise in defense spending throughout the decade, and an increase in
spending as a result of economic stimulus programs since 2009.17 The discretionary funding in
the economic stimulus programs was designed such that most discretionary outlays under the act
will occur by FY2012.
Below, Table 1 summarizes the discretionary outlay levels in CBO’s August 2011 baseline, which
incorporate the BCA discretionary spending caps as well as baseline OCO levels and other small
adjustments to provide a projection of total discretionary spending.18 These levels are shown in
nominal and real (adjusted for inflation) dollars. Since some categories of discretionary spending
are exempt from the caps, total discretionary spending over the next 10 years is unlikely to match
the cap levels. Under the August 2011 CBO baseline, discretionary spending in nominal dollars
(real dollars) declines by 2.8% (4.0%) in FY2012 and 1.1% (2.4%) in FY2013, but increases
(decreases) annually by 1.5% (0.3%), on average, for the rest of the 10-year budget window.
15 Emergency spending received a similar exemption from discretionary spending caps in earlier deficit reduction
legislation, and after remaining relatively low in the first eight years that this legislation was in effect, emergency
budget authority averaged $38.5 billion per year from 1999 to 2002. U.S. Congressional Budget Office, The Budget
and Economic Outlook: Fiscal Years 2003 to 2013, January 2003, Table A-2.
16 U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, p. 17.
17 For more information, see CRS Report RL34424, Trends in Discretionary Spending, by D. Andrew Austin and
Mindy R. Levit.
18 Because the level of OCO funding was not specified in the BCA, the current CBO baseline maintains OCO funding
at FY2011 levels in inflation-adjusted terms. As a result, current baseline levels are likely to differ from actual
spending levels since OCO spending is not anticipated to remain equal to FY2011 real levels for the next 10 years. The
August 2011 baseline does not include spending permitted under the BCA on disasters, emergency, or program
integrity initiatives. Although the BCA caps budget authority rather than outlays, this report generally discusses the
change in discretionary outlays over the next decade as outlay levels are used to calculate the budget deficit and reflect
what is actually spent in a given year.
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Table 1. Discretionary Spending Levels and BCA Caps
(Outlays)
2008
2011
Actual
Actual FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
BCA Spending Caps, Nominal
n/a n/a $1,241 $1,170 $1,148 $1,149 $1,164 $1,179 $1,196 $1,226 $1,252 $1,278
$s Billion
BCA Spending Caps, Real 2011
n/a n/a $1,226 $1,141 $1,104 $1,089 $1,085 $1,078 $1,072 $1,078 $1,079 $1,080
$s Billion
Total Discretionary, Nominal
$1,135
$1,353 $1,315 $1,300 $1,301 $1,311 $1,332 $1,350 $1,370 $1,404 $1,434 $1,464
$s Billiona
Yr-Yr, Percent Change
-2.8%
-1.1%
0.1%
0.8%
1.6%
1.4%
1.5%
2.5%
2.1%
2.1%
Per Capita ($s)
$4,319
$4,158
$4,071
$4,035
$4,027
$4,053
$4,068
$4,089
$4,152
$4,201
$4,249
Total Discretionary, Real 2011
$1,174 $1,353 $1,299 $1,268 $1,252 $1,243 $1,241 $1,235 $1,228 $1,234 $1,236 $1,237
$s Billiona
Yr-Yr, Percent Change
-4.0%
-2.4%
-1.3%
-0.7%
-0.2%
-0.5%
-0.6%
0.5%
0.2%
0.1%
Per Capita ($s)
$4,319
$4,107
$3,971
$3,883
$3,818
$3,776
$3,722
$3,666
$3,649
$3,621
$3,590
Total Discretionary,
7.9% 9.0% 8.4% 8.0% 7.7% 7.2% 7.0% 6.7% 6.5% 6.4% 6.3% 6.1%
Percent of GDPa
Source: CRS calculations based on Congressional Budget Office, CBO Analysis of August 1 Budget Control Act, Letter to the Honorable John Boehner and the Honorable
Harry Reid, August 1, 2011; Congressional Budget Office, Budget and Economic Outlook: An Update, August 2011; U.S. Census Bureau, Projections of the Population and
Components of Change for the United States: 2010 to 2050.
Notes: Spending caps adjusted for inflation using GDP deflator (FY basis). The BCA caps budget authority. This table presents CBO’s estimates of outlays based on the
BCA cap levels with certain adjustments.
a. Levels in the August 2011 CBO Baseline (indicated as “Total Discretionary” in this table) assume the BCA cap level adjusted to include real levels of OCO funding
based on current law.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Examining levels of discretionary spending going forward may not provide the full picture of
changes over time. Between FY2008 and FY2011, total discretionary spending rose from $1,135
billion to $1,353 billion in nominal terms. In nominal terms, total discretionary spending between
FY2012 and FY2021 would be above FY2008 levels even if all spending not limited by the caps
(such as OCO spending) were zero. Total discretionary spending under the baseline would also be
below FY2011 levels until FY2018, in nominal terms. Since FY1962, the first year for which data
are available, discretionary spending has fallen in nominal terms only three times, most recently
in FY1996. In each case, the previous spending level was surpassed in the following year. If a
drawdown of troops occurs as proposed in certain overseas operations, future spending levels will
be lower than the baseline levels, absent any other policy changes. Alternatively, if future OCO
funding exceeds the levels assumed in the baseline or if there is rapid growth in spending not
subject to the caps (such as emergency spending), the overall level of discretionary spending
could exceed the level in the baseline over the next 10 years, absent other policy changes.
However, a comparison of nominal spending levels over time arguably understates the effects of
the discretionary caps on policy for a number of reasons. First, projected inflation over the next
10 years means that a dollar will have less purchasing power in 2021 than it does today. The
BCA’s nominal discretionary caps do not account for inflation so the declines in spending are
larger when converted to real terms (see Table 1). If actual inflation turns out to be higher (lower)
than projected, real spending cuts will be greater (smaller).
Relative to FY2011, projected spending under the caps in real (inflation-adjusted) terms falls each
year until FY2017, and then stays roughly constant. In real terms, total discretionary spending
under the baseline, which includes the spending caps and current real levels of OCO, will remain
above its FY2008 level but never regain its FY2011 level over the next 10 years.19 Since FY1997,
discretionary spending has only fallen in real terms in one year (FY2007). Since FY1962, there
were only two periods where real discretionary spending fell for several years in a row–FY1969-
FY1974 and FY1992-FY1996. In the FY1969-FY1974 period, sustained high inflation masked
(in real terms) relatively large annual nominal increases. Between FY1992 and FY1996,
discretionary spending caps were included as part of the Omnibus Budget and Reconciliation
Acts of 1990 and 1993, which contributed to lower overall discretionary spending during that
period.
The second reason why the growth in nominal spending levels may understate the effects of the
discretionary spending caps is that the population of the United States is projected to rise over the
next 10 years. Therefore, the caps will lead to lower discretionary spending per capita than
nominal growth rates would indicate for certain functional categories, such as education, training,
housing assistance, or health. For these categories, per capita spending would arguably give a
better sense of the potential impact of the caps on services than overall spending because it
indicates the change in benefits or services available to each individual. However, it remains
unknown how any specific program will be impacted by the discretionary spending caps.
As shown in Table 1, per capita discretionary spending in nominal terms decreases by 0.2% per
year, on average, over the FY2012-FY2021 period. Throughout this period, discretionary
spending per capita never regains its FY2011 level and falls from $4,319 in FY2011 to $4,249 in
19 If spending outside the caps, notably OCO spending, were very low, then total discretionary spending in real terms
would remain below FY2008 levels for the next 10 years.
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FY2021. After adjusting for inflation and population growth, per capita discretionary spending
declines by 1.8% annually, on average, from $4,319 in FY2011 to $3,590 in FY2021.
Finally, the cuts in discretionary spending over the next 10 years would be much larger if
discretionary spending is measured as a share of GDP, or relative to the size of the economy. As a
percentage of GDP, discretionary spending in FY2008 stood at 7.9%, rising to 9.0% in FY2011.20
As a percentage of GDP, discretionary spending falls below the FY2008 level in FY2014 and
remains below it through FY2021. By FY2021, discretionary spending as a percentage of GDP
would be at its lowest level since FY1999.
In the last decade, discretionary spending grew rapidly relative to GDP, taking it back to pre-
1990s levels. Figure 1 illustrates that discretionary spending under the caps is projected to
decline from 9.0% of GDP in FY2011 to 6.2% of GDP in FY2021, assuming that OCO outlays
(which are not subject to the cap) remain at FY2011 levels in real terms. This would reverse the
preceding growth in discretionary spending, taking discretionary spending back down to the
historically low levels that prevailed in the late 1990s. Since FY1962, the first year for which data
are available, discretionary spending has only been as low as 6.2% of GDP in one other year
(FY1999), when OCO spending was nearly zero. If OCO spending declines sufficiently relative
to FY2011 levels, at some point during the projection period, discretionary spending would reach
its lowest share of GDP ever.
Figure 1. Discretionary Spending as a Percentage of GDP, 1971-2021
Source: Congressional Budget Office Director’s Blog, Discretionary Spending Under the Budget Control Act of 2011,
August 8, 2011.
Notes: For illustrative purposes, the figure assumes that discretionary outlays will be equal to the BCA cap
amount plus $160 billion to $190 billion each year for overseas contingency operations (which are not subject to
the cap).
20 Discretionary spending as a percentage of GDP peaked in FY2010 at 9.3%.
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Most of the decline in discretionary spending as a percentage of GDP was projected to have
occurred in the baseline anyway, even in the absence of the BCA caps, due to the baseline
assumption that discretionary spending in future years grows at the rate of inflation, which is less
than the growth in nominal GDP. Thus, the BCA spending caps represent a reduction in
discretionary spending that is in addition to the reductions that result from the assumption that
discretionary spending is constant in real terms. That baseline would have already shown a
significant drop in discretionary spending relative to its current share of GDP as shown in Figure
1. If the baseline were to assume that discretionary spending grew at the same rate as GDP, the
reduction in discretionary spending as a result of the BCA caps would be greater than in the CBO
score.
If discretionary spending is cut further through the second round of BCA cuts (either through the
adoption of the Joint Committee’s deficit reduction legislation or through an automatic spending
reduction if legislation is not enacted to sufficiently reduce the deficit21), discretionary spending
will be lower than the amounts shown in Table 1.
Comparing Discretionary Savings Relative to Other Measures
Baseline projections of spending, revenue, and the deficit are used as a benchmark to provide an
indication of how new legislation, if enacted, would change the projected level relative to current
law. For example, when a policy is enacted to cut spending in FY2012, the reduction is measured
relative to the baseline projection of spending for FY2012, as opposed to the actual spending
level for FY2011. Savings are generally not measured relative to previous year totals since,
particularly for mandatory programs and revenue provisions, those levels can change from year to
year with no change in law, while discretionary spending is generally subject to the enactment of
annual appropriations.22
Baselines are used because decisions on the level of discretionary spending are made annually
through the appropriations process and it is impossible to know what level of spending will be
enacted from one future year to the next. For purposes of the baseline, CBO generally assumes
that the level of discretionary spending in future years increases at the rate of inflation.23 For
example, the baseline assumes overseas contingency operations will remain at a constant
inflation-adjusted level each year for 10 years. If discretionary spending actually increases at rates
above inflation, which it has historically done, then the amount of discretionary spending above
inflation is recorded as an increase to discretionary spending relative to the baseline. Other
baselines would be equally valid conceptually, such as ones that freeze discretionary spending in
nominal terms or as a percentage of GDP, but are not generally used to score the cost of
legislation before Congress.
21 See the section entitled “Additional Policy Changes Resulting from the Joint Select Committee on Deficit
Reduction”.
22 For more information regarding baselines and how they are constructed, see CRS Report 98-560, Baselines and
Scorekeeping in the Federal Budget Process, by Bill Heniff Jr. and CRS Report R41778, Reducing the Budget Deficit:
Policy Issues, by Marc Labonte.
23 As a result of the BCA, the new baseline discretionary spending levels are set as the discretionary spending caps
created in the legislation, with modifications made for exempt categories such as overseas contingency operations.
Going forward, the costs of future policy proposals will be evaluated against this new baseline. Prior to the enactment
of the BCA, CBO utilized the baseline rules contained in Section 257 of the Balanced Budget and Emergency Deficit
Control Act of 1985, as amended (Title II of P.L. 99-177).
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Compared to the adjusted March 2011 CBO baseline, which accounted for the final FY2011
enacted appropriations bills, the BCA makes relatively small cuts to discretionary outlays in
FY2012. Discretionary spending cuts rise every year thereafter such that the reduction in outlays
is nearly five times larger in nominal terms in FY2021, relative to FY2012. However, it is also
possible to measure the impact of changes in spending relative to other measures. Table 2
provides comparisons to the January 2011 CBO baseline, the FY2012 House Budget Resolution
(H.Con.Res. 34), and the President’s FY2012 budget request. (For each comparison, OCO outlays
are excluded.) The comparison to the January 2011 CBO baseline gives a rough estimate of the
combined effects on discretionary spending of the final appropriations for FY2011 and the BCA.
For that reason, the spending cuts relative to the January 2011 CBO baseline are somewhat larger
than relative to the adjusted March 2011 CBO baseline.
The House Budget Resolution (H.Con.Res.
What is a baseline?
34) called for lower spending levels than those
Baselines provide a benchmark for comparing how
imposed by the BCA caps each year. Thus,
proposed budget policy changes would affect existing
were the levels of spending called for in the
policies. The calculation of a baseline can be instrumental
House Budget Resolution to be enacted,
to the evaluation of these policies. Conventional scoring
procedures would measure a legislative proposal relative
spending would decline further than it would
to CBO’s official baseline, which is a current law baseline.
under the BCA. The larger size of the
In the current law baseline, CBO assumes that certain
spending cuts relative to President’s budget is
policies set to expire under current law will do so as
partly attributable to the final FY2011
scheduled.
appropriations and to the BCA. The President
However, changes in policy can also be measured relative
requested similar levels of discretionary
to other proposals and baselines. Several of these
spending, in terms of budget authority
alternative proposals and their effects are illustrated in
(excluding OCO), compared to the January
Table 2. Other baselines, sometimes referred to as a
current policy baseline, assume that certain popular
2011 CBO baseline levels between FY2012
policies are likely to be extended. Measuring proposals
and FY2016, and lower levels between
relative to this baseline are demonstrated in Table 3.
FY2017 and FY2021. The BCA cap levels are
lower than the President’s request for each year.
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Table 2. Reductions in Discretionary Spending from the BCA Relative to Selected Alternatives
(Outlays in billions of dollars and as a percentage of GDP)
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
BCA Discretionary Caps
$1,241
$1,170
$1,148
$1,149 $1,164 $1,179 $1,196 $1,226 $1,252 $1,278
Dol ar Difference from:
CBO January 2011 Baseline
-$33
-$60
-$76
-$84
-$93
-$101
-$110
-$118
-$126
-$134
CBO Adjusted March 2011
-$25 -$47
-$59 -$67 -$74 -$81 -$89 -$97 -$104 -$112
Baseline
House FY2012 Budget
$73 $56
$53 $60 $71 $81 $91 $99 $107 $110
Resolution
President’s FY2012 Budgeta
-$73 -$91
-$92 -$89 -$95 -$95 -$98 -$100 -$107 -$101
Percent Difference from:
CBO January 2011 Baseline
-2.6%
-4.9%
-6.2%
-6.8%
-7.4%
-7.9%
-8.4%
-8.8%
-9.1%
-9.5%
CBO Adjusted March 2011
-2.0% -3.9%
-4.9% -5.5% -6.0% -6.4% -6.9% -7.3% -7.7% -8.1%
Baseline
House FY2012 Budget
6.3% 5.0%
4.8% 5.5% 6.5% 7.4% 8.2% 8.8% 9.3% 9.4%
Resolution
President’s FY2012 Budgeta
-6.6% -8.0%
-7.9% -7.6% -7.9% -7.8% -7.8% -7.8% -8.1% -7.6%
Source: CRS calculations based on U.S. Congressional Budget Office, CBO Analysis of August 1 Budget Control Act Letter to the Honorable John Boehner and the
Honorable Harry Reid, August 1, 2011, Table 1; U.S. House of Representatives, Budget Committee, Path to Prosperity, Table S-3; Office of Management and Budget,
Budget of the U.S. Government FY 2012, February 2011, Table S-11.
Notes: A negative change indicates a decrease from the comparison point (i.e., in FY2012, the CBO January 2011 Baseline level of discretionary spending was $33 bil ion
higher than the FY2012 BCA discretionary cap level). A positive change indicates an increase from the comparison point. All comparisons omit OCO spending.
a. The President’s Budget only provides a level of discretionary budget authority, not outlays, that excludes OCO. Therefore, the figures in the table showing the level of
change in discretionary spending between the BCA discretionary caps and the President’s Budget are in terms of terms of budget authority.
CRS-10
The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Additional Policy Changes Resulting from the Joint
Select Committee on Deficit Reduction
In addition to the deficit reduction achieved through the statutory caps on discretionary spending
discussed above, the BCA calls for the Joint Committee,24 composed of 12 Members of Congress,
to propose legislation that reduces the deficit by at least $1.5 trillion over 10 years, from FY2012-
FY2021. If legislation reducing the deficit by at least $1.2 trillion over 10 years is not enacted, an
automatic spending reduction process, which is discussed in the next section, goes into effect.
Whether or not the Joint Committee achieves the required level of deficit reduction depends on
what baseline is used to measure the impact of their legislation. Conventional scoring procedures
would measure the Joint Committee’s deficit reduction proposal (or any legislative proposal)
relative to CBO’s official baseline, which is a current law baseline. In the current law baseline,
CBO assumes that certain policies set to expire under current law will do so as scheduled.25 For
example, the baseline assumes that expiring tax provisions, such as the 2001/2003/2010 (“Bush”)
tax cuts that are set to expire at the end of calendar year 2012, will expire as scheduled. Other
provisions, such as the indexing of the alternative minimum tax (AMT) to inflation and the “doc
fix” that Congress has enacted annually to prevent significant cuts to Medicare physician
payments, are also assumed to expire as scheduled.26 Policy changes could potentially be
measured under several other alternative assumptions. For example, Table 3 illustrates how the
extensions of “current policy” would change the deficit outlook relative to the current law
baseline, by assuming that the tax cuts are extended, the AMT is indexed to inflation, and the doc
fix is enacted. Under these assumptions, the budget deficit would be $4.6 trillion greater over the
FY2012-FY2021 period than under the current law baseline.27
24 The Committee’s website can be accessed at http://deficitreduction.senate.gov/public/.
25 Mandatory programs enacted on or before the date of enactment of the Balanced Budget Act of 1997 and with
estimated outlays of greater than $50 million are assumed to continue in the current year and the outyears for purposes
of the baseline.
26 For more information on the “doc fix” and the cost of extending it, see CRS Report R40907, Medicare Physician
Payment Updates and the Sustainable Growth Rate (SGR) System, by Jim Hahn.
27 U.S. Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, Table 1-8. Besides
these changes, other modifications to the baseline to account for current policy are possible. Besides the AMT and tax
cuts, extending other expiring tax provisions would add an additional $920 billion to the budget deficit over 10 years.
The baseline could also have included disaster spending at current levels, adjusted for inflation.
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Table 3. Current Law and Current Policy Baseline Deficit Projections
(billions of dollars)
FY2012-
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2021
Current Law Baselinea
$973 $510 $265 $205 $278 $231 $211 $259 $277 $279 $3,487
+ Extend Tax Cuts and Index
$11 $241 $348 $402 $453 $510 $570 $633 $702 $778 $4,648
AMT to Inflation
+
Extend
Doc
Fix
$12 $19 $24 $27 $32 $36 $41 $46 $53 $59 $349
= Current Policy Baseline
$996
$770
$637
$634
$763 $777 $822 $938 $1,032
$1,116
$8,485
Cost of Extending Tax Cuts and
$11 $241 $348 $402 $453 $510 $570 $633 $702 $778 $4,648
Indexing AMT Relative to
Current Law Baseline
Cost of Extending Tax Cuts and
$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Indexing AMT Relative to
Current Policy Baseline
Source: CRS calculations based on Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, Tables 1-1 and 1-8.
Note: AMT = alternative minimum tax
a. Includes the effects of the deficit reduction provisions of the Budget Control Act.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Any spending reduction or revenue increase could potentially count toward achieving the Joint
Committee’s deficit reduction goal, but certain policy options would yield much different
budgetary effects depending what baseline they are measured against. For example, a proposal to
extend the tax cuts when measured against the current law baseline would show a cost of $4.6
trillion over 10 years, whereas the same policy proposal would have no cost when measured
relative to a “current policy” baseline. Further, relative to the current law baseline, any partial
extension of the Bush tax cuts, AMT patch, and “doc fix” would count as increasing the deficit,
even if these provisions were modified to yield more revenue/less spending than in their current
form, because current law assumes they expire and have no budgetary cost in future years.
Allowing any of these three policies to expire as scheduled would neither increase nor decrease
the deficit relative to the current law baseline. Likewise, a proposal to reduce or end OCO
spending would be counted as reducing the deficit against the current law baseline, since the
August baseline includes current (inflation-adjusted) levels of OCO spending.
The Joint Committee appears to have discretion to decide whether or not to use the official CBO
score for purposes of whether enough deficit reduction has been achieved to avoid the automatic
spending reduction or reduce the automatic spending reduction amount. The BCA requires that
the report accompanying the Joint Committee’s legislation contains an official CBO score made
under conventional scoring procedures, but for purposes of calculating the Joint Committee
proposal’s effects on the deficit, and thus the automatic spending reduction amount, Congress
may choose other conventions. The BCA specifies that interest savings resulting from the
proposal can count toward the total deficit reduction of the proposal.
Automatic Spending Reduction Process
As mentioned above, the BCA specifies that an automatic spending reduction process would be
triggered if legislation from the Joint Committee reducing the deficit by at least $1.2 trillion is not
enacted by January 15, 2012. 28 This process could be triggered as a result of the Joint Committee
not proposing legislation, any legislation proposed by the Joint Committee not being enacted, or
legislation being enacted that reduces the deficit by less than $1.2 trillion. Congress could also
take future actions to repeal or amend the automatic spending reduction process.
The amount of the automatic spending reduction will be determined by how much deficit
reduction results from the work of the Joint Committee. If no deficit reduction legislation is
enacted, the amount required from the automatic spending reduction process will be $1.2 trillion.
If a deficit reduction measure of less than $1.2 trillion is enacted, the amount required from the
automatic spending reduction will be equal to $1.2 trillion less the amount of deficit reduction in
the legislation. After the calculation of the amount of required deficit reduction, the BCA calls for
18% of that total to be credited to debt service savings that would result from the spending
reduction.29 Therefore, the amount of the automatic spending reduction would equal the
remaining 82% of the required deficit reduction total.
28 As discussed in the section “Effects of the BCA on the Budget Deficit,” since the BCA’s automatic spending
reduction process specifies a specific reduction in budgetary resources, not outlays, CBO projects that a $1.2 trillion
automatic spending reduction of budgetary resources would reduce the deficit by modestly less than $1.2 trillion over
the budget window.
29 The actual amount of debt service savings will depend on future interest rates and the timing of the deficit reduction;
18% was set by the BCA. As described in CBO’s analysis of the net budgetary savings resulting from an automatic
(continued...)
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
The automatic spending reduction process is meant to ensure that further action is taken to reduce
the budget deficit in the event that legislation is not enacted as a result of the work of the Joint
Committee. However, the automatic spending reduction process is not meant to ensure that a
certain actual deficit or spending level is attained over time or that deficit saving accomplished by
the automatic spending reduction is not undone by future legislation. The amount of automatic
spending reduction does not change if future budget deficits turn out to be larger or smaller than
projected at the time the automatic spending reduction is determined. Future budget deficits could
turn out to be larger or smaller than projected because of subsequent legislative changes or
because of forecasting errors, which have historically been large.30
The amount of the automatic spending reduction under the BCA is spread evenly over the nine
years from FY2013 to FY2021 and applied to defense (defined as budget function 050) and non-
defense spending categories and applied proportionally to discretionary and mandatory programs
within these categories. For example, a $1.2 trillion automatic spending reduction would amount
to $109.3 billion each year for nine years, with $54.7 billion of the reduction to be applied to
defense and $54.7 billion applied to non-defense programs. Within the defense and non-defense
categories, some programs are exempted from an automatic spending reduction and the cuts to
other programs are limited by statute.31 For example, an automatic spending reduction to
Medicare is limited to 2% of total program spending.32 While the annual amount of the total
automatic spending reduction would not be revised in subsequent years, the amount applied to
any given budget account could be recalculated, if the relative size of budget accounts changes or
the exempt/non-exempt status of an account changes.
In FY2013, the automatic spending reduction is carried out through an across-the-board sequester
(cancellation) of previously authorized budgetary resources. After the first year (FY2013), the
automatic spending reduction is carried out through a sequester for mandatory spending and
through reductions in the overall discretionary caps, rather than by automatic spending cuts, for
discretionary spending. The sequester is applied proportionately to all non-exempt accounts,
while it is left to future Congresses to determine how to apply the reductions to discretionary
accounts within the caps. For purposes of the caps, the distinction between exempt and non-
exempt discretionary accounts does not apply. However, certain categories of discretionary
spending, such as OCO, would still not apply to the caps. Any cuts to discretionary programs as a
result of the automatic spending reduction process would be in addition to the cuts resulting from
the BCA discretionary caps.
(...continued)
$1.2 trillion reduction in the event a Joint Committee bill is not enacted, debt service savings amount to 16% of the
total between FY2013 and FY2021. See Congressional Budget Office, Estimated Impact of Automatic Budget
Enforcement Procedures Specified in the Budget Control Act, September 12, 2011.
30 For more information on the accuracy of projections, see Congressional Budget Office, CBO’s Economic
Forecasting Record: 2010 Update, July 2010, available at http://www.cbo.gov/ftpdocs/115xx/doc11553/
ForecastingAccuracy.pdf. CRS Report R41134, The Impact of Major Legislation on Budget Deficits: 2001 to 2010, by
Marc Labonte and Margot L. Crandall-Hollick also examines the reasons why the budget balance changed over time
between FY2001, when surpluses were projected by CBO throughout the decade, and FY2010, when the budget deficit
was large.
31 These exemptions and special sequester rules are found in 2 USC 905 and 2 USC 906, Section 255 and 256 of the
Balanced Budget and Emergency Deficit Control Act of 1985, as amended.
32 Some Medicare spending is exempt from automatic spending reductions, including Medicare Part D low-income and
catastrophic subsidies and qualified individual (QI) premiums. For more information see 2 USC 906(d)(7).
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Figure 2 shows the projected percentage of budgetary resources tied to each major programmatic
area in FY2014, the first year for which the automatic spending reduction is carried out through
revisions to the discretionary caps.33 Of total gross budgetary resources for FY2014, 51% are
mandatory spending that is exempt from the automatic reduction. The other 49% of budgetary
resources is subject to the automatic spending reduction process. The mandatory share of non-
exempt budgetary resources is subject to an automatic reduction (known as a sequester), and the
discretionary share is subject to reduction as a result of lower discretionary spending caps.
Overall, only $71 billion, or 3%, of mandatory budgetary resources in FY2014 is subject to a
sequester without limits, mostly falling into the non-defense category. The non-exempt portion of
Medicare, which also falls into the non-defense category and accounts for 16% of total gross
budgetary resources in FY2014, is capped at a maximum reduction of 2% by the BCA.
Discretionary spending composes 31% of total budgetary resources in FY2014, 16% in defense
and 15% in non-defense.
Figure 2. Projected Percentage of Budgetary Resources,
by Major Programmatic Area, FY2014
Source: CRS Calculations based on Congressional Budget Office, Estimated Impact of Automatic Budget
Enforcement Procedures Specified in the Budget Control Act, September 12, 2011, Table 2.
Note: Categories labeled exempt are not subject to a spending reduction. Other categories are subject to a
spending reduction. Does not include OCO spending.
If an automatic spending reduction of $1.2 trillion over nine years were to occur, Figure 3 shows
the percentage share of the reduction in FY2014 for each category shown in Figure 2. Most
exempt spending is within the non-defense mandatory category, so the automatic spending
reductions would fall most heavily, in percentage terms, on discretionary programs. In FY2014,
discretionary spending is projected to account for 33% of budgetary resources, but receives 85%
of spending reductions in the Figure 3 example, where an automatic spending reduction of $1.2
33 OCO is excluded from Figure 2 and Figure 3. If it were included at 2011 levels, defense discretionary would rise to
20% of total budgetary resources and overall mandatory spending would decline to 66% of total budgetary resources
(see Figure 2).
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
trillion is required. Defense discretionary spending would be particularly affected because the
defense spending category would receive 50% of all automatic cuts (see Figure 3) but accounts
for 16% of total gross budgetary resources (see Figure 2) and 33% of total non-exempt budgetary
resources. By contrast, mandatory programs account for 69% of budgetary resources in FY2014,
but, in this example, would bear 15% of the spending reduction.
Figure 3. Percentage of Automatic Spending Reduction in Each Major
Programmatic Area for a $1.2 Trillion Reduction, FY2014
Source: CRS Calculations based on Congressional Budget Office, Estimated Impact of Automatic Budget
Enforcement Procedures Specified in the Budget Control Act, September 12, 2011, Table 3.
Note: Does not include OCO spending.
Table 4 shows the reductions in spending from FY2013 to FY2021 to different portions of the
budget in dollar terms and percentage terms, if an automatic reduction of $1.2 trillion over nine
years comes into effect. Exempting large parts of the budget from an automatic reduction means
that the effect on non-exempt programs is much larger than if the same cut were spread over all
programs (i.e., there were no exemptions). For example, in Table 4, total spending (gross outlays)
would be reduced by about 2.5% in FY2014, but it would reduce discretionary caps for defense
by 9.8% and non-defense by 7.4% in FY2014. It would reduce non-exempt mandatory outlays by
2% for Medicare (because of the BCA 2% limit) and 7.4% for other non-defense, non-exempt
mandatory accounts in FY2014. (The reduction in non-exempt defense mandatory would be less
than $1 billion.)34
34 Data from CBO referenced in this section can be found in Congressional Budget Office, Estimated Impact of
Automatic Budget Enforcement Procedures Specified in the Budget Control Act, September 12, 2011. Two other
estimates of the cuts under a $1.2 trillion automatic spending reduction by non-governmental organizations can be
found at Bipartisan Policy Center, How the Sequester Works if the Joint Select Committee Fails, August 5, 2011,
available at http://www.bipartisanpolicy.org/blog/2011/08/how-sequester-works-if-joint-select-committee-fails; Center
on Budget and Policy Priorities, How the Potential Across-the-Board Cuts in the Debt Limit Deal Would Occur,
August 8, 2011, available at http://www.cbpp.org/cms/index.cfm?fa=view&id=3557.
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Table 4. Automatic Spending Reductions Under the Provisions of the BCA by Major Category
(Under a $1.2 tril ion automatic spending reduction between FY2013 and FY2021)
FY2013
FY2014
FY2015
FY2016
FY2017 FY2018 FY2019 FY2020 FY2021
Amount of Reduction in Billions of
Dollars
Defense Reductiona
$55 $55 $55 $55 $55 $55 $55 $55 $55
Non-Defense
Reduction
$55 $55 $55 $55 $55 $55 $55 $55 $55
Medicare
(Mandatory)
$11 $11 $12 $13 $13 $14 $15 $16 $17
Other
Non-Exempt
Mandatory
$5 $5 $6 $6 $5 $5 $5 $5 $5
Discretionary
$39 $38 $37 $36 $36 $36 $34 $33 $33
Percentage
Reduction
Defense
Reduction
10.0% 9.8% 9.7% 9.5% 9.3% 9.1% 8.9% 8.7% 8.5%
Non-Defense
Reduction
Medicare
(Mandatory)
2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Other
Non-Exempt
Mandatory
7.8% 7.4% 7.1% 6.8% 6.6% 6.4% 6.1% 5.8% 5.5%
Discretionary
7.8% 7.4% 7.1% 6.8% 6.6% 6.4% 6.1% 5.8% 5.5%
Source: Congressional Budget Office, Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act, September 12, 2011, Table 3.
Notes: Totals may not sum due to rounding.
a. Mandatory reductions of defense spending account for less than $500 million.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Medicare spending is projected to rise in dollar terms over the next 10 years and therefore, any
automatic spending reduction that reaches or exceeds 2% cap, will result in an increase in dollar
terms of the amount of the automatic spending reduction being borne by Medicare. Since the total
dollar amount of the automatic reduction affecting the non-defense category would be the same
each year from FY2013 to FY2021 and the dollar amount borne by Medicare rises, the dollar
amount of the reduction that would be borne by the other non-exempt, non-defense programs
would fall over the course of the budget window. In the example illustrated by Table 4, cuts to
Medicare rise from $11 billion in FY2013 to $17 billion in FY2021, while cuts to other non-
defense categories fall from $44 billion to $38 billion in those years.
Table 5 provides a list of some of the largest exempt programs and activities and their FY2010
spending levels, the last year of historical data available for these programs. The programs and
activities are classified into defense and non-defense categories. Budget authority for each line
item is further classified by type of spending, mandatory or discretionary. For purposes of the
automatic spending reduction process, Veterans Programs, for example, are classified as non-
defense spending, with $71.2 billion in mandatory budget authority and $53.1 billion in
discretionary budget authority in FY2010. Within the defense category, the President has the
discretion to exempt or include budget authority for military personnel in the automatic spending
reduction process.
Table 5. Selected Programs and Activities Exempt
from an Automatic Spending Reduction
(FY2010 budget authority in billions of dollars and percentage of category total)
% of Total
Defense
% of Total
Program or Activity
Mandatory
Discretionary
(050)
Non-Defense
Defense (050) Programs:
Military Personnela
$121.3
16.8%
Non-Defense Programs:
Social Security
$701.0
25.4%
Tier I Railroad Retirement Benefits
$6.9
0.3%
Veterans Programs
$71.2
$53.1
4.5%
Refundable Income Tax Credits
$108.9
3.9%
GSE Preferred Stock Purchase Agreementsb $52.3
1.9%
Federal Retirement and Disability Accounts
$151.7 $5.7 5.7%
and Activities
Child Nutrition Programs (with the exception
$16.9 $0.2 0.6%
for special milk programs)
Children’s Health Insurance Fund
$12.6
0.5%
Family Support Programs
$4.7
0.2%
Grants to States for Medicaid
$292.7
10.6%
Supplemental Nutrition Assistance Program
$69.0
$0.4
2.5%
Supplemental Security Income Program
$47.1
$3.5
1.8%
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
% of Total
Defense
% of Total
Program or Activity
Mandatory
Discretionary
(050)
Non-Defense
Temporary Assistance to Needy Families
$17.1
0.6%
Federal-Aid Highwaysc $39.7
1.4%
Source: Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2012, Budget Appendix,
available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/appendix.pdf; Public Budget
Database, available at http://www.whitehouse.gov/omb/budget/Supplemental; and Historical Tables, Table 5.1,
available at http://www.whitehouse.gov/omb/budget/Historicals/. For a ful list of exempt programs and special
sequester rules, see 2 USC 905 and 2 USC 906, Section 255 of the Balanced Budget and Emergency Deficit
Control Act of 1985, as amended.
Notes: The total percentage of exempt budget authority for all programs and activities would likely exceed the
levels shown in this table. Figures in this table are expressed in terms of budget authority because that is what
would be automatically reduced if reductions occurred. The table illustrates total spending for each program
unless otherwise noted, not necessarily the exempt portion of a program.
a. Military personnel accounts can be made exempt from an automatic spending reduction only if the
President notifies Congress of their exemption before August 10 for the budget year. The accounts can be
made entirely exempt or can be reduced by a lower uniform percentage than would otherwise apply.
b. This figure is in terms of outlays, rather than budget authority because budget authority for this program
was not limited by statute.
c. Funding for Federal-Aid Highways (account 69-8083-0-7-401) is exempt to the extent that the budgetary
resources of the program are subject to obligation limitations in the appropriations bill. The figure shown
here is the obligation limitation for FY2010 for this account.
The BCA gives the Office of Management and Budget sole authority for allocating the automatic
spending reduction across non-exempt accounts under a sequester and calculating the amount of
the reduction in the discretionary caps. Were the spending reduction to occur, the cuts to non-
exempt account would most likely differ from current estimates because actual program spending
levels will change and as a result of both future policy decisions and technical adjustments to
projections.
Effects of the BCA on the Budget Deficit
CBO estimates that the discretionary caps in the BCA will reduce the baseline deficit by $917
billion over 10 years. The estimated budgetary savings increase from $27 billion in FY2012 to
$153 billion in FY2021 (shown in Table 6).35 The effects of the education provisions of the BCA
on the deficit are negligible, slightly increasing the deficit in the first three years and then
decreasing it for the rest of the projection. Since the Joint Committee has not yet produced a plan
for how to achieve the other $1.2 trillion in deficit reduction, CBO assumes in the baseline that it
will be distributed evenly over nine years beginning in FY2013. Under this assumption, the Joint
Committee plan would reduce outlays or raise revenues by $111 billion each year, and additional
deficit reduction is achieved through lower debt service.
35 Cutting spending or raising taxes causes the government to borrow less, which results in lower interest payments on
the debt. Table 6 includes the effects of lower debt service on the deficit for each policy change; for the discretionary
caps, $778 billion of deficit reduction comes from lower discretionary spending and $140 billion comes from lower
debt service over 10 years.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Should a Joint Committee proposal fail to become law, CBO estimated that the automatic
spending reduction process would reduce the deficit by $1.1 trillion over nine years, rather than
the $1.2 trillion called for in the BCA. The distribution of deficit reduction over the nine years
would be somewhat different than the baseline placeholder shown in Table 6, rising from $68
billion in 2013 to $148 billion in 2021. The difference in amount and timing from what is called
for in the BCA is due to three issues. First, the automatic spending reduction process reduces
budget authority, but the deficit is influenced by outlays. A change in budget authority leads to a
gradual change in outlays because of the time lag between when spending is authorized and when
it occurs. As a result, CBO projects some reduction in outlays after 2021. Second, CBO projects
that the interest savings would be less than the $216 billion (18% of $1.2 trillion) assumed in the
BCA. Third, “reductions in budgetary resources for some programs and activities … would have
effects that would offset some of the original savings.…”36
36 Congressional Budget Office, Estimated Impact of Automatic Budget Enforcement Procedures Specified in the
Budget Control Act, September 12, 2011.
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Table 6. Budget Deficit Projections With and Without the BCA
FY2012-
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017 FY2018 FY2019 FY2020 FY2021 FY2021
Billions of $
Baseline Deficit Prior to the Enactment
$997 $667 $441 $399 $489 $462 $462 $529 $570 $596 $5,615
of the BCA (Current Law)
Effects of Discretionary Caps on Deficit
-$27
-$50
-$64
-$74
-$85
-$97
-$110
-$122
-$137
-$153
-$917
Effects of Education Provisions on Deficit
+$3
+$6
+$3
-$2
-$2
-$2
-$2
-$2
-$2
-$3
-$5
Effects of Hypothetical Joint Committee
$0 -$113 -$115 -$118 -$124 -$132 -$139 -$146 -$154 -$161 -$1,200
Plan on Deficit
Baseline Deficit Including BCA (Current
$973 $510 $265 $205 $278 $231 $211 $259 $277 $279 $3,487
Law)
Deficit Including BCA (Current Policy)
$996
$770
$637 $634 $763 $777 $822 $938 $1,032
$1,116
$8,485
% of GDP
Baseline Deficit Prior to the Enactment
6.4% 4.1% 2.6% 2.2% 2.6% 2.3% 2.2% 2.4% 2.5% 2.5% n/a
of the BCA (Current Law)
Effects of Discretionary Caps on Deficit
-0.2%
-0.3%
-0.4%
-0.4%
-0.4%
-0.5%
-0.5%
-0.6%
-0.6%
-0.6%
n/a
Effects of Education Provisions on Deficit
*
*
*
*
*
*
*
*
*
*
n/a
Effects of Hypothetical Deficit
0% -0.7% -0.7% -0.7% -0.7% -0.7% -0.7% -0.7% -0.7% -0.7% n/a
Committee Plan/Automatic Spending
Reduction on Deficit
Baseline Deficit Including BCA (Current
6.2% 3.2% 1.6% 1.1% 1.5% 1.2% 1.0% 1.2% 1.2% 1.2% n/a
Law)
Deficit Including BCA (Current Policy)
6.4%
4.8%
3.8%
3.5%
4.0%
3.9%
3.9%
4.3%
4.5%
4.7%
n/a
Source: CRS calculations based on CBO data.
Notes: Includes effects of lower debt service. Negative numbers reduce deficit, positive numbers increase deficit. Since the Joint Committee had not proposed a deficit
reduction plan at the time of the August baseline, CBO included a placeholder that assumed that the deficit would be reduced by $111 billion each year from 2013-2021,
plus interest savings. Columns may not sum due to rounding. Deficit effect of caps is calculated here using CBO’s August baseline; the original score was calculated using
CBO’s adjusted March baseline and was $890 billion over 10 years. * = <0.1% of GDP. See Table 3 for bridge from Current Law Baseline to Current Policy Baseline.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Is the deficit reduction achieved by the BCA insufficient, requiring additional policy changes in
the future to further reduce the deficit? Or does it reduce deficits excessively? It depends on the
policy goal. A goal of the deficit savings in the BCA was to match the BCA’s multi-step increase
in the debt limit, although the savings is over a different timeframe than the debt limit increase
and the deficit reduction achieved in the BCA in isolation would not prevent the need for future
debt limit increases. In any case, matching deficit reduction with debt limit increases is a
intermediate goal, but not an ultimate goal of fiscal policy.
If the ultimate policy goal is a balanced budget or budget surpluses or to avoid increasing the
federal debt, then the BCA does not reduce deficits enough to achieve that goal. The BCA’s $2.1
trillion in deficit reduction under current law would leave projected deficits of $3.5 trillion over
10 years, relative to the $5.6 trillion over 10 years prior to the enactment of the BCA (see Table
6). Because the budgetary savings in FY2012 is only $24 billion ($27 billion savings from the cap
and $3 billion cost of student loan provisions) prior to action by the Joint Committee, the baseline
deficit in FY2012 is still projected to be $1 trillion.
Likewise, the $2.1 trillion in spending cuts relative to the baseline contained in the BCA, if the
cuts were to be achieved, does not mean that the total debt of the U.S. will decrease by $2.1
trillion relative to today’s levels. Rather, it means that the cumulative deficit over the FY2012-
FY2021 period will be $2.1 trillion less than it otherwise would have been. Since the budget is
projected to remain in deficit after the BCA, the publicly held debt will continue to rise in dollar
terms each year, from a projected $10.2 trillion in FY2011 to $14.5 trillion in FY2021 under a
current law baseline.
As discussed above, the current law baseline projection assumes that certain policies (“Bush tax
cuts,” AMT “patch,” and Medicare “doc fix”) will expire as scheduled. If those policies are
instead extended, deficits after the BCA are projected to be $8.5 trillion—$5 trillion larger than
the current law deficits—over 10 years. This scenario is referred to as the current policy baseline.
Under the current policy baseline, deficits never get lower than 3.9% of GDP (rising to 4.7% of
GDP by FY2021) and the debt continues to rise relative to GDP each year, reaching 82% of GDP
by FY2021.37 If one believes that current policies will be maintained, additional policy changes
beyond the BCA would be required to put the deficit on a sustainable path. Stated differently,
allowing the “Bush tax cuts,” AMT “patch,” and “doc fix” to Medicare to expire would be one set
of policy changes that would place the deficit on a sustainable basis. (As noted above, allowing
these three policies to expire would not be counted as reducing the deficit under a current law
baseline.) CRS cannot recommend whether these policy options are more or less desirable than
various alternatives.
While the BCA is not projected to result in a balanced budget, another policy goal would be to
place the deficit on a sustainable basis, meaning a level that would stabilize the debt as a share of
GDP. Economists believe that the budget will eventually need to be placed on a sustainable basis
since debt service cannot rise faster than income indefinitely.38 Whether or not the BCA’s forecast
accomplishes this depends on what assumptions are used in the baseline.
37 Congressional Budget Office, Budget and Economic Outlook: Update, August 2011, p. xv.
38 For more information, see CRS Report R40770, The Sustainability of the Federal Budget Deficit: Market Confidence
and Economic Effects, by Marc Labonte.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Under current law, budget deficits fall to 1% of GDP in FY2018 (rising slightly thereafter) and
the publicly held debt falls as a share of GDP over the next 10 years–although it will still remain
at levels that are historically high for the post-World War II period. (Indeed, even without the
BCA, budget deficits were projected to have become low enough under current law to
temporarily stabilize the debt relative to GDP.) In the long run, unsustainably large budget deficit
projections are primarily driven by the assumption that health care costs will continue to grow
faster than GDP.39 Unless the result of the Joint Committee is the enactment of policies that would
change this assumption, unsustainably large deficits would eventually reappear.
Effects of the BCA on the Economy
Gross domestic product, the total output of the economy, consists of spending on consumption,
investment, net exports, and by government. In the short run, policy changes that reduce the
budget deficit by reducing government spending would directly reduce that component of gross
domestic product.40 As a result, in an economy that is significantly below full employment (as is
the case today), standard macroeconomic theory predicts that reducing the deficit would reduce
spending and employment in the overall economy, all else equal. To fully offset these effects,
other spending in the economy would need to rise. Yet in an economy where overall spending is
already too low to fully employ all available labor and capital resources, other spending is
unlikely to increase sufficiently.41 Theory predicts that, in an open economy, the short-term effects
of changes in the budget deficit on overall spending in the economy would be diminished by
cross-border capital flows.42 Theory also predicts that these effects would be temporary–
eventually, market forces would return the economy to full employment. This would happen more
slowly if the budget deficit were reduced, compared to if the budget deficit were maintained.43
CBO is projecting that the economy will be back to full employment around 2016.
This analysis assumes that investors will continue to be willing to finance large budget deficits at
low interest rates in the short term regardless of whether the budget deficit is reduced. If the
United States entered a “debt spiral,” the standard macroeconomic analysis may no longer apply.
A “debt spiral” is a scenario similar to that recently experienced in Greece, where investors lose
faith in the government’s ability to service its debt, and therefore require much higher interest
rates to be willing to hold government debt. In this scenario, policy changes to reduce the budget
deficit could potentially stimulate the economy, if it restored investor confidence and, as a result,
interest rates declined. There is no evidence that the United States is about to enter a debt spiral at
this time, and most economists consider the likelihood of a debt spiral to be small. While
investors may be willing to finance large budget deficits at low interest rates for several more
39 For more information, see CRS Report RL32747, The Economic Implications of the Long-Term Federal Budget
Outlook, by Marc Labonte.
40 Economists refer to these policy changes as reducing the structural budget deficit, as opposed to cyclical reductions
in the deficit caused by more rapid economic growth.
41 Reducing the deficit through higher taxes would be expected to have a similar effect on the overall economy.
42 Theory predicts that the increase in spending from the change in the deficit would be offset by a change in the
balance of trade caused by capital flows. By accounting identity, capital flowing into (out of) a country must enter
(exit) in the form of a trade deficit (surplus).
43 For more information, see CRS Report R41849, Can Contractionary Fiscal Policy Be Expansionary?, by Jane G.
Gravelle and Thomas L. Hungerford.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
years, the risk of a crisis remains for as long as the United States continues to run unsustainably
large budget deficits.44
Reducing the budget deficit through spending cuts would also be expected to affect the economy
in the long run. In standard macroeconomic theory, budget deficits “crowd out” private
investment spending on plant and equipment by pushing up interest rates. In other words, the
government’s borrowing places upward pressure on all interest rates, leading private businesses to
undertake fewer investment projects. Lower investment spending would reduce long run GDP
relative to if the budget were balanced, all else equal. Alternatively, standard theory predicts that
higher interest rates could be avoided if the government or private sector increases its borrowing
from abroad. By accounting identity, this borrowing from abroad comes to the United States in
the form of a trade deficit.45 Chronically low domestic savings rates and chronically high trade
deficits in the past two decades suggest that the crowding out problem could become an issue
once investment demand rebounds from the economic downturn, if large deficits remain.
Reducing budget deficits would reverse such crowding out effects.46 In addition to the deficit
channel, reductions in spending could have positive or negative effects on long-term growth,
depending on what type of spending is cut. For example, reducing public investment spending
could have negative effects on long-term growth.
The magnitudes of both the short-run and long-run effects described in this section depend mostly
on the size of the deficit reduction. Relatively small spending reductions would be expected to
have a relatively small effect on the economy, and larger ones would have a larger effect. The
magnitude of the short-run effects would also depend on timing. For example, if spending cuts
were enacted today but did not go into effect until future years, they would not be expected to
have any effect on the economy this year.47 If the economy were closer to full employment by the
time a phased-in spending reduction went into effect, the effects on overall spending in the
economy would be expected to be smaller. Eventually, the budget deficit can be restored to
sustainability only through spending cuts, tax increases, or both. In that sense, a comparison
between reducing the deficit and the status quo is a false comparison in the long run. The size of
current deficits should make crowding out effects greater than they have been historically; the
weakness in the economy and financial system should make them smaller than historically for the
time being.
For determining the short-run macroeconomic effects, the magnitude of the incremental change in
the structural deficit each year is a relevant measure. As seen in Table 6, the “first round” cuts
relative to the baseline caused by the discretionary spending caps and student loan provisions
reduce the deficit by $24 billion in FY2012. They rise around $20 billion each year after that,
reaching $156 billion by FY2021. A spending cut of $24 billion amounts to about two-tenths of
one percent of GDP in FY2012. Thus, the first round cuts would be expected to be too small to
have a noticeable effect on the economy. JPMorgan Chase estimates that the first round cuts
44 These issues are discussed in more detail in CRS Report R40770, The Sustainability of the Federal Budget Deficit:
Market Confidence and Economic Effects, by Marc Labonte.
45 The trade deficit increases because one country can only borrow from another by buying more of the creditor
country’s goods and services than the creditor buys from the debtor country.
46 These issues are discussed in more detail in CRS Report R40770, The Sustainability of the Federal Budget Deficit:
Market Confidence and Economic Effects, by Marc Labonte.
47 Reducing the deficit could have positive effects on household and business confidence about the sustainability of
fiscal policy that helped the economy. It is not clear that households and businesses currently lack confidence because
of future deficits, however, since interest rates on federal debt are unusually low.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
would reduce GDP growth by 0.14 percentage points in FY2012.48 The $1.2 trillion to $1.5
trillion second round cuts could potentially be larger each year. Depending on how quickly they
are phased in, they could potentially have a larger short-term effect on the economy in FY2012.
As an example, if the full automatic spending reduction went into effect and $1.2 trillion of
spending cuts were distributed evenly across the nine year FY2013-FY2021 budget window,
spending would be cut by $133 billion each year (in addition to the first round cuts). The two
rounds combined amount to about 1% of GDP in FY2013. JPMorgan assumes that the deficit
committee will agree to phase in the second round reduction in the deficit over time, in which
case they estimate that the overall effect on the first and second round policy changes would be to
reduce GDP growth by 0.3 percentage points in FY2012–this is relatively small compared to the
expected rate of GDP growth that year. On the other hand, GDP growth was already expected to
be too slow to significantly reduce the high rate of unemployment in FY2012. Further, some
economists fear that the U.S. may be heading back into a recession. If so, deficit reduction in
FY2012 could make a recession more likely.49 If phased in more slowly, the economy could be
near or at full employment by the time they are fully implemented, and the short-term effect on
the economy would be less of an issue.
The deficit-reduction effects of the Budget Control Act are occurring at the same time that other
temporary fiscal stimulus measures are being withdrawn. Thus, the overall stance of current fiscal
policy is more contractionary than the BCA viewed in isolation. CBO estimates the combined
effects of the BCA and the expiration of the tax cuts (assuming Congress did not extend them)
would reduce real GDP by 1.5%-3.5% from what it otherwise would be in FY2013.50 J.P. Morgan
Chase estimates that the structural deficit (adjusting for the business cycle) will decline by 2.3%
of GDP in FY2012 overall, and this will reduce GDP growth by 1.7 percentage points, all else
equal. In other words, even before the BCA was enacted, the tightening of fiscal policy would
have reduced GDP growth by 1.4 percentage points of GDP in FY2012.51 Similarly, Goldman
Sachs estimates that fiscal policy will contract by 1.7% of GDP overall in FY2012, mostly
because of expiring provisions.52
For determining the long-run macroeconomic effects, the magnitude of the overall decline in the
deficit is a relevant measure. As seen in Table 6, the “first round” cuts reduce the baseline deficit
by 0.2% of GDP in FY2012, rising to 0.6% of GDP in FY2021. This would reduce the crowding
out effects, but leave unsustainably large deficits in place using a current policy baseline.
Including the second round effects would further reduce the deficit, but one cannot determine
whether the debt would be stabilized relative to GDP until a proposal is made. Under the
automatic spending reduction scenario, the deficit would still be above a sustainable level under a
current policy baseline. Thus, the Budget Control Act would be expected to reduce the long-term
crowding out problem, but under a current policy baseline the problem would still be significant,
and some risk of a debt spiral would remain. By contrast, under a current law baseline, crowding
48 JPMorgan, “Let the Pea-Eating Begin,” North America Economic Research, newsletter, August 2011. JPMorgan
assumes a multiplier of 1 in this calculation, meaning GDP would increase by the same amount as the change in the
deficit.
49 For more information, see CRS Report R41444, Double-Dip Recession: Previous Experience and Current Prospect,
by Craig K. Elwell.
50 Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2011, p. 38.
51 J.P.Morgan, “Let the Pea-Eating Begin,” North America Economic Research, newsletter, August 2011. J.P. Morgan
assumes a multiplier of 1 in this calculation, meaning GDP would increase by the same amount as the change in the
deficit.
52 Goldman Sachs, “Some Early Thoughts on Upcoming Fiscal Proposals,” U.S. Daily Newsletter, August 19, 2011.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
out would remain, but it would be smaller, and the deficit would appear sustainable over 10 years
(although large deficits would eventually be projected to reappear in the long run), further
reducing the risk of a debt spiral.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Appendix. The Relative Size of the Deficit
Reduction in the Budget Control Act Compared to
Earlier Acts
The BCA is not the first piece of legislation enacted with the main purpose of reducing the budget
deficit. Since the early 1980s, there have been seven major deficit reduction packages which are
summarized below.
The Omnibus Budget and Reconciliation Act of 1981 (OBRA 1981; P.L. 97-35) contained major
spending changes to certain programmatic areas such as health program block grants, Medicaid,
television and radio licenses, Food Stamps, dairy price supports, energy assistance, education
program block grants, student loans, the Social Security minimum benefit, and others. It was
projected to reduce the deficit by $131 billion over three years.
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA 1982; P.L. 97-248) had various
provisions that on net increased tax revenue and reduced entitlement spending. It was projected to
reduce the deficit by $116 billion over three years.
The Deficit Reduction Act of 1984 (DRA 1984; P.L. 98-369) had various provisions that, on net,
increased tax revenue and reduced outlays. It was projected to reduce the deficit by $125 billion
over five years.
The Omnibus Budget and Reconciliation Act of 1987 (OBRA 1987; P.L. 100-203) contained
major changes to spending and revenue programs. Major spending changes affected such areas as
Medicare, Medicaid, agricultural target prices, farm income support payments, deferral of lump-
sum retirement payments to federal employees, Postal Service payments into retirement and
health benefit funds, and others. Major revenue changes affected such areas as home mortgage
interest deduction, deduction of mutual fund expenses, accelerated payments of corporate
estimated taxes, and others. It was projected to reduce the deficit by $76 billion over two years.
The Omnibus Budget and Reconciliation Act of 1990 (OBRA 1990, P.L. 101-508) had various
provisions that on net increased tax revenue and reduced mandatory spending. In addition, it set
discretionary spending targets below baseline levels for future years with enforcement
mechanisms to ensure the targets were met. It was projected to reduce the deficit by $423 billion
over five years.
The Omnibus Budget and Reconciliation Act of 1993 (OBRA 1993, P.L. 103-66) had various
provisions that on net increased tax revenue and reduced mandatory spending. In addition, it set
discretionary spending targets for 1996-1998 below baseline levels for future years, using the
same enforcement mechanisms put in place in 1990. It was projected to reduce the deficit by
$386 billion over five years.
The Balanced Budget Act of 1997 (BBA 1997; P.L. 105-33) had various provisions that, on net,
reduced mandatory spending and reduced the deficit through asset sales. The legislation also
contained caps on discretionary spending through FY2002. The BBA was projected to reduce the
deficit by $127 billion over five years.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
The Deficit Reduction Act of 2005 (DRA 2005; P.L. 109-171) had various provisions that on net
reduced mandatory spending and was projected to reduce the deficit by $39 billion over five
years.
Table A-1 and Table A-2 compare the amount of estimated/projected deficit reduction relative to
the baseline achieved by various legislation enacted since the 1980s. Over five years, the amount
of “first round” deficit reduction contained in the Budget Control Act of 2011 is projected to be
smaller in nominal dollars than two previous deficit reduction packages, the Omnibus Budget
Reconciliation Act of 1990 and the Omnibus Budget Reconciliation Act of 1993. (The five-year
deficit reduction total from the BCA will be determined by the outcome of the work of the Joint
Committee.) The BCA is larger in nominal dollars than deficit reduction packages in 1982 and
2005 over three years. The first round effects of the BCA are larger over five years than deficit
reduction legislation enacted in 1984, 1997, and 2005. However, when expressed as a share of
GDP, only the 2005 Deficit Reduction Act is smaller.
Table A-1. Effects on Budget Deficit of Selected Legislation in Billions of Dollars
Deficit in
5 Year
Year of
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Enactment
OBRA
1981
$35 $44 $51 n/a n/a n/a $79
TEFRA
1982
$25 $40 $51 n/a n/a n/a $128
DRA
1984
$15 $21 $28 $29 $32 $125 $185
OBRA 1987
$30
$46
n/a
n/a
n/a
n/a
$150
OBRA
1990
$32 $65 $79 $114 $133 $423 $221
OBRA
1993
$32 $53 $75 $104 $122 $386 $255
BBA
1997
$13 $35 $18 $62 $45 $162 $22
DRA
2005
$5 -$4 $5 $21 $12 $39
$318
BCA 2011
$22 $41 $56 $69 $77 $265
$1,284
(First Round)
Source: CRS Report RS22098, Deficit Impact of Reconciliation Legislation Enacted in 1990, 1993, 1997, and 2006;
CRS Report R40480, Budget Reconciliation Measures Enacted Into Law: 1980-2010, by Megan Suzanne Lynch;
Congressional Budget Office, Effects of Changes in Taxes and Benefit Payments Resulting from the Tax Equity and
Fiscal Responsibility Act of 1982, Staff Memorandum, July 1982; Congressional Budget Office, Budget and Economic
Outlook: An Update, Congressional Budget Office, Budgetary Implications of the Balanced Budget Act of 1997, Staff
Memorandum, Dec. 1997; Congressional Budget Office, S. 1932 Deficit Reduction Act of 2005, Cost Estimate,
January 27, 2006.
Notes: Table does not include effects of debt service savings on the budget deficit. Table does not include
“second round” effects related to the work of the Joint Committee proposal or the automatic spending
reduction process, which could potential y further reduce the deficit over the next five years. Positive numbers
indicate an decrease in the deficit. Negative numbers indicate a increase in the deficit. Deficit reduction in the
BCA is projected.
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The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit
Table A-2. Effects on Budget Deficit of Selected Legislation as a Percentage of GDP
Deficit in
5 Year
Year of
Year 1
Year 2
Year 3
Year 4
Year 5
Average
Enactment
OBRA
1981
1.1% 1.3% 1.3% n/a n/a n/a 2.6%
TEFRA
1982
0.7% 1.0% 1.2% n/a n/a n/a 4.0%
DRA
1984
0.4% 0.5% 0.6% 0.6% 0.6% 0.5% 4.8%
OBRA 1987
0.4%
0.6%
n/a
n/a
n/a
n/a
3.2%
OBRA
1990
0.5% 1.0% 1.2% 1.6% 1.8% 1.3% 3.9%
OBRA
1993
0.5% 0.7% 1.0% 1.3% 1.4% 1.0% 3.9%
BBA
1997 0.2% 0.4% 0.2% 0.6% 0.4% 0.4% 0.3%
DRA
2005
* * *
0.2%
0.1%
0.1%
2.6%
BCA 2011
0.2% 0.3% 0.4% 0.4% 0.4% 0.3% 8.5%
(First Round)
Source: CRS Report RS22098, Deficit Impact of Reconciliation Legislation Enacted in 1990, 1993, 1997, and 2006;
Congressional Budget Office, Effects of Changes in Taxes and Benefit Payments Resulting from the Tax Equity
and Fiscal Responsibility Act of 1982, Staff Memorandum, July 1982; Congressional Budget Office, Budget and
Economic Outlook: An Update, Congressional Budget Office, Budgetary Implications of the Balanced Budget Act
of 1997, Staff Memorandum, Dec. 1997; Congressional Budget Office, S. 1932 Deficit Reduction Act of 2005, Cost
Estimate, January 27, 2006.
Notes: Table does not include effects of debt service savings on the budget deficit. Table does not include
“second round” effects related to the work of the Joint Committee proposal or the automatic spending
reduction process, which could potential y further reduce the deficit over the next five years. Positive numbers
indicate an decrease in the deficit. Negative numbers indicate a increase in the deficit. Deficit reduction in the
BCA is projected. * = < 0.1%
Table A-1 provides estimates of the deficit effects of this legislation relative to the baseline, in
isolation of other legislation enacted in the same year that increased or decreased the deficit.
(Table A-2 shows the effects of the deficit reduction legislation in terms of GDP.) Whether the
actual deficit rose or fell compared to the previous year following the enactment of this
legislation depends on the other legislation enacted at the time, as well as factors outside of
congressional control, such as economic conditions or increases in mandatory spending as a result
of demographic changes.
Author Contact Information
Marc Labonte
Mindy R. Levit
Specialist in Macroeconomic Policy
Analyst in Public Finance
mlabonte@crs.loc.gov, 7-0640
mlevit@crs.loc.gov, 7-7792
Acknowledgments
The authors wish to thank Bill Heniff, Jr., for his helpful comments on this report.
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