The Mechanics of Cutting $2.1 Trillion from the Federal Budget

Tuesday, August 2, 2011 at 9:34 PM by
A Summary of the Substance of the “Satan Sandwich”

The deal to raise the debt ceiling creates a three-stage process that will lead to damaging program cuts and continued economic weakness, while it increases the debt ceiling by $2.1 trillion. As many others have noted, it shouldn’t have come to this. The final deal should have included revenue increases, and key programs should have been shielded.

With the nation teetering on the brink of its second slide into a double-dip recession, America needed a deal that creates jobs, rather than one that will destroy them. And we needed a deal that doesn’t leave safety net programs stretched so thin and left so vulnerable to deep cuts later this year.

Almost no one likes the compromise, which was described by Rep. Emmanuel Cleaver (D-Mo) as a “sugar-coated Satan sandwich.” Now that the Senate has gagged down the unsavory compromise (by a vote today of 74-26), it’s important to understand what it consists of.  When examining the contents of a sugar-coated sandwich (satanic or otherwise), it seems appropriate to turn to the Food Research Action Council. Most of the following summary is excerpted from a message they distributed this morning.

A. $900 billion of cuts locked into place – The deal immediately locks in a 10-year downward spiral in spending on discretionary programs – like Title 1 education, Head Start, law enforcement, juvenile justice, LIHEAP and many others. Over 10 years (FYs 2012-2021) the cuts will amount to a little over $900 billion – including $350 billion from defense and security spending (defined for this stage as defense, state and foreign operations, homeland security and veterans affairs) and $550 billion from non-defense discretionary, reducing the latter to levels not seen since the 1950s. These cuts are “backloaded” – the FY 2012 cuts will be painful but modest compared to later years. Pell grants are protected from cuts.

B. Supercommittee charged with finding $1.5 trillion more — The bill creates a 12-member bipartisan, bicameral Congressional supercommittee, with 3 members each appointed by House Democrats and Republicans, and Senate Democrats and Republicans. That committee’s members will be appointed within two weeks of the deal’s enactment.

The committee is charged with producing $1.5 trillion in further cuts by the end of the year from entitlements and tax revenues. The bill it reports out (if it succeeds in producing a bill) is “fast-tracked” – i.e., it doesn’t go through normal committee processes and isn’t subject to procedural roadblocks like a filibuster. The supercommittee must report out its bill by November 23rd, and Congress must vote on it by December 23rd. Although the deal allows additional revenue to be part of the solution, Rep. Boehner continues to insist that GOP members won’t vote for any compromise that includes added revenue.

C. Fallback of automatic cuts — If the committee fails to produce a bill or the bill doesn’t pass, that will trigger “automatic” across-the-board cuts (a “sequestration”) in the amount of $1.2 trillion over 10 years. One half of those cuts will be in defense, and one half will be in entitlement programs. However, Social Security, Medicaid, unemployment insurance, SSI, SNAP, child nutrition programs and TANF are exempt from the cuts. (I believe WIC is also exempt.) Medicare can be cut, but there is a cap on that cut and it only applies to providers. (Note that programs protected from the automatic cuts aren’t necessarily protected from whatever cuts are proposed by the supercommittee and approved by Congress.)

It’s not clear to me why the automatic cuts would be $1.2 trillion, whereas the charge to the supercommittee is $1.5 trillion. However, my understanding is that if Congress approves changes generating less than $1.2 trillion in cuts or additional revenue, sequestration would be used to produce cuts that bring the total to $1.2 trillion.

For additional information, see the perspectives of a number of national groups: the Center for Economic and Policy Research, Center on Budget and Policy Priorities, Economic Policy Institute, the National Women’s Law Center, and the Republican National Committee.

Jon Peacock

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