The Budget Debate: Just the Facts
Confused about what you are hearing on the news about the budget debate in Congress? Looking for facts without all of the political rhetoric?
This page is dedicated to providing the WIPP community with bipartisan explanations of the current budget and deficit debates before the Congress.
WIPP’s Economic Blueprint: Economic Principle
The federal deficit for FY12 is projected by the CBO to be about $1.1 trillion, which is down from FY11's $1.3 trillion deficit, and down from the record high of around $1.5 trillion for FY 2010 (which constituted 10.64% of the U.S. GDP). The deficit inevitably affects small businesses through increased taxes and higher interest rates.
Federal Spending must be controlled: WIPP urges Congress and the Administration to work together to confront difficult fiscal choices necessary to reduce the deficit, ensure spending cuts are equitable, and guard against revenue raising tactics that result in a wholesale tax on small businesses.
Debt Ceiling Debate
With Congress returning from April recess, one of the first issues to be tackled is raising the debt ceiling. When the federal government’s spending exceeds revenues, it borrows money to offset the losses and this becomes federal debt.
There is a federal law that caps the amount of debt that the government can owe. This limit is known as the debt ceiling and is currently set at $14.3 trillion. The amount of federal debt is expected to surpass the existing ceiling on August 2nd. In order to raise the ceiling limit, Congress has to act.
The existing debate centers on whether and how much to raise the debt ceiling. If the deficit continues to grow as anticipated and the debt ceiling limit is not increased, the government could be forced into defaulting on its current debt for the first time ever.
In May 2011, the House voted down a proposal to raise the debt ceiling limit without any spending cuts. To read more about this legislation, click here.
On June 23rd, negotiations were set back by the abrupt departure of House Majority Leader Eric Cantor (R-VA) who withdrew from talks due to his opposition to the inclusion of tax increases along with spending cuts in the deal to raise the debt ceiling. It is expected that President Obama and Speaker of the House John Boehner will take up negotiations in an effort to finalize a deal. To read more on these developments, click here.
On July 31, 2011, the President and Congressional leaders began finalizing an agreement in which deficit reduction measures would accompany the raising of the debt ceiling. On August 1, the House of Representatives passed the deal by a vote of 269 - 161. A day later, the Senate voted in favor of the deal by a 74 - 26 margin. With Congressional approval, the bill went to the President who signed it into law.
On January 12, 2012, President Obama again asked Congress for the expected $1.2 trillion increase in the debt ceiling as the government's debt has grown to within $100 million of the statutory spending limit. The likely debt limit increase will be the third and final step in a process
set up by the deal reached in August. The next increase of $1.2 trillion is expected to satisfy Treasury’s
borrowing needs until after the November elections, especially if the economy
improves. As part of the debt deal, both chambers of Congress had to vote on whether they disapproved of the raise. The House overwhelmingly passed their disapproval resolution. In the Senate, the measure failed. The result is that the debt ceiling will be raised $1.2 trillion dollars to $16.39 trillion. This amount should cover the nation's borrowing needs through the 2012 Presidential election.
Debt Ceiling Recommendations
In January, April and May 2011, Secretary of the Treasury Timothy Geithner sent a letter to Congress about the consequences of exceeding the debt ceiling.
- To read Secretary Geithner’s January 2011 letter, click here.
- To read Secretary Geithner’s April 2011 letter, click here.
- To read Secretary Geithner’s May 2011 letter, click here.
The Congressional Research Services (CRS) provides nonpartisan policy and legal analysis to members of Congress. To read the September 2011 CRS report about the debt limit, click here.
The Hill, a Congressional newspaper that is released daily when Congress is in session, published an article in April 2011 on "10 Things to Watch on the Debt-Ceiling Showdown.” To read this article, click here.
The Deficit: Does it Matter?
The difference between the government’s revenues and spending is either an annual surplus or deficit. When revenues exceed spending there is a government surplus. However, when spending exceeds revenues, there is a deficit. Even in a surplus year, the government may have to borrow money to pay off existing debt. Yearly deficits not only add to the amount of federal debt, but also increase the government’s interest payment obligations.
Different Points of View on How to Solve the Deficit
(1) To read the WIPP Works in Washington "Tidal Wave of Debt” article from November 2010, click here.
(2) In December 2010, the President’s bipartisan Commission on Fiscal Responsibility and Reform, proposed a six-part plan to tackle and stabilize the deficit. Though the Commission failed to reach the required votes needed to send this proposal to Congress, these recommendations are part of the ongoing deficit discussion.
To read the Commission’s Report, click here. See pages 15 – 16 for an overview of the Commission’s recommendations.
(3) The Congressional Budget Office (CBO) provides objective nonpartisan analysis on budget matters to the Congress. To read about CBO’s spending and revenue options for reducing the deficit, click here.
(4) In April 2011, the President provided recommendations for reducing the deficit. To read "The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility,” click here. To view the President's Fiscal Framework slides, click here.
(5) The "Gang of Six” refers to a group of Senators, three Democrats and three Republicans, who worked together to come up with a compromise solution for the debt crisis.
Members of the "Gang of Six” are Sen. Warner (D-VA), Sen. Durbin (D-IL), Sen. Conrad (D-ND), Sen. Chambliss (R-GA), Sen. Crapo (R-ID), and Sen. Coburn (R-OK). It is worth noting that four of these Senators were members of the President’s Commission on Fiscal Responsibility and Reform.
The Gang of Six has attempted to come up with a compromise debt-reduction plan that would cut $3.7 trillion from the deficit. According to the Gang of Six, in their plan, about 3/4 of debt-reduction would come from spending cuts while the remaining fourth would come from tax increases. Some lawmakers question whether the plan can be finalized in time to meet the August 2nd deadline as it has yet to be officially drafted or evaluated by the Congressional Budget Office. To read more on this development, click here.
(6) The Biden Commission referred to a group of six lawmakers convened by Vice President Joe Biden trying to find common ground on reforming the budget process in the context of increasing the debt ceiling.
Members of the Biden Commission are Sen. Max Baucus (D-MT), Sen. Daniel Inouye (D-HA), Senate Minority Whip Jon Kyl (R-AZ), House Majority Leader Eric Cantor (R-VA), Rep. Jim Clyburn (D-SC), and Rep. Chris Van Hollen (D-MD).
The Biden Commission has not yet released a proposal, but to read about the status of its potential plan, click here.
(7) Third Way, a think-tank in Washington DC, has recently released a memo explaining the five most significant consequences should the government default on its debt. To read "The Dominos of Default,” click here.
(8) The House of Representatives passed H.R. 2560, the Cut, Cap
and Balance Act. At the core of this
bill is a call for passage of a Balanced Budget Amendment to the Constitution
in order to raise the debt ceiling. Although,
this bill passed the House, the Senate voted against it. To read the bill, click here.
(9) Speaker of the House John Boehner (R-OH) released a plan that would raise the debt ceiling $2.5 trillion dollars and cut $917 billion from the deficit over the next ten years. Although the plan passed in the House, the Senate voted to table it. The non-partisan Congressional Budget Office evaluated this proposal. To read the CBO's evaluation, click here.
(10) Senate Majority Leader Harry Reid (D-NV) also released his plan. The Reid plan would raise the debt limit by $2.7 trillion dollars and would reduce budget deficits by $2.2 trillion over the next ten years. The Reid Plan failed to pass the House by a 173 yeas to 246 nays vote. To read the CBO evaluation, click here.
(11) Late in the evening on July 31st, the President and Congressional leaders reached a tentative compromise agreement. Along with immediately raising the
$14.3 trillion dollar debt ceiling to take it through 2012, the
deal also limits discretionary spending at $1.043 trillion for fiscal year 2012
and at $1.047 trillion for fiscal year 2013. Additionally, it cuts up to $2.4
trillion from the deficit over the next ten years. One trillion of the cuts
would take effect right away with the rest of the amount to be determined by a
joint congressional committee made up of twelve members. If the joint committee
fails to agree on specific reductions, that would trigger automatic spending
cuts split equally between domestic and defense spending. However, Social
Security, Medicaid and Medicare benefits would be exempt from the automatic
cuts. The plan also requires Congress to vote on a Balanced Budget Amendment to
the Constitution before the end of the year. To view the CBO analysis of this agreement, click here.
On August 1st, the House of Representatives voted to pass this agreement by a vote of 269 yeas to 161 nays. The Senate held their vote on August 2nd and voted in favor of the agreement by a 74-26 margin. The bill now is sent to the President, who is expected to sign the bill into law, thereby avoiding a government default.
The Debt Ceiling and Deficit Reduction Agreement
The agreement immediately raises
the debt ceiling by $900 billion and requires spending cuts to match the ceiling
raise. Entitlement cuts/tax increases will not be part of the initial $900
billion in cuts. That means programs such as Social Security, Medicare or
Medicaid will not be affected in the first round of spending
the amount of the debt ceiling is estimated to require another raise of $2.1 -
$2.4 trillion, cuts in that amount are also required over a 10 year period.
Cuts will apply to security related spending as well as non-security related
A new Joint Committee will be formed by Congress to recommend an
additional $1.5 trillion of the cuts by December 2011. The Committee will be made up of 6 members from each chamber of Congress and will be bipartisan. If Congress does not
adopt the recommendations, or if spending is not cut at least $1.2 trillion,
automatic spending cuts split equally between security and non-security spending
would take place. Social Security and Medicaid and Medicare benefits to
beneficiaries would be exempt from the automatic cuts. However, there would be
a 2% cut to Medicare providers.
The plan also requires Congress to vote on a
Balanced Budget Amendment to the Constitution before the end of the year. If
2/3rds of the Congress passed the amendment, the debt ceiling would
automatically be raised by $1.5 trillion.
To view a WIPP summary presentation of the debt and deficit deal, click here.
After the Deal
A week after the debt and deficit agreement was reached, Congressional leadership began making their selections for the "Super Committee" who will be charged with putting together a $1.5 trillion deficit-reduction package by Thanksgiving. On August 9, Senate Majority Leader Harry Reid (D-NV) announced his selections of Senate Finance Committee Chairman Max Baucus (D-MT), Senator John Kerry
(D-MA) and Senator Patty Murray (D-WA). To read more on these selections, click here.
A day later, Speaker John Boehner (R-OH) appointed Ways and Means Committee Chairman
Dave Camp (R-MI), Energy and Commerce Chairman Fred Upton (R-MI) and House
Republican Conference Chairman Jeb Hensarling (R-TX) to serve on the panel.
Representative Hensarling will serve as co-chairman of the committee. Senate Minority Leader Mitch McConnell (R-KY) appointed Senator
Jon Kyl (R-AZ), Senator Rob Portman (R-OH), a former Budget Director from the previous
administration, and Senator Pat Toomey (R-PA). To read more on these selections, click here.
On August 11, House Minority Leader Nancy Pelosi (D-CA) announced the final selections to the committee, selecting Representative James Clyburn (D-SC), Rep. Chris Van Hollen (D-MD) and Rep. Xavier
Becerra (D-CA). To read more on these selections, click here.
The Super Committee announces its new website, www.deficitreduction.gov.
After months of negotiations, on November 21, 2011, the Super Committee announced that it was unable to reach an agreement on how to reduce the deficit. To read the statement from the co-chairs, click here. The Super Committee had been working on a plan to cut at least $1.2 trillion from the deficit but with a goal of cutting $1.5 trillion. The lack of a bipartisan agreement was largely due to disagreement over tax increases and cuts to entitlement programs. Lack of an agreement means that in 2013, $1.2 trillion in cuts will go into effect, split evenly between defense and non-defense spending.
Super Committee Timeline
Sept. 8 - the Super Committee held its first hearing. That was an organizational meeting setting up the rules.The second
Sept. 13 - this is a public hearing that will include CBO Director Douglas Elmendorf giving testimony on The History and Drivers of Our Nation’s Debt and its Threats.
Sept. 22 - the deadline for Congress to disapprove of the first $900 billion portion of the debt ceiling increase.
October 1 is the beginning of Fiscal Year 2012, theoretically, Congress is supposed to have the federal budget in place by then.
Oct. 1 - Dec. 31 - the time frame when Congress is to vote on the Balanced Budget Amendment to the Constitution.
October 14 - the House and Senate Committees are to turn in their recommendations to the Super Committee.
Nov. 23 - the deadline for the Super Committee to vote on a plan with $1.5 trillion in deficit reduction.
Dec. 2 - the deadline for the committee to submit its report and legislative language to the president and to Congress.
Dec. 23 - the deadline for both the House and Senate to vote on the Super Committee bill.
Jan. 15, 2012 - the date that the "trigger" leading to $1.2 trillion of future spending cuts goes into effect, if the committee's legislation has not been enacted.
February 2012 - approximate time when the first $900 billion of debt ceiling increase runs out.
February/March 2012 - during this period, 15 days after the president uses his authority in the bill to increase the debt ceiling a second time, is the deadline for Congress to consider a resolution of disapproval for the second portion ($1.2-$1.5 trillion) of the debt ceiling increase.
Fall/Winter 2012 - the additional $2.1-$2.4 trillion of borrowing authority from this law is expected to run out.
Jan. 2, 2013 - OMB orders sequestrations for defense and non-defense categories of spending necessary to meet spending cuts required by the "trigger."
The Budget Process
Budget Debate & Proposal for FY 2013
The federal government operates within a fixed budget for each fiscal year. A fiscal year is a 12-month period from October 1 to September 31. Preparing the budget is a complicated process and often confusing to understand.
Rather than provide a complex explanation, there is an interactive guide from the Washington Post that simplifies the process. To review the "Interactive Federal Budget Process," click here.
On February 13, 2012, President Barack Obama released his proposed budget for Fiscal Year 2013. To review the President's proposed budget plan, click here. The CBO reviewed the President's budget and estimated it would hit its growth targets. To read more from the CBO, click here.
In March, Rep. Paul Ryan (R-WI) released his FY13 Budget Plan. It was voted on and passed in the House on March 30, 2012 by a vote of 228 - 191. To read Rep. Ryan's plan, click here. The Ryan Plan imposes a discretionary spending limit of $1.028 trillion dollars, less than the $1.047 trillion agreed to in the debt deal. The Senate has said it will abide by that number and will not put forth an additional plan.
The Senate release its discretionary allocations for FY13; to view them, click here. The Financial Services appropriations bill, which will fund the SBA, received an allocation of $23 billion. On March 7, the House Small Business Committee held a hearing to markup the SBA's FY13 Budget. To read the Committee's Views and Estimates letter, click here. To view a chart comparing the FY13 SBA budget proposals of the President and the House to FY12's budget, click here.
House Majority Leader Eric Cantor (R-VA) stated that Republicans would begin floor consideration of the first FY 2013 appropriations bill the week of May 7, starting either with a Commerce, Justice, Science (CJS) bill or the Water and Energy bill.
Budget Debate & Proposals for FY 2012
The budget debate is focused on developing a balanced approach between cutting government funding and raising taxes.
In April 2011, the President released his proposed budget for FY 2012.
- To read the President’s proposal, click here.
- To read the President’s proposed budget for each agency, click here.
- To read CBO’s preliminary analysis of the President’s proposed budget, click here.
In April 2011, House Committee Chairman Paul Ryan (R-WI) released a budget that has passed in the House.
- To read more about the Ryan budget, please click here.
- To read CBO’s long-term analysis of Rep. Ryan’s budget proposal, click here.
In May 2011, the Senate voted on multiple budget plans, including the budget plan of House Budget Committee Chairman Paul Ryan (R-WI) and the President’s proposed budget. Although the Ryan budget passed in the House, it failed in the Senate. The President’s proposed budget also was rejected by the Senate. Additionally, votes on two other budget proposals failed. To read more about the Senate budget votes, click here.
On November 18, 2011, President Obama signed into law a bill, known as the first "minibus,”
providing $128 billion in funds for the departments of Agriculture,
Commerce, Justice, Transportation, and Housing and Urban Development.
It extended funding to the other government agencies until Dec. 16. The stop-gap funding measure was necessary because the previous continuing resolution was set to expire on November 18.
However, despite passage of the first minibus, Congress had difficulty passing the remaining two, leading to the large "megabus" bill to fund the government.
Proposed SBA Budget for FY 2012
To read the House Small Business Views and Estimates Letter about SBA’s FY 2012 budget, click here.
WIPP has prepared a letter with its views on the SBA proposed budget for FY 2012. This letter has been sent to the Chair and Ranking Member of the Senate Small Business Committee. It has also been sent to all members of the House and Senate Appropriations Subcommittee on Financial Services and General Government. To read WIPP’s letter to the Chair and Ranking Member of the Senate Small Business Committee, click here.
Balanced Budget Amendment
As part of Debt Deal, Senate Minority Leader Mitch McConnell (R-KY) introduced a Constitutional amendment to balance the budget. Amending the Constitution requires that three-quarters of the states must ratify the amendment. However, this component failed to pass either the House or Senate. The amendment would have gone into effect 5 years after ratification by the States. Some features of the McConnell amendment included:
- A limit on spending to 18% of the Gross Domestic Product (GDP)
- A 2/3 vote required to allow spending to go above 18%
- A requirement that outlays cannot exceed receipts
- The President has to submit a balanced budget
- Raising the debt ceiling requires a 3/5 vote of the House and Senate
- Waivers allowing for spending above 18% in the case of a Declaration of War or a military conflict which threatens national security
FY 2012 Budget
The SBA will receive $919 Million in FY 2012 appropriations. The funding levels for programs important to WIPP members include:
- WBCs: $14 Million
- NWBC: $992,000
- SBA Office of Advocacy: $9.1 Million
- PRIME: $3.5 Million
- SBDCs: $112.5 Million
- Microloan Technical Assistance: $20 Million
- Microloan Lending: $3.67 Million (which supports $25 Million in lending
To view funding levels for all federal agencies, click here.
To read HR 2055, the Conference Report to the Consolidated Appropriations Act of 2012 (aka the "megabus"), click here.
FY 2011 Budget
The FY 2011 budget process broke down last fall amid election politics and debates over spending. As a result, Congress did not finalize the FY 2011 budget until April 14, 2011, more than six months into the fiscal year. The agreed upon budget cut approximately $38.5 billion in spending from FY 2010 levels and narrowly averted a government shutdown.
- To read a summary of the FY 2011 budget, click here.
- To read the text of the FY 2011 budget, click here.
- Did you know ... the United States defaulted on its debt in 1979.
- Did you know ... Barack Obama opposed raising the debt ceiling in 2006 when he was a Senator.
- Did you know ... the debt ceiling has been raised six times since the beginning of 2006.
- Did you know ... if you spent one dollar every second, it would take you 12 days to spend a million dollars; 32 years to spend a billion dollars; and more than 31,000 years to spend a trillion dollars.
Please contact Matt Boyle, WIPP Small Business Policy Analyst, at email@example.com with any questions.