Addressing the Federal Debt and Deficit
Nov. 8, 2011
The Joint Select Committee on Deficit Reduction, created in August, has until Nov. 23 to find a way to reduce the federal deficit. This issue has been hanging over Capitol Hill for a year, as concerns have grown about the size of the federal government's debt and the ways to prevent it from growing. This interactive looks at the debt in detail, at prior proposals to rein in the deficit, at the deadline facing the joint committee and at the automatic spending cuts that will take effect in January 2013 if the committee does not produce $1.2 trillion in savings.
How the Cuts Would Fall
The debt limit and deficit reduction law (PL 112-25) enacted this summer requires a joint committee to recommend and Congress to pass at least $1.2 trillion in deficit savings over the next decade in addition to an estimated $917 billion already achieved by caps on discretionary appropriations. The joint committee is supposed to decide on a proposal by Nov. 23; the House and Senate are supposed to vote on the committee plan by Dec. 23; the president is supposed to sign the plan into law by Jan. 15, 2012.
If the deadlines are not met, or if the committee plan falls short of $1.2 trillion in savings, automatic, across-the-board spending cuts would be triggered to take effect over nine years to make up the shortfall. The automatic cuts would fall equally on defense and non-defense accounts and would affect some entitlement programs.
This interactive graphic shows how the size and distribution of automatic cuts would change depending on what Congress does — or does not do — by Jan. 15.
1
Congress can decide whether automatic cuts will take effect or not, depending on how much savings it achieves through the work of the joint committee. The amount of savings will also affect the size of the next debt limit increase, which will take effect when the debt next comes within $100 billion of the current limit.
If cuts enacted by Jan. 15, 2012, are:
Move the slider to alter the size of the enacted cut. Numbers underlined in red will change in response.
$X trillion
Then total automatic cuts are:
Automatic spending cuts kick in only if Congress does not produce at least $1.2 trillion in deficit reduction.
$X trillion
And the future debt limit increase is:
The law requires a debt limit increase, corresponding to the amount of the enacted cuts, of at least $1.2 trillion and up to $1.5 trillion.
$X trillion (for a new limit of $ trillion)
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After the size of the total cut is determined, it is adjusted to account for expected savings on future debt interest payments. Then the remainder is divided equally over nine years, beginning with 2013.
If cuts enacted by Jan. 15, 2012 are:
Total "triggered" cut
$X trillion
$X trillion
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Subtract 18 percent in debt service savings
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Remainder
$X billion
$X billion
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Divide equally among fiscal years 2013 to 2021
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Amount sequestered
$X billion per year
$X billion per year
2013
2014
2015
2016
2017
2018
2019
2020
2021
3
The sequester for each year would then be divided equally between defense and non-defense spending. After exempting certain programs, an even percentage cut would be applied to all accounts, with a special cap on cuts to Medicare. The first sequester would go into effect on Jan. 2, 2013, and future sequesters would occur when the president submits his budget.
If cuts enacted by Jan. 15, 2012 are:
Divide each year's cut evenly between defense and non-defense accounts
→
Annual cut: $X billion
DEFENSE
$X billion
$X billion
NON-DEFENSE
$X billion
Exemptions include:
$X billion
Exemptions include:
- Social Security
- Medicaid
- Civilian retirement
- Low-income assistance
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After exempting certain programs, apply a uniform percentage cut to all accounts to achieve required savings. Medicare cuts cannot exceed 2%.
The Deficit Reduction Countdown
Nov. 23:
Deadline: The joint committee must vote on a report of its recommendations as well as implementing legislation. The report must include a Congressional Budget Office estimate of the proposals' budgetary impact. A majority vote of the 12 committee members is required to approve recommendations, and the report, legislation and vote must be made public.
Consequences: If the committee does not meet this deadline, Congress cannot pass a joint committee bill by Jan. 15 as required by law. Automatic spending cuts of $1.2 trillion over nine years would therefore take effect starting on Jan. 2, 2013.
Dec. 9:
Deadline: Standing committees of the House and Senate must report the deficit committee's legislation to the House and Senate floors without amendment.
Consequences: If any committee to which the bill is referred does not report by the deadline, it might be discharged from further consideration of the bill, automatically in the Senate and by a motion in the House.
Dec. 23:
Deadline: Both chambers must vote on the legislation. Debate is limited to two hours in the House and 30 hours in the Senate, and all points of order are waived.
Consequences: If both chambers do not pass the bill by this date, the measure loses its privileged status for expedited consideration.
Jan. 15, 2012:
Deadline: Legislation must be enacted to reduce the deficit by at least $1.2 trillion over 10 years.
Consequences: If the target is not met, automatic spending cuts take effect on Jan. 2, 2013, equally reducing both defense and non-defense accounts over nine years by whatever portion of the $1.2 trillion target is not achieved by legislation.
Breaking Down the Proposals
Simpson-Bowles
GOP Budget Resolution
Gang of Six
Obama's Proposal
Almost a year ago, in December 2010, the president's bipartisan debt commission, led by former Republican Sen. Alan K. Simpson of Wyoming and former White House Chief of Staff Erskine Bowles (from the administration of President Bill Clinton), outlined a plan to reduce the deficit by roughly $4 trillion over a decade. Six months later, in June, a bipartisan group of senators referred to as the Gang of Six put forward a somewhat different proposal, achieving a similar level of savings but leaving the details largely up to congressional committees.
In the meantime, House Republicans had adopted a budget resolution in April that relied on spending cuts and a restructuring of both Medicare and Medicaid that they said would put the government on a more sustainable fiscal path. And President Obama unveiled a long-term deficit reduction strategy in September.
None of these four proposals has a chance of becoming law intact, but all of them provide fodder for the Joint Select Committee on Deficit Reduction as it tries to produce legislation that would reduce the deficit by a minimum of $1.2 trillion over a decade by a Nov. 23 deadline.
The table below contains details of each of the four previous proposals to allow comparison. Use the checkboxes at the top to filter the information by subject area. Provisions estimated to have an effect of less than $5 billion over 10 years are not included in the table.
Health:
Other Mandatory:
Discretionary:
Revenue:
Simpson-Bowles |
GOP Budget Resolution |
Gang of Six |
Obama's proposal |
|---|---|---|---|
| Medicare | |||
| Increase cost-sharing for Medicare beneficiaries and restrict Medigap coverage ($110 billion) | Turn Medicare into a premium-support program where Medicare pays a set subsidy to the beneficiary's chosen plan. | Permanently reform or replace the Medicare physician payment formula, offsetting the costs with health savings | Reduce payments to drug makers to the level paid by Medicaid ($135 billion) |
| Reduce Medicare payments to hospitals for medical education ($60 billion) | Adjust payments for nursing homes and rehabilitation facilities that provide post-acute patient care ($42 billion) | ||
| Extend the rebates that drug companies are required to give to Medicaid beneficiaries to those who also receive drug coverage through Medicare Part D ($49 billion) | Reduce reimbursements to providers resulting from beneficiaries' non-payment of deductibles and copayments ($20 billion) | ||
| Develop a new Medicare physician payment formula that encourages coordination of care and rewards quality over quantity ($26 billion) | Increase by 15 percent premiums for physician and drug benefits that are tied to income levels ($20 billion) | ||
| Gradually end reimbursements to providers resulting from beneficiaries' non-payment of deductibles and copayments ($23 billion) | Reduce Medicare payments to hospitals for medical education ($9 billion) | ||
| Accelerate home health savings authorized in the health care overhaul. ($9 billion) | Reduce special Medicare payments to rural providers ($6 billion) | ||
| Reduce Medicare waste, fraud and improper payments ($9 billion) | Reduce Medicare waste' fraud and improper payments ($5 billion) | ||
| Medicaid | |||
| Limit state taxes on Medicaid providers and, as a result, reduce the federal matching contribution ($44 billion) | Convert the federal share of Medicaid into a block grant indexed to inflation and population growth ($771 billion) | Limit state taxes on providers and, as a result, reduce the federal matching contribution ($26 billion) | |
| Give Medicaid full responsibility for the care of dual eligibles with Medicare reimbursing Medicaid for its share of costs ($12 billion) | Apply a single matching rate for each state for Medicaid and the Children's Health Insurance Program ($15 billion) | ||
| Include Social Security benefits in calculation of Medicaid eligibility ($15 billion) | |||
| Medical Malpractice | |||
| Recommendations include imposing a statute of limitations, creating specialized health courts, allowing safe haven rules for providers following best practices and considering statutory caps on punitive and non-economic damages ($17 billion) | Cap non-economic damages in medical liability lawsuits | Direct the Judiciary Committee to find savings through medical malpractice reform | |
| Tricare | |||
| Restrict Medigap coverage for the military Tricare health program ($38 billion) | Increase pharmacy co-payments for the military Tricare health program ($15 billion) | ||
| Initiate annual fees for Tricare's Medigap program ($6.7 billion) | |||
| Other Health | |||
| Direct the Finance committee to find an additional $202 billion in health savings beyond the $298 billion needed to pay for the fix to Medicare physician payments | |||
| Agriculture | |||
| Reduce direct payments and other subsidies; limit conservation programs ($10 billion) | Reduce direct payments and reform crop insurance ($30 billion) | Direct the Agriculture committee to find $11 billion savings | Eliminate direct payments, reduce crop insurance subsidies and limit conservation spending ($33 billion) |
| Federal Employees | |||
| Enact savings in federal civilian and military retirement; recommendations include deferring cost of living adjustments until age 62 and increasing the employee contribution to federal civilian pensions ($70 billion)/td> | Reduce the federal workforce by attrition, freeze federal pay through 2015 and increase the employee contribution to federal civilian pensions ($375 billion) | Freeze Congressional pay | Increase the employee contribution to federal civilian pensions ($21 billion) |
| Turn the Federal Employees Health Benefits program into a defined contribution plan ($18 billion) | |||
| Social Security | |||
| Increase the share of wages subject to the Social Security payroll tax to 90 percent by 2050 ($138 billion) | Require that the President and Congressional leaders to submit plans for restoring balance to the Social Security Trust Fund in the even the program is not sustainable | Direct the Finance Committee to propose an overhaul that ensures the 75-solvency of the program | |
| Switch to chained CPI for cost of living adjustments ($89 billion) | |||
| Defense | |||
| Direct the president to set a cap on Overseas Continency Operation spending' proposed to be based on a troop reduction to 60,000 by 2015. | Reduce inefficient defense spending by $178 billion and reinvest $100 billion back into the DoD ($78 billion) | Direct the Armed Services Committee to find $80 billion in savings | Cap spending on overseas operations as U.S. forces are drawn down in Iraq an dthe U.S. role in Iraq is further reduced bya transition to a State Department-led operation ($1084 billion) |
| Implement discretionary caps through 2020 that impose an equal percentage cut on defense and non-defense accounts | Assumes Budget Control Act caps on defense spending | ||
| Non-Defense Discretionary | |||
| Implement discretionary caps through 2020 that impose an equal percentage cut on defense and non-defense accounts | Reduce non-security spending to below 2008 levels and hold to a five-year freeze | Impose discretionary spending caps through 2015 | Assumes Budget Control Act caps on non-defense spending |
| Direct various committees to find additional savings | |||
| Revenue | |||
| Comprehensive tax overhaul: Eliminate most tax expenditures and modify others; lower the top individual income tax rate to between 23 and 29 percent; permanently repeal the AMT; tax capital gains and dividends as ordinary income; establish a single corporate tax rate between 23 and 29 percent ($785 billion) | Consolidate individual income tax brackets and lower the top rate to 25 percent | Comprehensive tax overhaul: Reduce tax expenditures; reduce individual rates; establish three brackets with rates of 8-12 percent, 14-22 percent and 23-29 percent; permanently repeal the AMT; establish a single corporate tax rate between 23 and 29 percent ($1 trillion) | Allow the 2001/2003 tax cuts to expire ($886 billion) |
| Increase the per gallon gas tax by 15 cents ($114 billion) | Broaden the tax base to kep revenue as a share of GDP between 18 and 19 percent | Generate an additional $133 billion, without raising the federal gas tax, to ensure improved solvency for the Highway Trust Fund | Limit deductions and exclusions for those making more than $250,000 a year ($410 billion) |
| Switch to chained CPI or inflation-linked provisions across government ($96 billion) | Eliminate tax expenditures to further lower rates | Overhaul taxation of foreign income ($113 billion) | |
| Repeal the last-in, first-out method of accounting for inventories ($52 billion) | |||
| Eliminate some oil and natural gas tax breaks ($41 billion) | |||
| Reinstate Superfund toxic waste cleanup program taxes ($19 billion) | |||
| Tax carried interest earnings as ordinary income rather than as capital gains ($13 billion) | |||
| Make permanent the 0.8 percent federal unemployment insurance tax ($8 billion) | |||
| Eliminate special depreciation rules for corporate jets ($5 billion) | |||
Timeline - Debt and Deficit Reduction
Who Owns the Debt?
Raising the Debt Limit
Members of the Joint Committee