Debt Deal Signed into Law

August 2, 2011

President Barack Obama has signed into law the Budget Control Act of 2011 to raise the federal debt ceiling just hours before the U.S. was facing default for the first time in its history. The plan will cut the national debt by at least $2.1 trillion over the next 10 years with no immediate provision for tax increases.

The bill, which would increase the debt ceiling by at least $2.1 trillion and cut spending by as much as $2.4 trillion over the next decade, was approved by the Senate on a vote of 74-26 and then prepared for transmittal to the White House.

Senate Majority Leader Harry Reid (D-Nev.) said passage of the measure brings to an end the long stand-off between the White House and Democrats and congressional Republicans over raising the debt limit. But Reid said work will begin again soon on the second element of the plan, the creation of a new joint committee that will recommend legislation to trim future deficits by at least $1.2 trillion.

The agreement (S. 365) was passed by the Senate following House action on Monday evening – passing the bill 269 to 161, in a bipartisan vote, with members of both parties in favor of the legislation that had opposition from both the far right and far left sides.

More specifically, the main components of the deal are:

  • A $900 billion increase in the debt ceiling by the end of the year;
  • Nearly $1 trillion in spending cuts over 10 years by establishing spending caps immediately;
  • A newly created joint committee of to-be-named 12 bipartisan lawmakers who would seek further deficit reduction measures in the range of $1.5 trillion by November;
  • A trigger that will implement broad cuts to domestic and defense spending in equal ratios if the committee fails to act by a November 23 or Congress fails to approve its recommendations (which cannot be amended or filibustered) by a December 23 deadline; and
  • A vote on a balanced budget amendment to the Constitution must be held before the end of the year.

The bill was the result of months of wrangling between President Obama and congressional leaders. However, neither Obama nor House Republicans can really claim victory as it is a deal that neither particularly likes. However, but some victories for Obama include a long-term extension of the debt ceiling, protecting Social Security, Medicaid, children’s health insurance, and veterans from spending cuts, and a 50-50 split in domestic cuts between defense and non-defense spending. Republicans see wins in the deal’s lack of an explicit call for tax increases, votes on a constitutional balanced budget amendment in both chambers, and protections of defense spending.

Now that the debt vote is over, the Senate is set to wrap up its business until Sept. 6, though the House’s failure to pass an adjournment resolution likely means the Senate will not officially adjourn. This will bar Obama from making recess appointments in August. When Congress does get back from its summer recess, the president said he will urge lawmakers to extend tax cuts to middle-class families, extend the payroll tax holiday, and ensure that those looking for a job are not denied needed unemployment benefits.

Please click here for more on NSBA’s stance on deficit reduction and tax reform.