Deficits and Debt
The Congressional Budget Office (CBO) released its Budget and Economic Outlook today, showing their budget and economic forecasts through 2025. After falling to post-recession lows below $470 billion this year and next, CBO projects deficits will again start to rise, exceeding $1 trillion by 2025.
Over the next decade, CBO projects deficits of $7.6 trillion (3.3 percent of GDP), with deficits growing from a low of $467 billion (2.5 percent of GDP) in 2016 to $1.09 trillion (4.0 percent of GDP) by 2025.
As a result, debt will rise over the next decade, from $13 trillion today to $16.6 trillion at the end of 2020 and $21.6 trillion by the end of 2025. As a share of GDP, debt will remain stable at current post-war highs of about 74 percent of GDP through 2020, but then rise continuously to almost 79 percent of GDP by 2025 and continue to grow unsustainably over the long run.
The gloomy debt and deficit outlook is the result of rising spending and relatively flat revenue collection. Despite discretionary spending falling as a share of GDP, Social Security, health care, and interest spending will grow substantially, pushing spending from 20.3 percent of GDP in 2015 to 22.3 percent by 2025. At the same time, revenue will remain roughly flat at near 18 percent of GDP through most of the next ten years, reaching 18.3 in 2025.
Compared to their prior projections, released last August, deficits are about $175 billion lower through 2024 – almost entirely due to changes in 2016 through 2018. However, long-term economic projections have also worsened – with nominal GDP about 1 percent lower in 2024 – resulting in a slightly higher debt-to-GDP ratio by 2024.
Even these projections assume that lawmakers do not enact new deficit-increasing policies. If they act irresponsibly and extend temporary policies and repeal scheduled cuts, debt would be much worse and could reach 88 percent of GDP by 2025.
Overall, CBO’s baseline shows a fiscal outlook which is clearly unsustainable. Correcting this course will require reducing the gap between spending and revenue by enacting serious tax and entitlement reforms. The longer policymakers wait, the more difficult they will find it to put our fiscal house in order.
One of the first and most important priorities Congress should be agreeing to a budget resolution conference report that lays out a framework for pursuing priorities and addressing issues in a fiscally responsible manner before making major decisions on spending or revenues. We recommend that Congress move forward under regular order, while adhering to the following principles when crafting a budget resolution.
1.Put the Debt on a Downward Path
- Propose revenue and spending targets sufficient to put the debt on a downward path as a share of the economy over the medium- and long-term
- Make realistic and gimmick-free assumptions to achieve this goal
2.Responsibly Address Upcoming “Fiscal Speed Bumps”
- Recognize and address the need to raise the federal debt limit
- Include a plan to fully offset reforms to the Sustainable Growth Rate (SGR)
- Provide for a plan to make solvent the Highway Trust Fund
- Set achievable and responsible discretionary spending levels and offset any sequester relief with more permanent and thoughtful savings
- Responsibly address tax extenders, preferably through tax reform
3.Provide for Tax and Entitlement Reform, Using Reconciliation Where Appropriate
- Include significant and achievable savings targets to slow the growth of Medicare, Medicaid, and other entitlement programs, along with credible examples to achieve these savings and reconciliation instructions to facilitate deficit reduction
- Include language promoting Social Security reform designed to make the program as a whole solvent and avoid the pending insolvency of the SSDI program
- Call for pro-growth tax reform that is preferably revenue-generating and at least revenue-neutral relative to current law; and include mechanisms to provide for prompt action on tax reform
- Focus on the long term by prioritizing savings that grow over time and avoiding timing shifts that would result in higher deficits beyond the budget window
4.Strengthen Budget Enforcement
- Strengthen prohibitions of timing shifts, phony savings, and other budget gimmicks
- Tighten rules exempting Overseas Contingency Operations costs from budget limits
- Prohibit the passage of legislation that would increase deficits in the long term
This paper has been updated for FY 2015 and is now located here.
Original October 8th: the Congressional Budget Office (CBO) projected the FY 2014 budget deficit at $486 billion. While the CBO works closely with Treasury to come up with their estimates, CBO's report was preliminary.
The FY2014 budget deficit totaled $483 billion, according to today’s statement from the Treasury Department. Although this is nearly 30 percent below the FY2013 deficit and 66 percent below its 2009 peak, the country remains on an unsustainable fiscal path.
In this paper, we show:
- Annual deficits have fallen substantially over the past five years, largely due to rapid increases in revenue (mostly from the economic recovery), the reversal of one-time spending during the financial crisis, small decreases in defense spending, and slow growth in other areas.
- Simply citing the 66 percent fall in deficits over the past five years without context is misleading, since it follows an almost 800 percent increase that brought deficits to record-high levels.
- Even as deficits have fallen, debt has continued to rise, more than doubling as a percent of GDP since 2007 to record levels not seen other than during a brief period around World War II.
- Both deficits and debt are projected to rise over the next decade and beyond, with trillion-dollar deficits returning by 2025 and debt exceeding the size of the economy before 2040, and as soon as 2030.
Unfortunately, the recent fall in deficits is not a sign of fiscal sustainability.
The Deficit in FY2014
According to the Treasury Department, the federal deficit totaled $483 billion in FY2014 (an initial estimate from the Congressional Budget Office on October 8th estimated the deficit at $486 billion), with $3.02 trillion of revenue and $3.50 trillion of spending. The figure below largely reflects CBO’s estimates rather than Treasury’s final numbers.
Since 2009, the budget picture has changed significantly, with deficits falling by 66 percent, from $1.4 trillion to slightly under $500 billion. This reduction was driven largely by the 44 percent (roughly $900 billion) increase in tax collections, primarily a result of the economic recovery, which has helped restore revenues as a share of GDP from their depressed 2009 levels to about their historical average. New taxes from the American Taxpayer Relief Act and the Affordable Care Act have also played a role.
At the same time, nominal spending is nearly $15 billion lower than in 2009, even as the economy grows, and inflation erodes its value. The decreases are largely driven by the absence and reversal of financial rescue and economic recovery spending through the Troubled Asset Relief Program (TARP), the rescue of Fannie Mae and Freddie Mac, and the stimulus, though defense spending has also fallen. Most other categories of spending have grown in nominal terms; however, Medicare, non-defense discretionary spending, and interest costs have grown more slowly than was expected.
Importantly, at $483 billion (2.8 percent of GDP), last year’s deficit was still substantially higher than the pre-recession deficit of $161 billion (1.1 percent of GDP) in 2007.
Deficits Fell From Record Levels But Will Rise Again
A 66 percent drop in annual deficits since 2009 is certainly significant, but when put in context it is less impressive than some would suggest. The rapid fall was from record-high levels and followed a rapid increase. At $1.4 trillion, the 2009 deficit was the highest ever as a share of the economy except during World War II (and in real dollar terms, the highest in history), having increased 779 percent from 2007 as a result of the Great Recession and measures enacted to combat it.
Moreover, while legislated spending reductions, tax increases, and other factors played a role, the end of trillion-dollar deficits was mostly the expected result of the economic recovery and the fading of measures intended to boost the recovery. As unemployment rates have fallen and GDP recovers, revenue collection has risen to more normal levels and countercyclical spending in areas such as unemployment insurance and food stamps has begun to subside. Meanwhile, stimulus and financial rescue measures enacted to speed the recovery have mostly wound down.
Unfortunately, even with these gains, the deficit remains more than three times as high as in 2007 (1.7 percentage points higher as a percent of GDP) and is projected to grow over time. Under CBO’s current law baseline, annual deficits will return to trillion-dollar levels by 2025. Under their more pessimistic Alternative Fiscal Scenario, the deficit will reach $1.5 trillion in 2025, exceeding the nominal-dollar record set in 2009.
As Deficits Fall, the Debt Keeps Rising
Arguably the most important metric of a country’s fiscal health is its debt-to-GDP ratio. And unfortunately, even as deficits have fallen the last five years, debt has grown. Indeed, over the same period that deficits fell by 66 percent, nominal debt held by the public grew by 69 percent – from $7.5 trillion to $12.8 trillion. As a percent of GDP, debt has grown extremely rapidly, from 35 percent of GDP in 2007 to 52 percent of in 2009 and to over 74 percent in 2014.
Falling deficits have not prevented the debt from growing; rather, they have only slowed down the growth trend. While the debt-to-GDP ratio may stabilize for a few years, debt is projected to continue growing faster than the economy over the long run. As the population ages, health care costs grow, and interest rates rise to more normal levels, CBO projects debt will rise from 73 percent of GDP in 2018 to 77 percent of GDP by 2024, and will exceed the size of the economy before 2040. Under CBO’s Alternative Fiscal Scenario (AFS), debt will exceed the size of the economy before 2030.
The fact that deficits have fallen from their trillion-plus dollar levels is an encouraging sign that the economy continues to recover. Unfortunately, Washington’s myopic focus on short-term deficits has likely slowed the recovery by cutting deficits somewhat too fast in the short term while leaving substantial imbalances in place over the long term.
While the deficit has indeed dropped significantly, this drop followed a massive increase, was largely expected, and does not suggest the country is on a sustainable fiscal path. Currently, debt levels are at historic highs and projected to grow unsustainably over the long run.
In only a decade, deficits are projected to again exceed $1 trillion, and within 15 to 25 years debt is projected to exceed the entire size of the economy.
Policymakers must work together on serious tax and entitlement reforms to put debt on a clear downward path relative to the economy, not declare false victories and sweep the debt issue under the rug.
Download a printer-friendly version of the paper here.
Today, the Congressional Budget Office (CBO) released updated budget and economic projections for the coming decade, showing today’s record-high debt levels continuing to rise over the next decade. The report focuses on a “current law” baseline, which assumes policymakers break with the current practice of deficit-financing extensions of various expired or expiring policies. Even under this somewhat optimistic scenario, CBO shows the following:
- In nominal dollars, deficits will grow from $506 billion in 2014 to $960 billion in 2024, and debt will grow from $12.8 trillion to $20.6 trillion.
- As a percent of GDP, debt will stabilize around its post-World War II record high of 74 percent through 2020, before rising to above 77 percent of GDP by 2024.
- Deficits will remain below 3 percent of GDP through 2018, but rise to 3.6 percent of GDP by 2024.
- Federal revenues will stabilize at about 18 percent of GDP, while spending will grow from 20.4 percent of GDP in 2014 to 21.8 percent in 2024.
- The fastest growing part of the budget is interest payments, which will rise from 1.3 to 3.0 percent of GDP by 2024. Spending on the major health and retirement programs will grow from 9.8 to 11.5 percent of GDP.
- Compared with prior estimates, CBO expects the economy to be somewhat weaker, mostly due to 2014 growth being 1.2 percentage points lower.
- Compared with prior projections, CBO expects the debt to be about $400 billion lower in 2024, reaching 77.2 percent of GDP rather than 78 percent.
- If extrapolated forward, we find CBO would project debt to exceed the size of the economy before 2040 and reach nearly 150 percent of GDP by 2060.
CBO continues to show an unsustainable outlook for federal debt, even under current law. Under CBO’s Alternative Fiscal Scenario, where Congress extends various expiring tax provisions, continues “doc fixes,” and eliminates sequestration, debt would reach 85.7 percent of GDP in 2024 instead of 77.2 percent. Lawmakers will therefore need to strictly abide by pay-as-you-go rules and take steps to control the growth of entitlement spending, while enacting other tax and spending reforms to put debt on a downward path over the long run.
See the full paper below, or download it here.
The Congressional Budget Office (CBO) today released its 2014 Long-Term Budget Outlook, detailing the budget picture for the next 75 years. The report shows debt rising as a share of the economy continuously after 2017, a trend which CBO describes as unsustainable over the long run.
Under the Extended Baseline Scenario (EBS), which assumes that policymakers allow temporary spending and tax provisions to expire and do not further increase deficits in the years ahead, debt held by the public will rise from 74 percent of Gross Domestic Product (GDP) in 2014 – a post-war record – to 108 percent by 2040, 147 percent by 2060, and 212 percent by 2085.
This dramatic rise in debt assumes policymakers act in a fiscally responsible manner. The Alternative Fiscal Scenario (AFS), which assumes that policymakers will increase spending and reduce taxes compared to current law, shows a steeper climb in debt – to 170 percent of GDP by 2040, and by our calculations to 330 percent by 2060, and 620 percent by 2085.
Despite legislation in recent years to raise revenue and reduce spending – particularly discretionary spending – the long-term debt situation remains far from solved. Health and retirement programs will continue to grow faster than the economy at a quicker pace than revenue growth, leading to growing deficits, rising interest costs, and ever-rising debt levels.
Policymakers should act quickly to put in place tax and entitlement reforms to put debt on a sustainable long-term path. The longer we wait to act, the more severe the consequences and the more painful the choices will be.
See the full paper below, or download it here.
Attention is turning towards raising the federal debt ceiling, which will be reinstated after February 7th. At that point, the limit will be about $17.3 trillion, according to estimates from the Bipartisan Policy Center. At that time, the Treasury Department would have to begin use of a limited amount of accounting tools at their disposal, called extraordinary measures, to avoid defaulting on their obligations. However, even with such measures, the Treasury Department estimates that they will only be able to continue paying the nation’s bills until late February, by which point the debt ceiling would need to be raised. The following is a short primer on the debt ceiling and on the ways to responsibly address it while also dealing with unsustainable federal borrowing going forward.
What is the debt ceiling?
The debt ceiling is the legal limit on the total level of federal debt the government can accrue. The limit applies to almost all federal debt (certain types of debt are exempt, but are quite small in value), including the debt held by the public and what the government owes to itself through various accounts, like the Social Security and Medicare trust funds. As a result, the debt subject to limit increases both as a result of annual budget deficits financed by borrowing from the public and trust fund surpluses, which are invested in Treasury bills.
The agreement that ended the government shutdown in October 2013 also suspended the debt limit through February 7th. After that, the statutory debt limit will be reinstated at the amount necessary to encompass all federal borrowing to that date – around $17.3 trillion, according to the Bipartisan Policy Center. That amount will be composed of roughly $12.3 trillion in debt held by the public and $5 trillion in debt held by government accounts. Most economists, however, feel debt held by public is the more relevant measure of the economic impact of government debt.
When was the debt ceiling established?
The first iteration of the debt ceiling was established in 1917 and set at $11.5 billion under the Second Liberty Bond Act. Prior to this, Congress was required to approve each issuance of debt separately. The ceiling was enacted to simplify the process and enhance borrowing flexibility. In 1939, Congress created the first aggregate limit covering nearly all government debt and set it at $45 billion, about 10 percent above the total debt at that time.
How much has the debt ceiling grown?
Since it was established, Congress and the President have increased the debt ceiling roughly 100 times. During the 1980s, the debt ceiling increased from less than $1 trillion to nearly $3 trillion. Over the course of the 1990s, it doubled to nearly $6 trillion, and in the 2000s, it again doubled to over $12 trillion. The Budget Control Act of 2011 automatically raised the debt ceiling by $900 billion and gave the President authority to increase the limit by an additional $1.2 trillion to $16.394 trillion. In February of 2013, lawmakers temporarily suspended the debt ceiling through May, resulting in a de facto increase of about $305 billion and bringing the debt ceiling to its current level of $16.699 trillion. In October, lawmakers again suspended the debt ceiling until February 7, 2014, which will result in a de facto increase around $600 billion and bring the current debt limit up to $17.3 trillion.
Fig. 1: Statutory Debt Limit and Federal Debt Subject to Limit
Why is Congress debating this now?
The president signed the Default Prevention Act of 2013 into law on October 17, 2013, which temporarily suspended the statutory debt limit through February 7, 2014. At that point, the debt ceiling will automatically be raised to roughly $17.3 trillion to cover new borrowing since suspension. If the debt limit is not raised further to cover additional borrowing after February 7th, the Treasury will have to employ “extraordinary measures” to avoid breaching the debt ceiling (see more about this below). According to Treasury Secretary Jack Lew, all borrowing authority, including the amount freed up through extraordinary measures, will be exhausted by late February, at which time they would have to rely only on remaining cash on hand and incoming receipts to pay obligations, and a formal debt limit increase or suspension would soon be necessary to avoid default. The Bipartisan Policy Center independently estimates that extraordinary measures and cash on hand will run out between February 28th and March 25th. After this “X Date”, the U.S. could only pay obligations with incoming receipts, forcing the Treasury to delay and/or miss many payments since the federal government currently runs substantial deficits in February and March.
Can hitting the debt ceiling be avoided without Congressional action?
The Treasury Department can use a variety of accounting tricks known as “extraordinary measures” to postpone the need to raise the debt ceiling. For example, it can prematurely redeem Treasury bonds held in federal employee retirement savings accounts (and replace them later plus interest), halt contributions to certain government pension funds, or borrow from money set aside to manage exchange rate fluctuations. Some believe the Treasury Department could buy even more time by engaging in other, unprecedented actions, such as selling large amounts of gold, minting a special large-denomination coin, or invoking the Fourteenth Amendment to override the statutory debt limit. Whether any of these tools is truly available is in question—the Obama Administration has ruled out all three—and the potential economic and political consequences of each of these options are unknown.
What happens if the debt ceiling is hit?
Once the government hits the debt ceiling and exhausts all available extraordinary measures, it is no longer allowed to issue additional debt. At that point, the government must rely on its remaining cash on hand and incoming receipts to pay all obligations. However, when the federal government is in a period of running annual deficits – as is the case today – incoming revenues to the federal government are insufficient to cover all of the government’s obligations, be it salaries for federal civilian employees and the military, utility bills, veterans’ benefits, or Social Security payments, to name a few.
Traditionally, February is the month with the highest deficit-spending in the year, because the Internal Revenue Service (IRS) sends out many tax refund checks. If this February follows a similar pattern as last year, more than half of the government’s obligations would have to go unpaid once the government is forced to rely on incoming receipts alone to pay bills. If an impasse continued into March, roughly 25 percent of that month’s bills would go unpaid. In addition to failing to meet its regular obligations, the government could also potentially default on interest payments on the debt.
A default, or even the perceived threat of a default, could have serious negative economic implications. An actual default would roil global financial markets and create chaos, as both domestic and international markets depend on the relative economic and political stability of U.S. debt instruments and the U.S. economy. Interest rates would rise as demand for Treasuries would account for the increased risk of default, with demand for Treasury bills dropping as investors stop or scale back investments in Treasury securities if they are no longer considered a perfectly safe investment. Even the threat of default can raise borrowing costs: GAO has estimated that the 2011 debt limit debate led to higher interest rates on Treasuries issued during the standoff based on concerns about a potential default, which cost the federal budget $1.3 billion that year and an estimated $19 billion over a decade, according to extrapolations from the Bipartisan Policy Center. An actual default would have a far greater and longer-lasting effect on interest rates than the potential default during the 2011 standoff.
Higher interest rates for Treasuries would increase interest rates across the economy, affecting car loans, credit cards, home mortgages, business investments, and other costs of borrowing and investment. The balance sheets of banks and other institutions with large holdings of Treasuries would decline as the value of Treasuries dropped, potentially tightening the availability of credit.
How does a shutdown differ from a default?
In a shutdown, government temporarily stops paying employees and contractors who perform government services, whereas the list of parties not paid in a default is much broader (See Q&A: Everything You Should Know About Government Shutdowns). In a default, the government exceeds the statutory debt limit and is unable to pay on time some of its obligations to its citizens or creditors. Without enough money to pay the bills, any of its payments are at risk, including all government spending, mandatory payments, interest on our debt, and payments to U.S. bondholders. Whereas a government shutdown would be disruptive, a government default could be disastrous.
Have policymakers used the debt ceiling to pursue deficit reduction in the past?
Although policymakers have often enacted “clean” debt ceiling increases, Congress has coupled such increases with other legislative changes on many occasions. In a number of cases, Congress has attached debt ceiling increases to budget reconciliation legislation and other deficit-reduction policies or processes.
Indeed, most of the major deficit-reduction agreements made since 1980 have been accompanied by a debt ceiling increase. Causality has moved in both directions, though. On some occasions, the debt limit has been used successfully to help prompt deficit reduction, and in other instances, Congress has tacked on debt ceiling increases to deficit-reduction efforts.
Notably, in nearly all instances in which a debt limit increase was either accompanied by deficit-reduction measures or included in a deficit-reduction package, lawmakers have generally approved temporary increases in the debt limit to allow time for negotiations to be completed without the risk of default. For example, Congress approved a modest increase in the debt limit in December 2009 while negotiations over Statutory PAYGO and establishment of the National Commission on Fiscal Responsibility and Reform were ongoing. During the negotiations and consideration of the 1990 budget agreement, Congress approved six temporary increases in the debt limit before approving a long-term increase in the limit as part of the reconciliation bill implementing the deficit-reduction agreement.
Further discussion regarding past uses of the debt ceiling can be found in the Appendix.
What should policymakers do?
Failing to raise the debt ceiling would be disastrous. It would result in severe negative consequences that experts are not capable of fully knowing in advance. Even threatening a default or taking the country to the brink of default could have serious negative repercussions. Importantly, though, failing to control the debt could ultimately stunt economic growth, reduce fiscal flexibility, and increase the cost burden on future generations. But political advantage should not be sought by bringing America close to the brink of default. If lawmakers wish to accomplish deficit reduction, they should at least pass temporary increases of the debt limit to avoid nearing the brink.
Given these risks, Congress and the President must raise the debt ceiling – and they should do so as soon as possible. Yet they should also continue to work toward putting our debt on a sustainable long-term path. Specifically, policymakers should observe strict adherence to pay-as-you-go rules, reform the tax code to encourage growth and raise more revenue, and slow the growth of entitlement programs so they are affordable for future generations.
Although the need to raise the debt ceiling can serve as a useful moment for taking stock of our fiscal state, lawmakers must not jeopardize the full faith and credit of the U.S. government.
Where can I learn more?
- Committee for a Responsible Federal Budget – Understanding the Debt Limit
- Bipartisan Policy Center – Debt Limit Analysis
- The Treasury Department – Debt Limit Resources
- Committee for a Responsible Federal Budget – Debt Ceiling Tracker 2013
- Government Accountability Office – Debt Limit: Analysis of 2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs
- Congressional Budget Office – Federal Debt and the Statutory Limit, November 2013
Appendix: Examples of How Debt Ceiling Has Been Used in the Past
The Gramm-Rudman-Hollings Act in 1985: The Gramm-Rudman-Hollings Act (GRH) in 1985 raised the debt limit by $175 billion and also set a target to have a balanced budget by 1991, with across-the-board cuts in spending by sequestration designed as an enforcement mechanism. Although the deficit-reduction goals under GRH were not fully achieved, the experience gained under the act contributed to the development of more workable and effective procedures five years later.
Omnibus Budget Reconciliation Act of 1990: The Omnibus Budget Reconciliation Act (OBRA) of 1990 raised the debt limit by $915 billion, the largest increase up until that point, but also contained nearly $500 billion in deficit reduction over the next five years and created enforcement procedures in the Budget Enforcement Act (BEA), which helped lead to the budget surpluses in the late 1990s. The BEA created adjustable limits for separate categories of discretionary spending and the pay-as-you-go (PAYGO) procedure that required tax cuts or increases in mandatory spending to be offset. Congress approved six temporary increases in the debt limit while negotiations were ongoing and Congress was considering legislation implementing the budget agreement.
Omnibus Budget Reconciliation Act of 1993: The Omnibus Budget Reconciliation Act of 1993 raised the debt limit by $600 billion, an increase that lasted for about two and a half years. OBRA '93 was the second major deficit-reduction package of the 1990s, also containing nearly $500 billion in deficit-reduction over five years. The agreement extended the original spending caps from 1990 and raised taxes on high earners, among other reforms.
Balanced Budget Act of 1997: The Balanced Budget Act of 1997 included a $450 billion debt limit increase which, thanks to the surpluses of the late 1990s and early 2000s, was enough to cover debt until 2002. At the time, the legislation called for about $125 billion of net deficit reduction over five years and $425 billion over ten years. It did so mainly through reductions in health care spending via provider payment reductions and increased premiums. The Act also created a few new programs – Medicare+Choice (later renamed Medicare Advantage or Medicare Part C) and the State Children’s Health Insurance Program (SCHIP).
Statutory PAYGO Act of 2010: The Statutory PAYGO Act of 2010 contained a debt limit increase of $1.9 trillion, the largest nominal increase ever enacted until that point in time. The legislation also reinstituted statutory PAYGO procedures that require tax cuts and mandatory spending increases to be fully offset (with some exemptions). Informally, the agreement to raise the debt ceiling also led to the creation of a National Commission on Fiscal Responsibility and Reform, to which President Obama later appointed Erskine Bowles and former Senator Al Simpson as co-chairs.
Budget Control Act of 2011: The Budget Control Act (BCA) gave the President the authority to increase the debt limit in tranches – subject to a Congressional motion of disapproval – by a total of $2.1 trillion. The BCA also contained $917 billion in deficit reduction over ten years, primarily through caps on discretionary spending. In addition, the bill established the Joint Committee on Deficit Reduction (“Super Committee”) to produce deficit-reduction legislation of at least $1.2 trillion in savings, with budget sequestration to begin in 2013 as an enticement for the Super Committee to succeed. The bill also required Congress to vote on a Balanced Budget Amendment, which it did not pass.
No Budget, No Pay Act of 2013: Lawmakers enacted the No Budget, No Pay Act in early February of 2013, which temporarily suspended the debt ceiling through May 18th, 2013 and then set an automatic “catch up” on May 19th that allowed for a $300 billion increase in the debt ceiling. The agreement would have also withheld the pay of Members of Congress if no budget resolution was passed in each House (though there was no requirement that the resolutions being agreed to jointly, which is necessary to go forward with the budget process).
Default Prevention Act of 2013: The Default Prevention Act of 2013 ended a 16-day partial shutdown of the federal government by funding the government through January 15, 2014 and suspending the debt ceiling until February 7, 2014. This agreement set up a bicameral budget conference to reconcile budgets for Fiscal Year 2014, and provided for an automatic “catch up” on February 7th. On that date, the debt ceiling would be reinstated at the current level of borrowing, resulting in a de facto increase of about $600 billion and bringing the debt ceiling to $17.3 trillion.
Note: The paper's mention of the change in deficits from 2015 to 2024 has been corrected.