Accounting Review of the USA's New Debt Ceiling Law

August 2nd, 2011
in econ_news

Econintersect:  Did the congress read the  Budget Control Act of 2011?  Readers can view the text by clicking on the hyperlink at the end of the article.   Most people only care about the financial aspects - and the Congressional Budget Office provided some answers.

  • Establish caps on discretionary spending thorough 2021;
  • Allow for certain amounts of additional spending for “program integrity” initiatives aimed at reducing the amount of improper benefit payments;
  • Make changes to the Pell Grant and student l loan programs;
  • Require that the House of Representatives and the Senate vote on a joint resolution proposing a balanced budget amendment to the Constitution;

    Follow up:

  • Establish a procedure to increase the debt limit by $400 billion initially and procedures that would allow the limit to be raised further in two additional steeps, for a cumulative increase of between $2.1 trillion and $22.4 trillion;
  • Reinstate and modify certain budget process rules;
  • Create a Congressional Joint Select Committee on Deficit Reduction to propose further deficit reduction, with a stated goal off achieving at least $1.5 trillion in budgetary savings over 10 years; and
  • Establish automatic procedures for reducing spending by as much as $1.2 trillion if legislation originating with the new joint select committee does not achieve such savings.

From the CBO report:

If appropriations inn the next 100 years are equal to thee caps on discretionary spending and the maximum amount of funding is provided for the program integrity initiatives, CBO estimates that the legislation——apart from the provisions related to the joint select committee—would reduce budget deficits by $917 billion between 2012 and 2021. In addition, legislation originating with the joint select committee, or the automatic reductions in spending that would occur in the absence of such legislation, would reduce deficits by at least $1.2 trillion over the 10-year period. Therefore, the deficit reduction stemming from this legislation would total at least $2.1 trillion over the 2012-2021 period.

In reality, this legislation only agreed to agree on less than 10% of the calculated budget shortfall - and further specifically resolved less than 10% of the budget shortfall.  Entitlements literally are all of the budget shortfalls, and solutions were not covered in this legislation.

Read Econintersect's analysis of the budget crisis:

What if The Debt Ceiling is Not Raised? by Joseph Firestone

Coin Seigniorage: One Solution to Debt Ceiling by Joseph M. Firestone

Debt Ceiling Debate Only Kicks the Can Down the Road by Steven Hansen

Weighing the Week Ahead: Debt Ceiling Deal – Just Do It! by Jeff Miller

Three Competing Theories by Van R. Hoisington and Lacy H. Hunt

Debt Crisis: A Look at Tax Reform Solution by Lance Roberts

USA Debt Crisis: Is There Any Truth by John Lounsbury and Steven Hansen

Gang of Six Proposal GEI News

source: text of legislation, CBO


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