Each of the parties involved in the creation of the Budget Control Act of 2011 achieved some wins and some losses.
The Budget Control Act of 2011 accomplishes the following:
- Raises the debt limit by $2.1 trillion, enough to allow the federal government to continue borrowing money until 2013.
- Cuts discretionary spending by $917 billion and caps it (Congress cannot spend more without a super-majority vote) for the next 10 years.
- Creates a joint committee of Congress (3 House Republicans, 3 House Democrats, 3 Senate Republicans, and 3 Senate Democrats) to craft a bill that will reduce deficits by at least $1.2 trillion over 10 years. If at least 7 committee members agree to the bill, Congress must vote on it with no amendments and no filibusters.
- If Congress fails to pass the joint committee's bill, automatic “triggers”, or spending cuts, will go into effect that cuts spending by the same amount.
So, who wins and who loses?
Win: Obama got what he most wanted – an increase that would last until after the 2012 election. Obama did not want to have to replay the same drama over a debt ceiling increase in the midst of an election campaign.
The devastating impact that the lack of a debt ceiling increase would have had on the American and global economy would have hurt Obama's chances at reelection. The public usually credits Presidents when the economy does well and blames them when the economy does poorly, even when presidents have little to do with it. Even though the public would have blamed Republicans if there had been no deal, they would have blamed Obama for the sour economy that would have resulted.
Also, Obama effectively positioned himself as a centrist in the debate, placing himself between the Republicans and Democrats, much as President Clinton did in 1995. This will help his reelection chances in 2012.
Lose: Obama got no revenue increases as part of the deal. During his 2008 campaign and the first two years of his presidency, Obama said he wanted the Bush tax cuts to expire for the top two brackets. By the end of the debt ceiling negotiations, he was only calling for ending unpopular tax deductions, such as those for oil companies and corporate jets, as a way to raise revenue. Ending these deductions would not have raised much revenue. It would have been a symbolic victory, however, but he wasn't even able to get those in the bill. There may still be revenue increases in phase two, though, after the joint committee submits its bill.
Win: None of the immediate cuts in phase one will come from entitlement programs (Medicare, Medicaid, and Social Security). In phase two, if the joint committee's bill is not passed, the triggers only include modest cuts to Medicare (providers not beneficiaries), and Medicaid and Social Security would be left untouched.
Lose: As with Obama, the lack of revenue increases represents a big loss for Democrats. Also, the deficit reduction in phase two will likely include reductions in the growth of Medicare, Medicaid and Social Security.
Win: Republicans got most of what they asked for. They got spending cuts larger than the size of the debt limit increase, and there are no tax increases. Also, both houses of Congress will vote on a balanced budget amendment.
Lose: If the joint committee's bill is not passed, the trigger would include deep cuts to defense spending.
Win: The triggers in phase two would be more painful to Republicans than Democrats, an advantage that liberals may be able to exploit. Also, the fight over defense spending cuts revealed a rift in the Republican Party, with some Republicans opposing them and others supporting them. Liberals may be able to take advantage of this split to further reduce defense spending.
Lose: Liberals are the biggest losers in the deal. The deficit reduction in phase one contained no tax increases. The negotiations also showed there is not much support in Congress for tax increases, even among Democrats. This suggests that the nearly $2 trillion in deficit reductions will mostly come from reducing the growth of entitlements, rather than large tax increases.
Wins: The Tea Party is the biggest winner in the debt deal, but you would not know it by listening to their leaders.
The Tea Party has dramatically changed the conversation about federal spending. Even after the Democrats suffered major defeats at the hands of the Tea Party in the 2010 elections, Obama was still talking about the need for more stimulus spending. Plus, as late as April, Obama was asking Congress for a “clean” (no spending cut) debt ceiling increase. By the end of the battle, the Tea Party had Obama agreeing with it that there should be spending cuts, and the cuts should be at least as big as the debt ceiling increase. Future presidents will be unlikely to ask for a clean debt ceiling increase again. Austerity, rather than stimulus, is the new normal in Washington, D.C.
For a movement that often cites the Constitution, the Tea Party seems oblivious to one of the primary design features of our government – that change would happen slowly. On the other hand, it makes sense for Tea Party leaders to describe the Budget Control Act as a defeat. Calling it a win would dampen the energy of the movement for further reforms.
Loses: The Budget Control Act slows the growth of federal spending, but it does not stop it from growing. Also, while the balanced budget amendment will be voted on, its passage will not be required to raise the debt ceiling.
Win: Not raising the debt ceiling would have had devastating effects on the economy. Also, the negotiations over the debt limit increase sowed uncertainty in the economy. Businesses were reluctant to hire because they were unsure about what would happen. The Budget Control Act, at the least, prevented a bad economy from getting much worse.
Also, the controversy clarified for the public the main differences between the two parties – Republicans want low taxes and smaller government; Democrats want government to provide a more expansive role, especially in programs for the poor and elderly.
Lose: The debt deal is smaller than what was needed to get the nation on a path to fiscal sustainability. The Simpson-Bowles Commission report said that, at a minimum, $4 trillion in deficit reduction over 10 years is needed. The Budget Control Act of 2011 would cut, at most, less than $3 trillion.
Plus, the growth in spending over the next decade will mostly come from three programs – Social Security, Medicare, and Medicaid. The federal budget will continue to grow at a higher rate than the economy because of these programs. Phase two of the Budget Control Act will likely address some of these concerns, but with less than $2 trillion in deficit reduction, it will not be enough. Congress will have to revisit the issue in 2013, but the longer Congress waits, the more painful the deficit reductions will have to be.
While the Tea Party achieved the most, and liberals achieved the least, none of the parties involved in the debt limit negotiations emerged a complete winner or complete loser, and that is exactly how the designers of our government would have it. The authors of the United States Constitution wanted a government that would only act when broad sectors of the public could come to an agreement. The process and the final bill reflect the intent of many features of the U.S. government, such as, separation of powers, a bicameral legislature, and midterm elections.