Faithful readers of this blog know by now how the trigger contained in the Budget Control Act generally works. The BCA creates a twelve-member Joint Committee that is tasked with finding $1.2 trillion in savings over ten years. If the Committee fails or Congress fails to pass legislation that saves at least $1.2 trillion, a trigger will make up the difference starting in 2013 (unless a balanced budget amendment passes Congress).
Those familiar with the broad outline of the trigger may not be as familiar with the details, though. Specifically, the total annual deficit reduction that the trigger would contain is calculated as follows:
- Start with $1.2 trillion
- Subtract savings from a joint committee bill
- Reduce that total by 18 percent to account for interest savings
- Divide the result by 9
If nothing is done, the trigger should generate a total of $984 billion of primary savings (savings excluding interest) from 2013-2021, or about $110 billion per year. So, the bill somewhat softens the blow of the trigger by allowing interest savings to be counted in the $1.2 trillion total.
The required primary savings would be taken half from defense and half from domestic spending, and the trigger would be pulled on January 1, 2013, more than a year after the Committee will have failed or succeeded in making its recommendations.
The trigger would reduce both mandatory and discretionary programs somewhat proportionally. For mandatory programs, the trigger would implement across-the-board outlay cuts (with exemptions), while the discretionary cuts would come from reducing the budget authority caps for defense and non-defense discretionary spending.
Within mandatory spending, most programs would be off limits -- including Social Security, Medicaid, and nearly all low-income programs. Medicare cuts would be limited to 2% of provider payments, and the cuts would come from reductions in those payments rather than benefit changes.
Discretionary spending reductions would be generated by taking the existing caps and reducing them further. Since the caps are on "budget authority" -- the amount of spending allocated -- they affect outlays with a little bit of a lag. As a result, some of the outlay savings from the triggers actually come after 2021 and therefore do not count toward the ten years savings.
The Bipartisan Policy Center has a very helpful table that shows the distribution of savings from each category, assuming the Joint Committee cannot reach agreement on any savings.
|Breakdown of Trigger Savings (billions)|
|ACA Cost-Sharing Subsidies and Related Spending||$7|
Importantly, the across the board cuts come on top of what was agreed to and on top of whatever is recommended by the Joint Committee -- so some categories could be hit twice or even three times if they are cut by an insufficient Committee plan and hit again by the trigger (after already being hit by the Budget Control Act's discretionary spending caps).
Of course, across-the-board spending cuts are not a good way to implement policy (never mind the fact that $1.2 trillion is too little in deficit reduction to put our fiscal house in order). The entire point of the trigger is specifically to be unpleasant, so that enacting a broader deal that saves more money than the trigger becomes more likely. From a fiscal perspective, we certainly hope to not have to see the trigger be used.