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What the Debt Ceiling Bill Does

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Members of Congress Huddle on Debt Ceiling Crisis

Members of Congress Huddle on Debt Ceiling Crisis

Chip Somodevilla/Getty Images
Updated August 02, 2011

Whew! That was close! On August 2, 2011, the U.S. Congress was within hours of letting the government default on its $14.3 trillion debt, much of it owed to China, but at the 11th hour, lawmakers passed a compromise bill that both raised the debt ceiling and cut at least $2.2 trillion in federal spending over the next decade. Here are the highlights of what this bill - the "Budget Control Act of 2011" -- does.

Raising the Debt Limit: Immediately raises the debt limit by $400 billion and gives President Obama the authority to raise it again this fall by another $500 billion, unless both houses of Congress override his action by supermajority votes. A third debt limit increase of up to $1.5 trillion can be made if Congress enacts spending cuts that match the amount of the debt limit increase. The full $1.5 trillion debt limit increase can also be applied if Congress passes and sends to the states for ratification a constitutional amendment requiring the federal government to operate only under a balanced budget - the so-called "balanced budget amendment."

Cutting Federal Spending: Cuts the operating budgets of the 15 Cabinet agencies by $900 billion over the next 10 years and caps the total budget for the Cabinet agencies at $1.043 trillion in 2012, a reduction of more than $7 billion from amount budgeted in 2011.

The Debt Cutting Committee: Creates a 12-member, joint House and Senate committee of six Republicans and six Democrats, assigned to come up with a proposal cutting up to $1.5 trillion from the federal debt by 2012. If the committee's debt-cutting plan is approved by the full Congress by December 23, 2011, the debt limit can be increased by the same $1.5 trillion. If the committee fails in its mission, automatic spending cut measures will be triggered.

The Triggered Spending Cuts: Should the congressional committee of 12 fail to produce and pass legislation resulting in at least $1.2 trillion in spending over the next ten years by December 23, 2011, the White House Office of Management and Budget (OMB) will impose equivalent spending cuts in several areas of the federal government including defense, agency budgets and farm subsidies. Almost one-half of the $1.2 trillion in automatic spending cuts will come from the defense budget. Pay for military personnel and the three major federal entitlement programs; Social Security, Medicare, and Medicaid including the State Children's Health Insurance Program (SCHIP), will not be affected.

Pell College Grants: The bill adds $17 billion to funding for Pell Grants for low-income college students in 2012-2013. The increases will be offset by reductions in subsidies for federal student loans.

Stopping Fraud and Abuse: While not directly cutting spending for Social Security and Medicare, the bill imposes "program integrity" incentives designed to reduce cases of fraud and wasteful spending in those and other entitlement programs.

Before you celebrate the raising of the debt limit too much and too soon, remember these two inconvenient truths:
  • If it is raised every time it is reached, the "debt limit" does nothing to limit the national debt.
  • The U.S. government currently borrows 40 cents of every dollar it spends, and that's not likely to change anytime soon.

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