Statutory Limit on the Public Debt / Budget Control Act of 2011
The maximum amount, established in law, of public debt that can be outstanding. The debt limit covers virtually all debt incurred by the Federal Government (primarily the Treasury Department), including borrowing from trust funds, but excludes some debt incurred by agencies.
On August 2, 2011, Congress and the President enacted the Budget Control Act of 2011 (S. 365) (P.L. 112-25) establishing procedures for raising the debt limit by a cumulative total of between $2.1 trillion and $2.4 trillion. The Budget Control Act also included limits on discretionary spending for fiscal years 2012 to 2021 and other provisions related to deficit reduction.
The CBO has prepared a list of CBO publications that analyze the budgetary impact of the Budget Control Act of 2011.
A key issue confronting President Barack Obama and Congress toward the beginning of 2011 was the need to raise the statutory limit on the public debt by a significant amount to accommodate the persistent, high deficits projected by the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). The president wanted Congress to raise the debt limit by more than $2 trillion, which was the amount judged necessary to last beyond the November 2012 elections. Members of both parties in the House and Senate were concerned that the public would not accept such an increase, given that the debt limit already stood at the record level of $14.3 trillion, without a strengthened commitment also being made to control spending and curb the deficit.
The Simpson-Bowles Commission (officially known as the National Commission on Fiscal Responsibility and Reform) and various other groups, such as the “Gang of Six” in the Senate, made recommendations to reduce the deficit over the coming decade by as much as $4 trillion. In an effort to reach a “grand bargain” on the federal budget, in which the deficit would be reduced by amounts comparable to what others had proposed, President Obama and Speaker of the House John Boehner carried out negotiations but could not conclude such a deal.
David Hume on public debt
With Treasury Secretary Timothy Geithner issuing dire warnings about economic catastrophe if the debt limit was not raised in a timely way, Standard and Poor’s downgrading the federal government’s credit rating, turbulence in the stock market, and other factors adding to the urgency of the situation, the president and Congress finally reached a scaled-back agreement. The president signed the compromise measure, the Budget Control Act of 2011, into law on August 2, 2011, as P.L. 112-25 (125 Stat. 240-267).
The Budget Control Act (BCA) of 2011 contains many elements, including a phased increase in the statutory debt limit amounting to $2.1 trillion in total, a requirement that the House and Senate vote on a balanced-budget constitutional amendment by the end of 2011, and various changes in House and Senate budget procedures. The core elements, however, involve the reinstitution of statutory limits on discretionary spending and a process under which a Joint Select Committee on Deficit Reduction (the “Joint Committee”) is required to develop significant deficit-reduction legislation. Under the terms of the BCA, the Joint Committee’s recommendations would be considered under an expedited timetable and a process that precluded the offering of amendments. If the Joint Committee’s recommendations were not enacted into law, spending reductions would occur under a fallback sequestration procedure that was scheduled to take effect in January 2013. The discretionary spending limits and the Joint Committee’s recommendations (or, alternatively, the fallback sequestration procedure) together were expected to produce at least $2.1 trillion in deficit reduction over the ten year period covering FY2012–2021, thus equaling the total amount of the debt-limit increases.
House Ways and Means Committee Hearing Examining the Government’s Ability to Continue Operations When at the Statutory Debt Limit
Implementation of the BCA began immediately upon its enactment, with an increase of $400 billion in the debt limit. In late September 2011, the limit was increased by another $500 billion (to $15.2 trillion). A third and final increase in the limit, amounting to $1.2 trillion (bringing the limit to $16.4 trillion), occurred in January 2012. The BCA established procedures under which Congress could block the last two debt-limit increases by means of joint resolutions of disapproval, but it was not anticipated that these procedures would be successful. (The House approved a joint resolution of disapproval, H.J.Res. 77, on September 14, 2011, but it was not acted on by the Senate.)
With respect to the required vote on a balanced-budget constitutional amendment, the House failed to pass such a measure (H.J.Res. 2) under the suspension procedure on November 18, 2011, by a vote of 261 to 165 (twenty-three votes short of the necessary two-thirds threshold). The Senate considered two versions of the constitutional amendment, S.J.Res. 10 and S.J.Res. 24, on December 13 and 14, 2011, rejecting them by votes of 47 to 53 and 21 to 79, respectively.
External Factors of the Debt Crisis
The BCA reestablished discretionary spending limits for FY2012–2021 by amending the pertinent portion of the underlying law, Section 251 of the 1985 Balanced Budget Act (the Budget Enforcement Act of 1990, which established the original discretionary spending limits, did so by amending the 1985 act). Because the limits are set below the baseline levels of discretionary spending projected at the time by CBO, the enactment of annual appropriations acts in compliance with the limits is expected to reduce such spending (and the deficit) by $917 billion over the ten-year period, according to CBO estimates. Total budget authority available under the limits begins at $1.043 trillion for FY2012 and climbs to $1.234 trillion by FY2021.
Under the revised Section 251 of the 1985 act, discretionary spending is divided into two categories, “security” and “nonsecurity,” for FY2012 and FY2013; afterward, there is a single “discretionary” category. The security category is defined as including all discretionary spending for the Defense, Homeland Security, and Veterans Affairs Departments; all budget accounts in the international affairs (150) function, and a few other items. As with the earlier limits, the new ones are adjusted for several factors during the year as the budget process unfolds, such as designated emergencies or changes in budget concepts.
The BCA provided that the Joint Committee, a bipartisan panel consisting of six House and six Senate members evenly divided by party, report its legislative recommendations by a November 23, 2011, deadline. In the event the Joint Committee’s legislation was not reported by that date, and enacted into law by January 15, 2012, the BCA provided a fallback procedure intended to produce the $1.2 trillion in savings that the Joint Committee had been tasked to produce. After extensive deliberations, the co-chairs of the Joint Committee (Representative Jeb Hensarling and Senator Patty Murray) announced on November 21, 2011 that the group had failed to reach a consensus: “After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”
Under the BCA, the failure of the Joint Committee to report recommendations by the November 23, 2011, deadline meant that the fallback procedure were triggered on January 2, 2013. The delay in triggering the procedure gives Congress and the president a little more than a year to intervene by enacting legislation under regular legislative procedures that would prevent the fallback procedure from taking effect, should they choose to do so.
Hensarling Statement on Revised Budget Control Act of 2011
For discretionary spending, a sequester for FY2013 would be implemented on January 2, 2013, under the revised categories. For each fiscal year thereafter, when the preliminary sequestration report is issued for that year (in conjunction with the submission of the president’s budget in January or February), the limits on discretionary spending for the revised categories are adjusted downward by the appropriate amounts and any required sequester is implemented. The president may exempt military personnel accounts from a sequester, but the reductions in spending for the remaining defense discretionary programs must be increased so that the total required reductions are achieved.
For mandatory spending, a sequester would occur automatically for each fiscal year over the nine-year period, from FY2013–2021. Many mandatory spending programs, such as Social Security, Medicaid, and unemployment compensation, are exempt from the sequestration process. Any required reduction in the Medicare program is limited to 2 percent; if the limitation comes into play, then the reductions in the other discretionary and direct spending programs in the nondefense category must be increased so that the total required reductions are achieved.
The BCA prescribes the method by which the automatic reductions under the fallback procedure are calculated. Although the final determinations will be made by the OMB director as scheduled under the BCA, CBO has made preliminary estimates that provide a general idea of the reductions that will be required. According to the estimates, the $1.2 trillion in required savings would be achieved over the nine-year period by reducing defense and nondefense spending categories each by about $55 billion annually, requiring annual uniform reductions ranging from 8.5 percent to 10.0 percent for defense and from 5.5 percent to 7.8 percent for nondefense (except for a 2 percent limit on Medicare reductions).
See also Budget Process; Budget Deficit / Budget Surplus; Budget Enforcement Act; Congressional Budget Office (CBO); Deferral of Budget Authority; Federal Debt; Government Accountability Office / GAO / Comptroller General; Gramm-Rudman-Hollings; Impoundment; Public Debt / Debt Ceiling / Debt Limit; Rescission; § 7.10 Key Budget Process Laws, § 7.13 Estimated Savings from Automatic Reductions, § 7.40, Presidential Budget Process, in Congressional Deskbook; The Federal Budget Process; and Ch. 7.J. Debt Ceiling, in Congressional Procedure.
America’s Debt Crisis Explained
- Budget Process (CongressionalGlossary.com)
- U.S. National Debt Clock: Real Time
- House Budget Committee
- House Committee on Ways and Means
- Senate Budget Committee
- Senate Committee on Finance
- The Joint Committee on Taxation
- National Commission on Fiscal Responsibility and Reform – Wikipedia
- Federal Budget Links and Research Tools – TheCapitol.Net
- 31 U.S.C. § 3101, Public Debt Limit, LII
- “Quick summary of the Budget Control Act,” by Keith Hennessey, August 1, 2011
- Bureau of the Fiscal Service
- “Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market,” GAO Report GAO-11-203
Clarke and Dawe – Dealing with the Sovereign Debt Crisis
- United States public debt – Wikipedia
- “Legislative Procedures for Adjusting the Public Debt Limit: A Brief Overview,” CRS Report RS21519 (15-page PDF)
- “The Budget Control Act of 2011: Effects on Spending Levels and the Budget Deficit,” CRS Report R42013 (37-page PDF)
- “Budget Control Act: Potential Impact of Automatic Spending Reduction Procedures on Health Reform,” CRS Report R42051 (26-page PDF)
- “The Federal Budget: Issues for FY2011, FY2012, and Beyond,” CRS Report R41685 (28-page PDF)
- “The Debt Limit: History and Recent Increases,” CRS Report RL31967 (43-page PDF)
- Budget Control Act of 2011 (Pub.L. 112-25, S. 365, 125 Stat. 239) – Wikipedia
- “Budget Process and Enforcement,” Parliamentary Boot Camp (4-page PDF)
- “The President’s Budget Request: Overview and Timing of the Mid-Session Review,” CRS Report RL32509 (19-page PDF)
- “Debt Limit Legislation: The House ‘Gephardt Rule’,” CRS Report RL31913 (17-page PDF)
- “The coming challenge of servicing our national debt,” by James Capretta, AEI, January 26, 2018
- “Federal Deficits, Growing Debt, and the Economy in the Wake of COVID-19,” CRS Report R46729 (24-page PDF)
- “The Debt Limit Since 2011,” CRS Report R43389 (44-page PDF)
- “Expiration of the Discretionary Spending Limits: Frequently Asked Questions,” CRS Report R46752 (15-page PDF)
- “The Budget Reconciliation Process and the Statutory Limit on the Debt,” CRS Insight IN11681 (5-page PDF)
- “Clearing the Air on the Debt Limit,” CRS Report R45011 (33-page PDF)
- “A National Disgrace: The federal budget process threatens America’s future.” By John Steele Gordon, City Journal, February 19, 2021
- “2023 Debt Limit: Congressional Consideration of Debt Limit Legislation,” CRS Insight IN12133 (3-page PDF)
Raising the Debt Ceiling: It Just Makes Sense. Not.
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