The New Debt Deal: Why States Will Get Whacked & Musings on the Bush Tax Cuts

Well friends it's August 3, and despite their best efforts Congress and the President did finally pass a deal to raise the debt-ceiling. It's call the Budget Control Act of 2011. Happy days, right? Not so fast, Fonzarelli. Nearly every lawmaker who voted for the bill has described it as the legislative equivalent of a '87 Buick Wagon: not pretty, but it'll get you to work. Here in the halls of the National Priorities Project we've been mulling over the details of the plan extensively, which you can read about here and here. After looking at this stuff for 2 straight days, my reaction to the Budget Control Act (debt deal) can summed up thusly:

“...we finally, really did it.”

In exchange for raising the debt-ceiling by an initial $900 billion, the bill calls for an immediate $917 billion in cuts through discretionary spending caps over the next 10 years.* Raising the debt-ceiling further — which will need to happen next year — is contingent upon further savings to be identified by a new bipartisan commission: the “Super Committee, or “Super Congress” it's being called. This group of 12 lawmakers (6 Democratic, 6 Republican Senators & Representatives) will have to identify another $1.2 – $1.5 trillion in deficit reduction measures by November 23, 2011. Congress will also be required to have an up-or-down vote on the recommendations by December 23, 2011. This means after the Super Committee makes its recommendations there will be no further discussion, debate, or filibustering. Just an aye-or-nay vote in each chamber of Congress.

I say the group will identify “deficit reduction measures” because it's not entirely clear whether or not new revenues will be within the committee's purview. The White House and Congressional Democrats have said revenues (taxes) should be a part of the Super Committee's talks. House Speaker John Boehner on the other hand has repeatedly said revenues are off the table. It's reasonable to expect though that revenues will most likely not be a part of the committee's final recommendations since the GOP have stood their ground on “no new revenues” this whole time — even in the face of economic calamity.

So I — and several of our readers — have been left with two lingering questions: 1) How do the Bush Tax Cuts (or the expiration thereof) figure into all of this? And 2) if this whole debacle is going to  be all spending cuts, what's the impact?

The Bush Tax Cuts

The Bush tax cuts (extended by Obama) are set to expire December 31, 2012. After that tax rates will increase to Clinton-era levels, thereby greatly increasing federal revenues.  Does the Budget Control Act take this into account?

House Speaker John Boehner says the Budget Control Act "requires baseline to be current law, effectively making it impossible for Joint Committee to increase taxes." This is where things get hairy because different people use different baselines. A “baseline” is simply a projection of future spending and revenue. Some people use a baseline that includes the expiration of the Bush tax cuts. Others use a baseline that pretends the Bush tax cuts are permanent. This leads to drastically different revenue projections...something like a $3.8 trillion difference over the next 10 years. That's right, if the Bush tax cuts are allowed to expire the federal government will take in an additional $3.8 trillion in revenue by 2021.

It's unclear which baseline Speaker Boehner is referring to (since it was just a bullet point in his powerpoint presentation), but here's my interpretation: for Speaker Boehner, “current law” means what's happening right now, i.e. the amount of revenues the federal government is taking in is immutable, static, unchanging. For Speaker Boehner, this means that the Super Committee will not be allowed to use a baseline that projects higher revenues than what the government is taking in right now. This implicitly means no new revenues and no end to the Bush tax cuts. Therefore, it's "impossible for the Joint Committee to increase taxes."

HOWEVER, according to our friends at the Center on Budget and Policy Priorities there is no language in the Budget Control Act that prohibits new revenues, nor is there any language that says which baseline the Super Committee has to use. The only thing that would prevent new revenues is the appointment of inflexible ideologues to the Super Committee. As for the Bush tax cuts, it's still unclear how they'll figure into this debate...but I wouldn't expect them to expire without a fight.

A Future of Spending Cuts

Regardless of the Bush tax cuts, or whatever baseline the Super Committee uses, we are still facing a future of spending cuts. In order to minimize the impact on the most vulnerable, we must demand transparency in the process.

But here's the scary part: if the Super Committee fails to reach an agreement, or if Congress fails to pass their recommendations (and is that so hard to imagine?), or the plan falls short of the $1.2 trillion deficit reduction goal, then the difference will be made up with automatic, across-the-board spending cuts! This is called sequestration — think of it as a failsafe switch to guarantee spending cuts if Congress fails to act. Hopefully this won't happen. But it is a distinct possibility.

Spending caps on “non-security discretionary spending” will hit states particularly hard. Nearly one-third of this budget category flows through state governments.  Not only that, but a third of all the states' budgets come from the federal government! Think education, health care, law enforcement, infrastructure. Even more of a burden will be placed on states if Medicaid gets cut. If it's federal spending that's “out of control,” then why are state and local governments being forced to sacrifice? Especially when 42 states and the District of Columbia are facing budget shortfalls yet again this year.

Spending cuts are on the way, people. At least $900 billion worth over the next 10 years. And another $1.2 – $1.5 trillion in savings will most likely come in the form of cuts as well.  What's more, many economists argue that cutting spending in times of recession simply exacerbates the problem. If this is true then when the belt tightens, we'll all be feeling the pinch...even if you're not one of the 75% of people who directly receive federal moneys.**

*Again, I want to stress there is no legal requirement for cutting the deficit when raising the debt-ceiling.

**This article is trapped behind a pay wall. Sorry! Best I could do.

*     *     *     *     *     *     *     *     *     *     *     *

Want to “Ask Kyle” a question on this or anything else? Send it to or post your “Ask Kyle” questions on Facebook at You can also reach us on Twitter @natpriorities