The Budget Control Act entered law as a bargain struck at a deadline, and the bargain carried a warning about the institution that struck it. Designed to be intolerable and tolerated anyway. That phrase describes the enforcement theory at the center of the statute, because the automatic reductions that followed failure were drawn to damage priorities on both sides, on the assumption that such damage would force a negotiated settlement. The settlement never arrived at the scale the statute demanded. The reductions took effect, the caps were raised by later agreement, and large amounts of defense funding passed outside the caps altogether.

The statutory identity is exact. The Budget Control Act of 2011, Public Law 112-25, 125 Stat. 240, signed August 2, 2011, was enacted as S. 365 on the date the Treasury Department had projected for exhaustion of federal borrowing capacity. The act answered a confrontation over the debt ceiling mechanism in law and practice, a confrontation that had run from a Treasury letter in January of that year through failed negotiations between the President and the Speaker of the House. Treasury measures extended borrowing capacity to August 2, and enactment on that date removed the immediate danger of a missed payment. Three days later, Standard and Poor’s lowered the sovereign rating by one notch, citing the scale of the agreed savings and the conduct of the process that produced the agreement.

The consideration given for borrowing authority was restraint, stated first as a schedule of ceilings. The statute amended the Balanced Budget and Emergency Deficit Control Act to impose caps on discretionary budget authority for fiscal years 2012 through 2021. The Congressional Budget Office estimated in August 2011 that the legislation apart from the joint committee provisions would reduce deficits by 917 billion dollars over the ten year period, with the caps supplying the largest component of that total. The ceilings bound budget authority rather than outlays and carried sequestration as the consequence of a breach found by the Office of Management and Budget.

Borrowing authority, in exchange, moved in tranches governed by presidential certification and congressional disapproval. An initial increase of 400 billion dollars took effect on submission of the first certification on August 2, 2011. A further 500 billion dollars followed after a disapproval resolution failed to become law, and a third procedure governed an increase of 1.2 trillion dollars, or 1.5 trillion dollars under specified conditions. The architecture reversed the ordinary burden of action, because an increase took effect unless opponents assembled majorities in both chambers large enough to override a presidential veto of a disapproval resolution. The total authorization reached at least 2.1 trillion dollars and up to 2.4 trillion dollars under the stated conditions.

Under the earlier cap and pay-as-you-go regime of the Budget Enforcement Act, statutory discretionary caps had operated during an earlier period before expiring after fiscal 2002, paired with a pay-as-you-go rule for mandatory spending and revenue legislation. The 2011 statute revived the cap instrument for a full decade but paired the caps with a different second device, a committee charged with producing further deficit reduction under expedited procedures. The Joint Select Committee on Deficit Reduction, twelve members divided evenly between the chambers and the parties, received a charge to reduce the deficit by at least 1.5 trillion dollars over fiscal years 2012 to 2021. A committee bill was guaranteed prompt votes in both chambers without amendment.

The trigger stood behind the committee as both incentive and verdict. Enactment by January 15, 2012 of legislation reducing the deficit by at least 1.2 trillion dollars was the test, and failure set a formula in motion that produced 984 billion dollars in spending reductions, divided in equal dollar amounts between defense and nondefense, at 54.7 billion dollars for each function in each year from fiscal 2013 to fiscal 2021 after an allowance for debt service savings. The committee announced failure on November 21, 2011. The American Taxpayer Relief Act of 2012 delayed the first order by two months and reduced the fiscal 2013 amount by 24 billion dollars, and sequestration then took effect on March 1, 2013, canceling about 85 billion dollars in budgetary resources during the seven months that remained in that fiscal year.

The later history of the caps was a history of deals, exemptions, and a defined expiry. Four statutes titled the Bipartisan Budget Act, enacted in 2013, 2015, 2018, and 2019, raised the caps for two fiscal years at a time, each pairing relief concentrated in the first years of a scoring window with offsets weighted toward the final years, most visibly extensions of mandatory sequestration that reached fiscal 2029 under the last of the agreements. Alongside the negotiated increases, amounts designated for overseas contingency operations raised the caps without limit and without offset, accounting for 723 billion dollars of adjustments between fiscal 2012 and fiscal 2019 on the Congressional Budget Office calculation. The discretionary caps were scheduled to end on September 30, 2021, at the close of fiscal 2021, the final year of the original schedule.

The Standoff and the Downgrade

The confrontation that produced the Budget Control Act of 2011 began as an arithmetic problem stated in a letter. Congress had set the statutory limit on federal debt at 14.294 trillion dollars in February 2010, through Public Law 111-139, according to the debt limit history compiled by the Congressional Research Service. On January 6, 2011, Secretary of the Treasury Timothy Geithner wrote to Congress that debt subject to the limit stood at 13.95 trillion dollars, leaving approximately 335 billion dollars of headroom beneath the ceiling, and that the Treasury Department estimated the limit would be reached as early as March 31, 2011, and most likely between that date and May 16, 2011. Geithner requested action early in 2011 and warned in the January 2011 letter that a default would raise borrowing costs across the economy. The elections of November 2010 had given Republicans control of the House of Representatives while Democrats retained control of the Senate and President Barack Obama remained in the White House, so any increase required agreement among officeholders who disagreed over the deficit reduction that should accompany it.

The disagreement hardened during the spring of 2011 into incompatible conditions. House Republican leaders, led by Speaker John Boehner of Ohio, stated during the 2011 negotiations that an increase in the debt limit had to be paired with spending reductions and that tax increases were unacceptable to the House majority. President Obama and congressional Democrats stated during the same 2011 exchanges that deficit reduction should combine spending reductions with additional revenue, including the elimination of selected tax preferences and the expiration of tax cuts for higher income households enacted in 2001 and 2003. The Congressional Budget Office projected in 2011, as cited by the Congressional Research Service, that the fiscal year 2011 deficit would reach approximately 1.399 trillion dollars, a scale of borrowing that consumed the remaining headroom within months. The passage of time converted the policy dispute into a deadline problem, and the Treasury Department supplied the calendar against which the dispute was measured.

The Treasury Department revised its projections in stages as receipts and outlays developed. The Congressional Research Service recorded in its 2015 history of the debt limit that the Treasury Department had projected in April 2011 that borrowing capacity, even with extraordinary measures, would be exhausted by about July 8, 2011. In a letter dated May 2, 2011, Secretary Geithner indicated that he would declare a debt issuance suspension period on May 16, 2011, unless Congress acted beforehand, and that the extraordinary measures available during such a period would extend borrowing capacity until early August 2011. On May 16, 2011, federal debt reached the statutory limit, and Geithner declared the debt issuance suspension period, according to the Congressional Research Service account published in 2015. Geithner also stated in May 2011 communications that failure to raise the limit would force default on obligations ranging from bondholder payments to Social Security benefits and military salaries.

Why did the deadline fall on that August date?

The Treasury Department projected that borrowing capacity, even after every extraordinary measure, would be exhausted on August 2, 2011. Secretary Timothy Geithner stated the projection in a May 16, 2011 letter to Congress, and Treasury officials reaffirmed the date on June 1, 2011 and again on July 1, 2011 without revision.

The sequence of extraordinary measures gave the projection its content. The Treasury Department stated in a press release dated July 15, 2011 that the department had employed four measures to extend the ability to meet federal obligations after the limit was reached on May 16, 2011. The measures, in the order the Treasury Department listed them in July 2011, were suspension of issuance of State and Local Government Series Treasury securities, declaration of a debt issuance suspension period for the Civil Service Retirement and Disability Fund, suspension of reinvestment of the Government Securities Investment Fund of the federal thrift savings system, and suspension of reinvestment of the Exchange Stabilization Fund. The July 15, 2011 statement announced the Exchange Stabilization Fund measure as the last of the four and stated that the measures together extended borrowing authority until August 2, 2011. Mary Miller, Assistant Secretary for Financial Markets, had stated on June 1, 2011 that careful analysis of actual and projected revenues and expenditures supported the August 2, 2011 exhaustion date, and the Treasury Department confirmed the same date again on July 1, 2011, according to the Congressional Research Service history published in 2015.

Formal negotiations proceeded on several tracks during May and June 2011 without closing the gap over revenue. Vice President Joseph Biden led a bipartisan congressional group that met through May and June 2011 but reached an impasse over taxation. On June 23, 2011, House Majority Leader Eric Cantor of Virginia withdrew from the Biden talks, stating that Democrats continued to insist that a deal include tax increases, that the House lacked support for a tax increase, and that President Obama had to resolve the tax question before discussions could continue. Senator Jon Kyl of Arizona also withdrew on June 23, 2011, and Senator Kyl joined Senate Minority Leader Mitch McConnell of Kentucky in a statement attributing the impasse to insistence by the White House and congressional Democrats on tax increases. The collapse of the Biden track transferred the negotiation to direct exchanges between President Obama and Speaker Boehner, who pursued a larger agreement during July 2011 combining spending reductions, changes to benefit programs, and revenue measures. Those exchanges also failed. Reuters reported in an August 3, 2011 reconstruction that Speaker Boehner decided on July 22, 2011 that he could not reach an agreement with the White House, that the two sides had come close before stumbling over the tax question, and each side attributed the failure to the other in the August 2011 accounts.

As the principals deadlocked, other actors placed alternative frameworks on the record. On July 12, 2011, Senator McConnell proposed a contingency procedure under which Congress would authorize the president to request increases in the debt limit in three increments totaling 2.5 trillion dollars, subject to a joint resolution of disapproval that the president could veto, so that blocking an increase would require a two thirds majority in each chamber, according to a Brookings Institution analysis dated July 13, 2011. McConnell presented the proposal on July 12, 2011 as a last choice option for avoiding default if a negotiated agreement proved impossible, and the disapproval architecture of the proposal survived into the enacted statute in modified form. On July 19, 2011, the House passed the Cut, Cap and Balance Act, H.R. 2560, by a vote of 234 to 190, a bill that would have cut fiscal year 2012 spending, imposed declining caps on federal spending as a share of the economy, and conditioned an increase in the debt limit on congressional passage of a balanced budget amendment to the Constitution. The Senate voted on July 22, 2011 to table that bill by a vote of 51 to 46 after Senate Majority Leader Harry Reid of Nevada condemned the bill and President Obama stated that he would veto it.

The final week of July 2011 produced competing leadership plans and a rapid sequence of votes that demonstrated the absence of a majority for any proposal except a compromise assembled at the end. Speaker Boehner and Majority Leader Reid each outlined separate deficit reduction proposals on July 25, 2011. The House passed a Boehner bill, an earlier measure also titled the Budget Control Act, on July 29, 2011 by a vote of 218 to 210, with no Democratic votes in favor and with 22 Republican votes against, and the Senate tabled that bill on the evening of July 29, 2011 by a vote of 59 to 41, according to the Congressional Research Service chronology. The House then voted on July 30, 2011 to defeat the Reid plan by a vote of 246 to 173. With the August 2, 2011 exhaustion date three days away, the negotiation returned to the principals and to Senator McConnell. President Obama announced on the evening of July 31, 2011 that leaders of both parties in both chambers had reached an agreement to raise the debt limit and reduce the deficit. The agreement traded borrowing authority extending past the elections of November 2012 for restraint on discretionary spending and a further deficit reduction process, omitting the revenue provisions over which earlier talks had collapsed.

Congress enacted the agreement at the deadline. The House of Representatives passed the final bill on August 1, 2011 by a vote of 269 to 161, with 174 Republicans and 95 Democrats voting in favor and 66 Republicans and 95 Democrats voting against, according to the Congressional Research Service chronology of 2015. The Senate passed the bill on August 2, 2011 by a vote of 74 to 26, and President Obama signed the measure on August 2, 2011, the same date that the Treasury Department had projected for the exhaustion of borrowing authority. The enacted statute was the Budget Control Act of 2011, Public Law 112-25, published at 125 Statutes at Large 240, and carried into law as S. 365.

The structure of the trade can be stated in outline. The Congressional Research Service summarized the statute in its August 2011 report as authorizing increases in the debt limit of at least 2.1 trillion dollars, and up to 2.4 trillion dollars under specified conditions, through a disapproval process that would likely require the support of two thirds of each chamber to prevent an increase. Against that borrowing authority, the statute established caps on discretionary spending, the amounts provided through annual appropriations, for each of the ten fiscal years from 2012 through 2021. The Congressional Budget Office estimated in August 2011 that the caps alone would reduce federal spending by 917 billion dollars over that ten year period, according to the Congressional Research Service summary of August 2011. The statute also created a Joint Select Committee on Deficit Reduction charged with a further 1.5 trillion dollars in deficit reduction, and it required votes on a balanced budget amendment, according to the Congressional Research Service report of August 2011.

The debt limit mechanism operated immediately upon enactment through presidential certification. Section 301 of the statute added section 3101A to title 31 of the United States Code, providing that if the president submitted a written certification to Congress, not later than December 31, 2011, determining that debt subject to the limit was within 100 billion dollars of the limit and that further borrowing was required to meet existing commitments, the limit would increase by 400 billion dollars upon submission of the certification. President Obama submitted that certification on August 2, 2011, and the debt limit rose by 400 billion dollars to 14.694 trillion dollars on that date, according to the Congressional Research Service history published in 2015. The certification also opened the disapproval process for the balance of the first authorization. The statute provided authority to borrow an additional 900 billion dollars in total under the first certification, of which the initial 400 billion dollars took effect at once, and it provided that the limit would increase by an additional 500 billion dollars if the period for disapproval lapsed without enactment of a joint resolution of disapproval. A joint resolution of disapproval required passage by both chambers and presentation to the president, whose veto could be overridden only by two thirds of each chamber, so the mechanism reversed the ordinary burden of action: borrowing authority increased unless opponents assembled a veto proof majority against it. The second increase of 500 billion dollars took effect on September 22, 2011 after the House passed a disapproval resolution, H.J.Res. 77, and the Senate declined to act on that measure, according to the Congressional Research Service. A further certification procedure governed a third increase of 1.2 trillion dollars, or 1.5 trillion dollars under specified conditions, also subject to disapproval.

Avoidance of exhaustion did not end the consequences of the standoff, because the rating agencies had placed the sovereign rating of the United States under formal review during the confrontation. Standard and Poor’s had revised the outlook on the AAA long term sovereign rating to negative on April 18, 2011. Moody’s Investors Service placed the Aaa rating on review for possible downgrade on July 13, 2011, and Standard and Poor’s placed the AAA rating on CreditWatch with negative implications on July 14, 2011, according to the agencies’ July 2011 releases. The enactment of August 2, 2011 resolved the immediate borrowing question before any payment was missed, and Moody’s Investors Service confirmed the Aaa rating on August 2, 2011 while assigning a negative outlook, stating in its August 2011 release that the agreement represented a first step toward the long term fiscal consolidation required to maintain federal debt measures within Aaa parameters. Standard and Poor’s reached the opposite conclusion three days later.

On August 5, 2011, Standard and Poor’s lowered the long term sovereign credit rating of the United States from AAA to AA plus, affirmed the A 1 plus short term rating, removed the ratings from CreditWatch, and assigned a negative outlook, according to the agency’s research update dated August 5, 2011. The action was the first such reduction in the history of the agency. Standard and Poor’s stated in its August 5, 2011 release that the downgrade reflected the agency’s opinion that the fiscal consolidation plan agreed by Congress and the administration fell short of the amount that the agency judged necessary to stabilize the medium term debt dynamics of the federal government. Reuters reported on August 6, 2011 that the agency had previously indicated that a credible plan would require deficit reduction in the region of 4 trillion dollars, a benchmark substantially above the savings guaranteed by the enacted caps. Standard and Poor’s also stated in the August 5, 2011 release that the prolonged controversy over raising the statutory debt ceiling indicated that further progress on public spending or on revenues had become less likely and would remain a contentious and fitful process.

The agency grounded the second element of its reasoning in the political process itself. Standard and Poor’s stated on August 5, 2011 that the downgrade reflected, more broadly, the agency’s view that the effectiveness, stability, and predictability of American policymaking and political institutions had weakened during a period of fiscal and economic challenge, to a degree greater than the agency had envisioned when the negative outlook was assigned on April 18, 2011. The agency stated on August 5, 2011 that its assessment of the difficulty of bridging the gulf between the political parties had changed, making the agency pessimistic about the capacity of Congress and the administration to convert the agreement into a broader consolidation plan. In the framework that Standard and Poor’s presented on August 5, 2011, the downgrade therefore rested on two attributed judgments: that the enacted savings were insufficient against the projected debt path, and that the conduct of the debt limit confrontation had demonstrated a deterioration in governance that reduced confidence in further action.

The Treasury Department disputed the downgrade on the day of its announcement, and the dispute centered on arithmetic. Standard and Poor’s had shown the Treasury Department its draft analysis on August 5, 2011 before publication, and Treasury officials identified a discrepancy that overstated projected deficits by 2 trillion dollars over ten years. A Treasury Department spokesperson stated on August 5, 2011 that a judgment flawed by a 2 trillion dollar error spoke for itself. John Bellows, Acting Assistant Secretary of the Treasury for Economic Policy, elaborated the objection in a Treasury Department statement published in August 2011 under the title Just the Facts: S and P’s 2 Trillion Dollar Mistake. Bellows stated in August 2011 that the agency had taken figures from the Congressional Budget Office and applied them to the wrong baseline, dramatically overstating projected deficits, and that after the Treasury Department pointed out the error the agency proceeded with the downgrade while changing its principal rationale from an economic rationale to a political rationale. Bellows stated in August 2011 that the error and the change of rationale raised fundamental questions about the credibility and integrity of the agency. Standard and Poor’s acknowledged in August 2011 communications reported by Reuters on August 6, 2011 that it had changed its economic assumptions after discussion with the Treasury Department, and the agency maintained that the revision did not affect the rating decision. David Beers, head of sovereign ratings at Standard and Poor’s, stated to Reuters on August 5, 2011 that a ratings committee concluding that a rating was misaligned had a duty to act.

Administration officials extended the objection beyond the arithmetic in statements reported by Reuters on August 6, 2011, disputing the downgrade as a judgment on political disagreement rather than on capacity to pay and accusing the agency of shifting its benchmark. The administration pressed a factual distinction in its August 2011 responses: the federal government had not missed a payment, and the statute enacted on August 2, 2011 had removed the need for a further increase until early 2013, according to the Congressional Research Service. Senator John Kerry of Massachusetts described the action during August 2011 as a Tea Party downgrade, according to contemporary August 2011 reporting.

The other two major rating agencies declined to follow the reduction in August 2011, and their decisions bounded the institutional significance of the action. Moody’s Investors Service had already confirmed the Aaa rating with a negative outlook on August 2, 2011, as recorded in its release of that date. Fitch Ratings completed a review after enactment and affirmed the AAA rating with a stable outlook on August 16, 2011, stating in its August 2011 release that the key pillars of United States creditworthiness remained intact, including a flexible, diversified, and wealthy economy and the central role of the United States in the global financial system. Fitch warned in August 2011 that failure by Congress to reduce future deficits could lead the agency to revise the outlook to negative. White House Press Secretary Jay Carney stated on August 16, 2011 that the Fitch decision accorded with the view of the administration, and Treasury Department spokesperson Anthony Coley stated on August 16, 2011 that the Fitch report underscored the importance of additional congressional action on long term fiscal challenges, according to Associated Press reporting of August 16, 2011. The divergence left the United States with a split rating in August 2011, AA plus from Standard and Poor’s and the highest rating from Moody’s Investors Service and Fitch Ratings.

The enactment and the downgrade, separated by three days in August 2011, formed a single record. The statute of August 2, 2011 ended a confrontation that had run from the Geithner letter of January 6, 2011 through the collapse of the Biden talks on June 23, 2011 and the failure of the presidential and speaker negotiations on July 22, 2011. The settlement raised the debt limit in tranches governed by presidential certification and congressional disapproval, imposed ten years of discretionary caps estimated by the Congressional Budget Office in August 2011 to reduce spending by 917 billion dollars, and deferred the larger questions of revenue and benefit programs to a joint committee and to later votes. Standard and Poor’s judged that settlement on August 5, 2011 against the projected debt path and against the conduct of the process that produced it, and the agency reduced the sovereign rating by one notch on both grounds. The Treasury Department answered on August 5, 2011 with a documented arithmetic objection, Moody’s Investors Service answered on August 2, 2011 with confirmation and a negative outlook, and Fitch Ratings answered on August 16, 2011 with confirmation and a stable outlook.

A Decade of Discretionary Caps

The Budget Control Act of 2011, Public Law 112-25, signed on August 2, 2011, placed its discretionary limits in the Balanced Budget and Emergency Deficit Control Act of 1985, the statute associated with the Gramm-Rudman-Hollings budget enforcement framework. The Congressional Research Service explained in 2011 that the act reinstated a form of limit that had expired after fiscal 2002 and applied the replacement limits to a full decade, fiscal years 2012 through 2021. Each fiscal year received a separate statutory ceiling, with no authority to borrow unused room from another year apart from the specific adjustments written into the statute. Appropriations enacted for a fiscal year were measured against the ceiling for that fiscal year, in the category to which the appropriations belonged, and an excess in one category was not cured by underspending in the other category.

The Congressional Budget Office reported in 2019 that the original caps totaled 1,043 billion dollars for fiscal 2012 and 1,047 billion dollars for fiscal 2013, followed by 1,066 billion dollars for fiscal 2014, 1,086 billion dollars for fiscal 2015, 1,107 billion dollars for fiscal 2016, 1,131 billion dollars for fiscal 2017, 1,156 billion dollars for fiscal 2018, 1,182 billion dollars for fiscal 2019, 1,208 billion dollars for fiscal 2020, and 1,234 billion dollars for fiscal 2021. Added across the ten years, those original ceilings came to 11,260 billion dollars in discretionary budget authority, according to the Congressional Budget Office in 2019. The savings attributed to the caps require careful statement, because several totals circulated in 2011 and each total measured a different thing. The Congressional Budget Office stated on August 1, 2011, that the legislation, apart from the provisions related to the Joint Select Committee on Deficit Reduction, would reduce budget deficits by 917 billion dollars between 2012 and 2021. That figure was measured against the March 2011 baseline of the Congressional Budget Office, adjusted to reflect enactment of appropriations for 2011. The Congressional Research Service summarized the same estimate in 2011 as a reduction in federal spending of 917 billion dollars, and the figure entered public discussion as the savings figure for the first part of the act. The composition published by the Congressional Budget Office on August 1, 2011, was more precise. Savings in discretionary spending accounted for 741 billion dollars of the 917 billion dollars, mandatory spending reductions accounted for 20 billion dollars, and lower debt service accounted for 156 billion dollars. Within the discretionary component, the Congressional Budget Office table for August 1, 2011, showed a reduction of 756 billion dollars from establishment of the caps, partly offset by 15 billion dollars for program integrity initiatives, for a net discretionary effect of 741 billion dollars. A statement that the caps alone saved 917 billion dollars therefore compressed three separate effects into one number. The caps produced the largest component, but the published total also rested on mandatory changes outside the caps and on interest savings that followed from lower deficits.

The baseline choice changed the answer as well. The Congressional Budget Office calculated on August 1, 2011, that measurement against its January 2011 baseline produced discretionary savings of about 920 billion dollars and a deficit reduction of about 1.1 trillion dollars apart from the joint committee provisions. The difference reflected the starting projection against which the same ceilings were measured, not a change in the ceilings. A cap is a level, stated in dollars for a fiscal year and a category, while savings are a comparison against a baseline that assumes a path for spending in the absence of the cap.

The caps also differed from ordinary congressional budget targets in the source of their authority. The Congressional Research Service noted in 2011 that appropriators generally operated under allocations set through a budget resolution or another congressional action, and that each chamber could waive its own allocation through its own procedures. The statutory caps, by contrast, sat in law signed by the President. A single chamber could not waive a statutory cap for enacted appropriations, and a breach carried the sequestration consequence described in the Balanced Budget and Emergency Deficit Control Act. Congress retained the power to change the ceilings by passing another statute and presenting it to the President, or by overriding a veto, and Congress used that power in later legislation. Until such a statute changed a ceiling, however, the ceiling governed the measurement of enacted appropriations.

No individual department, program, project, or account received a cap of its own under this part of the act. The Congressional Research Service stated in 2015 that the caps did not limit specific accounts or even specific appropriations bills, and that the caps instead applied as broad totals for discretionary spending. Decisions about the distribution of a total among defense installations, health programs, housing programs, scientific research, and law enforcement remained with Congress and the President through the regular appropriations process. A cap could therefore coexist with an increase for a particular program, provided that reductions elsewhere in the same category kept the category total within the adjusted ceiling.

Did the caps limit all federal spending?

No. The caps limited new discretionary budget authority provided in annual appropriations acts. Mandatory spending, authorized by other laws and driven by eligibility rules and benefit formulas, sat outside the caps, as did revenues and net interest. A separate automatic process in the same statute reached some mandatory programs through different rules.

That distinction between discretionary and mandatory spending is central to a correct account of the act. Discretionary spending is controlled through the appropriations process and is generally provided for one fiscal year at a time, as the Congressional Research Service explained in 2015. Annual appropriations acts provided the budget authority for the operations of the Department of Defense, the Department of Veterans Affairs, the National Institutes of Health, the Federal Bureau of Investigation, federal courts, and national parks. Mandatory spending, also called direct spending in budget law, flows from authorizing statutes that set eligibility and payment rules. Social Security benefits, Medicare benefits, Medicaid payments, and interest on the public debt did not depend on an annual appropriation for basic payment authority, although administrative expenses for some of those programs did receive discretionary appropriations. A change in the number of eligible beneficiaries, in a benefit formula, or in health care payment rates could raise or lower mandatory outlays without creating a cap breach, because the resulting spending was not discretionary budget authority counted against a section 251 ceiling.

The second distinction, between budget authority and outlays, is equally precise. The Congressional Research Service explained in 2015 that budget authority is the legal authority to incur obligations, granted by Congress through appropriation acts for discretionary spending, and that outlays occur when the federal government disburses funds in payment of those obligations. The caps bound budget authority. An appropriation that provided budget authority in fiscal 2014 counted against the fiscal 2014 ceiling in the year of enactment, even though much of the resulting spending could occur in fiscal 2015, fiscal 2016, or later years. Construction and procurement accounts illustrate the lag, because agencies obligated funds under authority granted in one year and disbursed cash over the life of a project. The deficit for a fiscal year is measured by outlays and revenues during that year, as the Congressional Research Service stated in 2015, so the effect of a reduction in budget authority on the deficit unfolded over several years.

For fiscal 2012 and fiscal 2013, the statute divided discretionary budget authority into a security category and a nonsecurity category. The Congressional Research Service reported in 2011 that the security ceiling was 684 billion dollars for fiscal 2012 and 686 billion dollars for fiscal 2013, while the nonsecurity ceiling was 359 billion dollars for fiscal 2012 and 361 billion dollars for fiscal 2013. The security category was defined broadly in the act as enacted. The Congressional Research Service summarized the definition in 2011 and again in 2017 as discretionary appropriations associated with the Department of Defense, the Department of Homeland Security, and the Department of Veterans Affairs, together with the National Nuclear Security Administration, the intelligence community management account, and all budget accounts in budget function 150, the international affairs function. That function included the Department of State and foreign assistance programs. The nonsecurity category consisted of all other discretionary appropriations. The Congressional Research Service observed in 2015 that the largest amounts in the nonsecurity category were associated with the Departments of Health and Human Services, Education, and Housing and Urban Development.

From fiscal 2014 onward, the operative division described in Congressional Research Service tables in 2015 and 2019 was a defense category and a nondefense category, with defense corresponding to budget function 050, national defense, and nondefense covering all other discretionary appropriations. The original defense levels in the Congressional Research Service table published in 2015 were 556 billion dollars for fiscal 2014, 566 billion dollars for fiscal 2015, 577 billion dollars for fiscal 2016, 590 billion dollars for fiscal 2017, 603 billion dollars for fiscal 2018, 616 billion dollars for fiscal 2019, 630 billion dollars for fiscal 2020, and 644 billion dollars for fiscal 2021. The corresponding original nondefense levels in the same table were 510 billion dollars for fiscal 2014, 520 billion dollars for fiscal 2015, 530 billion dollars for fiscal 2016, 541 billion dollars for fiscal 2017, 553 billion dollars for fiscal 2018, 566 billion dollars for fiscal 2019, 578 billion dollars for fiscal 2020, and 590 billion dollars for fiscal 2021. The change in vocabulary carried practical consequences. The broad security category had grouped military spending with veterans programs, homeland security, diplomacy, and foreign assistance inside one ceiling. The narrower defense category separated budget function 050 from programs that had sat inside the broad security category, including veterans health care and the operations of the Department of Homeland Security, and those programs competed for room inside the nondefense ceiling during the later period.

Statutory adjustments qualified every ceiling described so far. Section 251(b) of the Balanced Budget and Emergency Deficit Control Act, as amended by the Budget Control Act, allowed the ceilings to be raised for designated purposes when appropriations were enacted for those purposes. The Congressional Research Service listed the adjustment subjects in 2015 as changes in concepts and definitions, appropriations designated as emergency requirements, appropriations for overseas contingency operations and the global war on terrorism, appropriations for continuing disability reviews and redeterminations, appropriations for controlling health care fraud and abuse, and appropriations designated as being for disaster relief. An adjustment did not repeal a cap. The adjustment raised the measured ceiling by the designated amount, so that appropriations covered by the designation did not by themselves create a breach. The Congressional Research Service stated in 2015 that five of the six adjustment subjects effectively exempted the covered spending from the statutory caps. The size of the exemption differed sharply by subject, because emergency and overseas contingency funding carried no statutory dollar ceiling, disaster relief was governed by a historical formula, and the program integrity subjects carried small specified maxima.

Appropriations designated by Congress and designated by the President as emergency requirements received an unlimited adjustment. Appropriations for overseas contingency operations, abbreviated as OCO, also received an unlimited adjustment. The Congressional Budget Office explained in 2019 that the statute did not define with precision which activities qualified as overseas contingency operations, and that the adjustment depended on designation of funding on an account by account basis by Congress and the President. In practice during the period covered by the Congressional Budget Office report in 2019, OCO funding supported military operations in Afghanistan and Iraq and related activities, and the report recorded instances in which funding identified for base budget activities also received the designation. The amounts were large. The Congressional Budget Office reported in 2019 that adjustments for the activities specified in the act had allowed discretionary funding to exceed the original caps by almost 984 billion dollars since 2012, and that funding for overseas contingency operations accounted for 723 billion dollars of that total. A separate Congressional Research Service table in 2015 recorded OCO amounts of 127 billion dollars for fiscal 2012 and 99 billion dollars for fiscal 2013. Those figures explain why total discretionary budget authority in a given year could substantially exceed the printed cap total without a breach of the adjusted cap.

The disaster relief adjustment followed a different logic, tied to the recurring character of federal disaster spending. The act defined disaster relief by reference to activities carried out under a major disaster determination under section 102(2) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, as the Congressional Research Service explained in 2013. The maximum adjustment for a fiscal year was based on the average funding provided for disaster relief over the previous ten years, excluding the highest and lowest years, plus an amount for unused room carried from the preceding year under the formula described by the Congressional Research Service in 2015. The Office of Management and Budget calculated the average and provided a preview estimate of the adjustment for the upcoming fiscal year in its sequestration reporting, as the Congressional Research Service described in 2019. Disaster spending above the formula amount remained possible, but funding above the adjustment limit counted against the regular caps unless another designation, such as an emergency designation, applied. The Congressional Research Service table in 2015 recorded disaster relief adjustments of 11 billion dollars for fiscal 2012 and 12 billion dollars for fiscal 2013.

Program integrity adjustments were the smallest and the most tightly specified. The rationale summarized by the Congressional Budget Office in 2011 was that certain enforcement and review activities cost discretionary money in the year of appropriation and produced savings in mandatory programs or additional revenues in later years, so a rigid ceiling could discourage appropriations that reduced net federal costs over time. Two capped adjustments formed part of the act as enacted, as the Congressional Research Service catalogued in 2019. The first covered the Health Care Fraud and Abuse Control program, which supported activities against fraud and abuse in Medicare, Medicaid, and the Children’s Health Insurance Program. The second covered continuing disability reviews and redeterminations conducted by the Social Security Administration. Continuing disability reviews were periodic medical reviews of beneficiaries of Social Security disability programs and Supplemental Security Income recipients, and redeterminations were periodic financial reviews of Supplemental Security Income eligibility, as the Congressional Research Service defined the terms in 2019. An adjustment applied only to additional new budget authority above base amounts specified in the statute, and only up to a maximum for each fiscal year. The Congressional Research Service table in 2011 placed the combined maximum adjustment for program integrity initiatives at 893 million dollars for fiscal 2012, 1,050 million dollars for fiscal 2013, 1,253 million dollars for fiscal 2014, 1,484 million dollars for fiscal 2015, and 1,561 million dollars for fiscal 2016, rising to 1,805 million dollars for fiscal 2021.

Tax enforcement occupied a more complicated place in the history of the provision, and a precise account separates proposal from enacted law. The Congressional Budget Office described four program integrity initiatives in its July 29, 2011, analysis of a Senate proposal, covering disability reviews, the Health Care Fraud and Abuse Control account, reemployment and eligibility assessments for unemployment insurance by the Department of Labor, and activities by the Internal Revenue Service to improve compliance with tax laws. The adjustment authority in the act as enacted and catalogued by the Congressional Research Service in 2019 was narrower, covering health care fraud and abuse control and disability reviews, without a general Internal Revenue Service enforcement adjustment in section 251(b). The Office of Management and Budget confirmed the narrower reading in its sequestration update report for fiscal 2020, issued in August 2019, which stated that a proposed adjustment for program integrity activities at the Internal Revenue Service did not exist in the Balanced Budget and Emergency Deficit Control Act and that the amount in the House bill under consideration was therefore scored as base funding rather than as a cap adjustment. Internal Revenue Service enforcement appropriations thus competed for room inside the nondefense ceiling during the decade, unless Congress amended the statute to create a separate adjustment.

Enforcement of the caps rested with the Office of Management and Budget, whose estimates controlled the legal determination of a breach. Section 254 of the Balanced Budget and Emergency Deficit Control Act required three sequestration reports for each fiscal year, as the Office of Management and Budget described in its preview report for fiscal 2015, issued in 2014. The sequestration preview report accompanied the budget submission of the President and stated the status of the discretionary limits for the budget year and each later year covered by the statute. The sequestration update report followed in August and provided a midyear account of the limits and of enacted appropriations, together with a preview estimate of the disaster relief adjustment for the upcoming fiscal year. The final sequestration report followed the end of a session of Congress and contained final estimates of enacted appropriations and of adjustments to the limits. The Congressional Budget Office issued parallel estimates in its own sequestration reports, and the two sets of estimates could differ because of scoring judgments, but the statute assigned the operative determination to the Office of Management and Budget. The preview and update reports therefore functioned as warnings and as public scorecards, while the final report carried the legal consequence.

A breach found in the final report triggered sequestration within the breached category. The Office of Management and Budget stated in its preview report for fiscal 2015, issued in 2014, that the final report would include a presidential order implementing a sequestration of nonexempt discretionary accounts within the category in order to eliminate the breach. Sequestration meant cancellation of budgetary resources. The amount canceled had to equal the amount of the breach, and the cancellation fell on nonexempt programs, projects, and activities in the breached category under a uniform percentage calculated to produce the required total, subject to the exemption and special rule provisions of sections 255 and 256 of the Balanced Budget and Emergency Deficit Control Act. Spending in the other category was not seized to cure a breach in the first category. Accounts exempt from sequestration were left untouched, so the percentage reduction imposed on nonexempt accounts had to be deep enough to produce the full amount of the breach from a smaller base.

Timing rules addressed appropriations enacted at different points in a fiscal year. The Congressional Research Service explained in its sequestration guidance, in versions updated through 2019, that a breach caused by appropriations enacted during the second or third quarter of a fiscal year could trigger a separate sequestration fifteen days after enactment of the appropriation, rather than waiting for the end of the session. A breach caused by appropriations enacted in the final quarter received different treatment, under which the limit for the following fiscal year in the same category was reduced by the amount of the breach, as the Congressional Research Service summarized in 2019. The Congressional Research Service reported in 2015 that the cap enforcement sequestration process had not been used through the date of that report, because Congress had enacted appropriations consistent with the cap levels as adjusted and as amended by later statutes. That record did not make the mechanism irrelevant to drafting. Committee staff measured draft bills against the ceilings and against anticipated adjustments, because enactment of excess appropriations would produce a sequestration order canceling resources across nonexempt accounts in the category without regard to the priorities expressed in the appropriations act itself.

The Committee Built to Be Avoided

Title IV of the Budget Control Act of 2011 created the Joint Select Committee on Deficit Reduction as a temporary, bicameral body with a single assignment and a fixed end. The Congressional Research Service reported in 2011 that the act gave the committee no instructions about policy content beyond a numerical target for deficit reduction over fiscal years 2012 to 2021, and the act paired that open charge with two devices that defined the committee from the start. The first device was a set of expedited legislative procedures that guaranteed a prompt vote on a committee bill in each chamber, without amendment and under strict limits on debate. The second device was an automatic spending reduction process that applied if a qualifying bill failed to become law. In the language of participants and analysts in 2011 and 2012, the committee acquired the informal name of the supercommittee, and the automatic process acquired the names of the trigger and sequestration.

The composition of the committee expressed the same logic of balance. The Congressional Research Service recorded in 2011 that the committee had twelve members, that the Speaker of the House, the House minority leader, the Senate majority leader, and the Senate minority leader each appointed three members, and that the arrangement produced six House members and six senators, divided evenly between Democrats and Republicans. The Senate majority leader designated one cochair from among the twelve members, and the Speaker designated the other cochair, according to the Congressional Research Service in 2011. Senator Patty Murray of Washington served as the Democratic cochair, and Representative Jeb Hensarling of Texas served as the Republican cochair, according to the Congressional Research Service in 2011. The remaining House members were Representative Dave Camp of Michigan, Representative Fred Upton of Michigan, Representative Xavier Becerra of California, Representative James E. Clyburn of South Carolina, and Representative Chris Van Hollen of Maryland, and the remaining senators were Senator Max Baucus of Montana, Senator John F. Kerry of Massachusetts, Senator Jon Kyl of Arizona, Senator Rob Portman of Ohio, and Senator Patrick J. Toomey of Pennsylvania, according to the Congressional Research Service in 2011. Party leaders were directed to complete the appointments by August 16, 2011, the leader who had appointed a departing member was directed to name a replacement within fourteen days of a vacancy, and service ended with the termination of the committee on January 31, 2012, according to the Congressional Research Service in 2011.

Internal rules reinforced the premise that the committee acted as a single body rather than as two delegations. The Congressional Research Service reported in 2011 that a quorum required seven members for any vote or meeting, that proxy voting was prohibited, and that an agenda had to reach all members at least forty eight hours before a meeting. The cochairs were directed to hire a staff director jointly and to announce hearings seven days in advance absent good cause for shorter notice, and federal agencies were directed to provide technical assistance after a written request from the cochairs, according to the Congressional Research Service in 2011. The act required a first meeting no later than September 16, 2011 and set October 14, 2011 as the deadline for House and Senate committees to submit deficit reduction recommendations, although neither submission nor consideration of outside recommendations was compulsory, according to the Congressional Research Service in 2011. A vote on the final report and legislative language could occur only after Congressional Budget Office cost estimates had been available to members for at least forty eight hours, and the report, the language, and the record of the vote were then to be made available to the public promptly, according to the Congressional Research Service in 2011.

The charge itself was stated as a floor rather than as a program. The Congressional Research Service reported in 2011 that Title IV instructed the committee to develop a proposal reducing the deficit by at least 1.5 trillion dollars over fiscal years 2012 to 2021, that the act imposed no requirement that the savings come from spending reductions alone or from revenue increases alone, and that the committee could recommend changes to revenue, to spending, or to both, and could also propose new budget enforcement mechanisms. The deliverable consisted of a report containing findings and recommendations, legislative language carrying out those recommendations, a cost estimate prepared by the Congressional Budget Office, and a statement of the deficit reduction achieved over fiscal years 2012 to 2021, according to the Congressional Research Service in 2011. Approval required support from a majority of the committee, or seven members in the absence of vacancies, and an approved report and language were to be transmitted by December 2, 2011 to the President, the Vice President, the Speaker of the House, and the majority and minority leaders of both chambers, according to the Congressional Research Service in 2011.

Why did the statute pair the committee with an automatic fallback?

The fallback existed to make inaction costly for both parties. The Congressional Research Service explained in 2011 that the automatic process presumably was intended to encourage agreement, because failure produced defense reductions Republicans opposed and nondefense reductions Democrats opposed, leaving a negotiated bill as the preferable outcome for each coalition.

Expedited consideration began with introduction in identical form. The Congressional Research Service reported in 2011 that, after transmittal of an approved proposal, the House majority leader or a designee and the Senate majority leader or a designee each had to introduce the proposed language without change, by request, producing two bills with identical text and different numbers, with introduction in the Senate on the first calendar day in session after submission and introduction in the House on the first legislative day after transmittal. If the proposal contained revenue provisions, the act ensured that the House bill became the vehicle presented to the President, in recognition of the constitutional requirement that revenue bills originate in the House, according to the Congressional Research Service in 2011. Referral followed in both chambers to each committee with jurisdiction over a provision of the bill, and each committee of referral faced a reporting deadline of December 9, 2011, according to the Congressional Research Service in 2011. In the Senate, a committee that missed the deadline faced automatic discharge, after which the bill moved to the legislative calendar, according to the Congressional Research Service in 2011. In the House, a committee could report the bill favorably, unfavorably, or without recommendation, but could not report the bill with an amendment, and a privileged motion was available to discharge a committee that missed the December 9, 2011 deadline, according to the Congressional Research Service in 2011.

Senate floor procedure departed most sharply from ordinary practice. The Congressional Research Service explained in 2011 that regular Senate procedure often required the support of three fifths of senators, normally sixty votes, to close debate and reach a decision, while the Budget Control Act allowed the joint committee bill to advance by simple majority. After the bill had spent two days of session on the calendar, any senator could move to proceed to the bill, and the majority leader or a designee could move earlier, according to the Congressional Research Service in 2011. The motion to proceed was not debatable, points of order against the motion were waived, motions to postpone and motions to reconsider were barred, and a defeated motion to proceed could be renewed, according to the Congressional Research Service in 2011. Consideration of the bill, including debate on related motions and appeals, quorum calls, and voting, was capped at thirty hours in total, divided equally between the majority and minority leaders or designees, according to the Congressional Research Service in 2011. A motion to limit debate further required three fifths of senators duly chosen and sworn and was itself not debatable, amendments were prohibited, motions to postpone and motions to recommit were barred, and other debatable motions and appeals received no more than one hour each, divided equally between supporters and opponents and charged against the thirty hour total, according to the Congressional Research Service in 2011. At expiration of the time for consideration the Senate was to vote on passage, with passage requiring a simple majority of senators voting, according to the Congressional Research Service in 2011.

House floor procedure imposed a shorter timetable on the same terms of closure. The Congressional Research Service reported in 2011 that, after a committee reported or faced discharge, any member could offer a nondebatable motion for the House to proceed to consideration of the bill, that a motion to discharge a delinquent committee was debatable for twenty minutes, and that agreement to the motion placed the bill before the House immediately. Consideration on the floor was set at two hours, all points of order against the bill and against consideration were waived, amendments were barred, and no motion to recommit was available, according to the Congressional Research Service in 2011. One motion to limit debate further was in order, repeated motions to discharge or to proceed were barred after disposition of an earlier motion, and motions to reconsider were prohibited, according to the Congressional Research Service in 2011. Both chambers faced a passage deadline of December 23, 2011 for use of the expedited procedures, according to the Congressional Research Service in 2011. Because identical text passed without amendment required no conference to reconcile differences, the act directed that the bill passed first by one chamber became the measure on which the other chamber cast a final passage vote, with the House bill controlling in a case involving revenue provisions, according to the Congressional Research Service in 2011. Enactment, meaning passage by both chambers and signature by the President, had to occur by January 15, 2012 to prevent the automatic process, according to the Congressional Research Service in 2011.

Deliberations ran from September 2011 to November 2011 under the reporting deadline of November 23, 2011, the date the Congressional Research Service identified in 2011 as the last day for a committee vote on a report and legislative language eligible for expedited consideration. The committee held hearings and received recommendations during that interval. Public statements by members in November 2011 located the impasse in the same two areas from opposite directions. Representative Hensarling stated on November 13, 2011 that the panel faced failure unless Democrats accepted significant structural changes to entitlement programs such as Medicare and Social Security, in an account published by National Public Radio in 2011. Senator Murray stated on November 20, 2011, in remarks reported by Government Executive in 2011, that Democrats had accepted difficult choices and had placed those choices in the negotiations, conditional on Republican agreement to address the tax cuts enacted under President George W. Bush. Senator John Kerry stated on November 21, 2011, in remarks reported by Bloomberg News in 2011, that Republican intransigence about extension of tax cuts for top earners formed the single obstacle to agreement. Senator Jon Kyl stated on November 20, 2011, in remarks reported by Government Executive in 2011, that Democrats had rejected a Republican proposal because the proposal lacked tax increases, and Senator Kyl characterized a faction in Washington as unwilling to accept spending reductions without revenue increases. President Barack Obama stated on November 21, 2011, in remarks reported by Government Executive in 2011, that Republican refusal to compromise formed the main stumbling block.

The end arrived two days before the reporting deadline for a practical reason embedded in the timetable. A proposal required a Congressional Budget Office estimate available to members for at least forty eight hours before a vote, according to the Congressional Research Service in 2011, and November 21, 2011 therefore functioned as the last day on which material could reach the Congressional Budget Office for analysis in advance of a November 23, 2011 vote, a timing point reported by Bloomberg News in 2011 and by Engineering News Record in 2011. On November 21, 2011, after the close of financial markets, Senator Murray and Representative Hensarling issued a joint written statement announcing failure, according to accounts published by Marketplace in 2011, by the Associated Press in 2011, and by Engineering News Record in 2011. The cochairs stated that, after months of hard work and intense deliberations, agreement on a bipartisan proposal for public release before the deadline had proved impossible, in a short passage of the statement carried by multiple news organizations in 2011. The cochairs also stated that the members had been unable to bridge significant differences, expressed deep disappointment, affirmed a shared belief that the fiscal crisis required action rather than deferral to a later generation, and expressed hope that Congress could build on the committee record, according to accounts published by the Associated Press in 2011 and by Talk Business in 2011. No report and no legislative language emerged for introduction under the expedited procedures, and the expedited procedures therefore expired unused on December 23, 2011, the passage deadline the Congressional Research Service identified in 2011. President Obama responded on November 21, 2011 with a pledge to veto legislation that removed the automatic reductions without a balanced alternative, in remarks reported by Government Executive in 2011 and by National Public Radio in 2011.

The trigger operated through Section 302 of the Budget Control Act, which added Section 251A to the Balanced Budget and Emergency Deficit Control Act, according to the Congressional Research Service in 2011. The test was enactment by January 15, 2012 of legislation reducing the deficit by at least 1.2 trillion dollars over fiscal years 2012 to 2021, according to the Congressional Research Service in 2011. Partial success earned partial credit, and the Congressional Research Service illustrated the rule in 2011 with a hypothetical enactment of 900 billion dollars in deficit reduction, after which the automatic process applied to the remainder. With no qualifying enactment, the Office of Management and Budget was directed to calculate annual reductions through a formula stated in Section 251A, according to the Congressional Research Service in 2011. The formula began with 1.2 trillion dollars, subtracted any enacted deficit reduction, subtracted 18 percent of the difference as an allowance for debt service savings, divided the remainder by nine for allocation across fiscal years 2013 to 2021, and divided the annual result by two for allocation between the defense function and the nondefense function, according to the Congressional Research Service in 2011. In the case of complete failure, the arithmetic produced 984 billion dollars in spending reductions and an annual amount of 109.3 billion dollars, divided into 54.7 billion dollars for defense and 54.7 billion dollars for nondefense in each year, according to the Congressional Research Service in 2011. The defense function for this purpose consisted of discretionary appropriations in budget function 050, national defense, and the nondefense function consisted of all other discretionary appropriations, after revision of the statutory spending limits, according to the Congressional Research Service in 2011.

Within each function, the annual amount was divided proportionally between discretionary appropriations and nonexempt direct spending, based on the revised discretionary limits and the baseline for nonexempt direct spending accounts, according to the Congressional Research Service in 2011. The division produced four amounts each year, covering defense discretionary appropriations, defense direct spending, nondefense discretionary appropriations, and nondefense direct spending, according to the Congressional Research Service in 2011. For fiscal 2013, discretionary reductions took effect through sequestration, the cancellation of budgetary resources in nonexempt accounts by a uniform percentage, on January 2, 2013, according to the Congressional Research Service in 2011. For fiscal years 2014 to 2021, discretionary reductions took effect through downward adjustment of the revised statutory limits for the defense and nondefense categories, leaving allocation among accounts to the annual appropriations process within lower ceilings, according to the Congressional Research Service in 2011. For direct spending, reductions took effect through sequestration in each year from fiscal 2013 to fiscal 2021, according to the Congressional Research Service in 2011. The President ordered the fiscal 2013 sequestration on March 1, 2013, after the American Taxpayer Relief Act of 2012 delayed implementation from January 2, 2013, a sequence recorded by the Congressional Research Service in a report on health reform spending issued in 2013. Each nonexempt account faced reduction by the uniform percentage calculated for the relevant category, subject to exemptions and special rules, according to the Congressional Research Service in 2011.

Exemptions removed a large share of federal spending from the calculation and concentrated the reductions on a narrower base. Section 255 of the Balanced Budget and Emergency Deficit Control Act listed exempt programs and activities. The exempt categories included Social Security benefits under Title II of the Social Security Act and Tier I railroad retirement benefits, all programs administered by the Department of Veterans Affairs, net interest, refundable income tax credits, and specified unobligated balances, according to the text of Section 255 as compiled by Budget Counsel from the statute. The Congressional Research Service listed additional exempt categories in its frequently asked questions report on the Budget Control Act, including civilian and military retirement, federal aid highways, unemployment compensation, and low income programs that included Medicaid, the Children’s Health Insurance Program, Supplemental Security Income, the Supplemental Nutrition Assistance Program, and Temporary Assistance for Needy Families. Medicare occupied a separate position under special rules in Section 256 of the Balanced Budget and Emergency Deficit Control Act. Reductions in Medicare benefit payments were capped at 2 percent, according to the Congressional Research Service in 2011 and in a 2018 report on Medicare and budget sequestration. Because the 2 percent cap limited savings from Medicare, the Office of Management and Budget was directed to raise the uniform percentage applied to nondefense discretionary appropriations and to nonexempt non-Medicare direct spending to offset the shortfall, according to the Congressional Research Service in 2011. The President also held authority to exempt military personnel accounts or to apply a lower percentage to such accounts, with offsetting reductions in other accounts in the military subfunction after notice to Congress by August 10 in a sequestration year, according to the Congressional Research Service in 2011.

The design theory rested on symmetry of pain rather than on confidence in the merits of uniform reduction. Acting Director Jeffrey Zients of the Office of Management and Budget wrote in 2012, in an account published by Government Executive in 2012, that the sequester had been intended as a means of encouraging responsible bipartisan deficit reduction rather than as a program of destructive reductions, and Zients described the sequester as a devastating reduction in defense and domestic investment in the same 2012 account. Secretary of Defense Leon E. Panetta described sequestration in February 2012, in testimony reported by the American Forces Press Service in 2012, as a meat ax approach that threatened to hollow out the force and to damage national defense. On the nondefense side, the exposure of discretionary programs in education, infrastructure, public health, and research, combined with the capped exposure of Medicare payments to providers, hospitals, physicians, and insurers, supplied the corresponding pressure described by the Office of Management and Budget in 2012. The committee terminated on January 31, 2012 without a report, according to the Congressional Research Service in 2011, and the statutory sequence moved from negotiation to calculation, with the Office of Management and Budget assigned the arithmetic and the President assigned the sequestration orders for fiscal 2013 to fiscal 2021.

The Trigger Fires

The automatic reductions written into the Budget Control Act of 2011 were scheduled to begin on January 2, 2013, and during the autumn of 2012 the date functioned as a deadline for a bargain that never arrived. The Congressional Research Service recorded in 2014 that the Joint Select Committee on Deficit Reduction had failed to produce an enacted bill by January 15, 2012, and that failure left the statute with only one operative path, a sequestration that would cancel budgetary resources in equal dollar amounts on the defense side and the nondefense side. The sequestration then became entangled with a larger set of expiring tax and spending provisions known in public debate as the fiscal cliff, and the resolution enacted in the first hours of 2013 settled the tax questions for most taxpayers while treating the spending question as a postponement. The trigger was not disarmed in January 2013. The trigger was reset by two months.

The instrument of the reprieve was the American Taxpayer Relief Act of 2012, Public Law 112-240, which President Barack Obama signed on January 2, 2013, according to the statute record summarized by the Congressional Research Service in 2014. Section 901 of the act amended the Balanced Budget and Emergency Deficit Control Act of 1985 in three connected ways. First, the act struck January 2, 2013 as the date for the fiscal 2013 order under section 251A and inserted March 1, 2013, postponing the sequestration by two months. Second, the act reduced the amount of deficit reduction required for fiscal 2013 by 24 billion dollars, a figure the Congressional Research Service described in 2014 as roughly two months of reductions, bringing the fiscal 2013 sequestration to roughly 85.3 billion dollars in canceled budgetary resources. Third, the act rewrote the discretionary spending limits for fiscal 2013 and fiscal 2014 for purposes of the calculation. The Congressional Research Service calculated in 2014 that the resulting 85.3 billion dollar reduction was divided equally between the defense category and the nondefense category, at 42.7 billion dollars for each category. Equality in dollars did not produce equality in percentages, because the two categories rested on different bases of nonexempt spending.

The 24 billion dollar reduction was not granted without payment. The Congressional Research Service reported in 2014 that the act reduced the discretionary spending caps by 4 billion dollars in fiscal 2013 and by 8 billion dollars in fiscal 2014, and that those cap reductions offset roughly half of the cost of shrinking and delaying the fiscal 2013 sequestration. The remaining cost was offset on the revenue side. Section 902 of the act permitted participants in tax deferred retirement plans with a designated Roth contribution program to transfer amounts to a designated Roth account without a distribution, treating the transfer as a taxable rollover, as the Congressional Research Service summarized in 2013. Because Roth contributions are taxed at the time of contribution rather than at the time of distribution, the provision accelerated revenue into the ten year budget window, and the Congressional Research Service noted in 2014 that the provision was used to offset the remaining cost. Relief in one year was thus financed in part by tighter limits in adjacent years, a pattern the later bipartisan budget acts repeated at larger scale.

The two month interval produced a distinctive administrative record, because agencies were required to plan for a reduction whose size and timing had both changed after the fiscal year had begun. The Office of Management and Budget issued guidance on January 14, 2013, through a memorandum from Deputy Director for Management Jeffrey Zients, directing agencies to plan for the cancellation of approximately 85 billion dollars in budgetary resources. The Congressional Budget Office published its Budget and Economic Outlook on February 5, 2013, and estimated that, in the absence of sequestration, gross domestic product growth during calendar 2013 would be about 0.6 percentage points faster and the equivalent of about 750,000 more full time jobs would be created or retained by the fourth quarter of 2013. Federal Reserve Chair Ben Bernanke testified before Congress in February 2013 in favor of replacing the sharp, front loaded reductions with policies that reduced the deficit more gradually in the near term. President Barack Obama proposed on February 5, 2013 that Congress enact a smaller package of spending reductions and revenue changes to avert the March 1, 2013 order, according to the Congressional Budget Office account published in February 2013. No such package passed either chamber before the deadline.

Why did a two month delay make the first year cuts sharper in practice?

The delay compressed a full year reduction into the seven months remaining after March 1, 2013. The Office of Management and Budget calculated in 2013 that agencies faced effective reductions near 13 percent for defense and 9 percent for nondefense operations during that shortened period.

The compression followed from the arithmetic of the federal fiscal year. The sequestration canceled a fixed amount of budget authority calculated against full year levels, yet agencies had operated from October 1, 2012 under a continuing resolution and had obligated a substantial share of annual funds before March 1, 2013 arrived. A reduction measured against the full year therefore fell entirely on the portion of the year that remained, a distinction the Office of Management and Budget drew in its March 1, 2013 report to Congress, as summarized by the Congressional Research Service in 2014. Senator Barbara Mikulski of Maryland, chair of the Senate Appropriations Committee, stated at a February 2013 hearing that a 5 percent reduction arriving late in a fiscal year translated into a heavier burden because obligations such as rent and utilities could not be reduced on the same schedule.

On March 1, 2013, President Barack Obama issued the sequestration order for fiscal 2013 required by section 251A of the Balanced Budget and Emergency Deficit Control Act, directing that budgetary resources in each nonexempt budget account be reduced by the amount calculated by the Office of Management and Budget in its report to Congress of the same date. The Office of Management and Budget report, titled Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013 and issued on March 1, 2013, calculated a reduction of about 85 billion dollars in fiscal 2013 budgetary resources, refined in later Congressional Research Service summaries in 2014 to 85.3 billion dollars. The order covered new budget authority, unobligated balances carried forward in defense accounts, direct spending authority, and obligation limitations. The Congressional Research Service reported in 2014 that the fiscal 2013 sequester reduced nonexempt defense discretionary spending by 7.8 percent relative to the cap levels and nonexempt nondefense discretionary spending by 5.0 percent relative to the cap levels. The same Office of Management and Budget calculation, as cited by the Congressional Research Service in 2014, reduced Medicare by 2 percent relative to baseline levels under the statutory limit, reduced other nondefense mandatory spending by 5.1 percent relative to baseline levels, and reduced defense mandatory spending by 7.9 percent, a figure the Congressional Research Service tabulated from the Office of Management and Budget sequestration reports. The percentages differed because the equal dollar division was applied to unequal pools of nonexempt resources, and because the statute capped the Medicare reduction at 2 percent.

The legal mechanics of the fiscal 2013 order distinguished the sequestration from an ordinary appropriations reduction. Sequestration canceled budgetary resources permanently rather than deferring them, and the Balanced Budget and Emergency Deficit Control Act required the uniform percentage for a category to be applied at the level of programs, projects, and activities within each account, as the Government Accountability Office confirmed in its March 2014 review. An agency could not concentrate reductions in a single program while protecting the remainder of an account, and could not shift the burden across accounts without transfer authority granted by Congress. The Congressional Research Service explained in 2014 that large categories stood outside the calculation under sections 255 and 256 of the Balanced Budget and Emergency Deficit Control Act, including Social Security benefits, Medicaid, federal retirement payments, veterans programs, net interest, refundable tax credits, and major low income programs. The Congressional Research Service reported in 2019 that roughly three quarters of all mandatory spending was exempt under section 255. The practical consequence in fiscal 2013 was concentration, on discretionary appropriations, on provider and plan payments under Medicare, and on a narrow band of nonexempt mandatory programs.

Final appropriations legislation altered the fiscal 2013 total after the order had been issued, without altering the method. The Consolidated and Further Continuing Appropriations Act, 2013, Public Law 113-6, signed on March 26, 2013, funded the government for the remainder of the fiscal year, and the Government Accountability Office reported in 2014 that final appropriations reduced the fiscal 2013 sequestration amount from 85.3 billion dollars to 80.5 billion dollars. The reduction in the total did not restore flexibility at the program level for most accounts, because the March 26, 2013 act largely preserved the across the board structure while adjusting account levels. The distribution inside each account remained fixed by formula until Congress granted specific transfer authority, and agencies that lacked such authority absorbed the reduction through hiring freezes, contract reductions, deferred investments, and unpaid leave.

Unpaid leave, recorded in federal personnel practice as an administrative furlough, became the most visible absorption tool of fiscal 2013. The Government Accountability Office reported in March 2014 that seven agencies furloughed a total of more than 770,000 employees for periods ranging from one to seven days, while twenty agencies reduced employee travel. The largest single furlough occurred at the Department of Defense. The Government Accountability Office reported in report GAO-14-529, issued in 2014, that the Department of Defense instructed components in January 2013 to plan for a possible administrative furlough of up to 22 days, that Secretary of Defense Chuck Hagel directed on May 14, 2013 a furlough of up to 11 days for most civilian personnel beginning on July 8, 2013, and that the department reduced the furlough to 6 days on August 6, 2013 after transfers and reprogrammings supplied additional flexibility. The Government Accountability Office recorded in 2014 that the Department of Defense furloughed 624,404 civilians, excepted 142,602 civilians on grounds that included assignment to a combat zone and protection of life and property, and reported savings of approximately 1 billion dollars from civilian pay, excluding implementation costs.

The Federal Aviation Administration supplied the clearest case of a furlough reversed by targeted legislation. The agency documented in 2013 that sequestration required a reduction of 637 million dollars from its fiscal 2013 budget, and Secretary of Transportation Ray LaHood stated on February 22, 2013 that furloughs of air traffic personnel would produce extended delays at major airports. The agency furloughed employees in April 2013, flight delays accumulated during the week of April 21, 2013, and Congress acted on April 26, 2013 to end the furloughs. The Reducing Flight Delays Act of 2013, Public Law 113-9, enacted on May 1, 2013, permitted the transfer of up to 253 million dollars within Department of Transportation accounts, and the Federal Aviation Administration recorded in 2013 that the transfer authority ended furloughs across the agency while the obligation to reduce spending by 637 million dollars remained in force.

Service effects beyond personnel actions were cataloged by the Government Accountability Office in March 2014, from agency estimates. The Department of Housing and Urban Development estimated that 42,000 people did not receive rental housing assistance in fiscal 2013. The Department of Health and Human Services reported that 57,000 fewer children were served under the Head Start program. The Department of Labor estimated that long term unemployed workers received 11 percent less in Emergency Unemployment Compensation benefits in fiscal 2013. The Department of Agriculture estimated that 142,000 people did not receive assistance under the Women, Infants, and Children Farmers Market Nutrition Program. The Treasury Department estimated that the Internal Revenue Service would collect billions of dollars less in revenue because of fewer tax return reviews and diminished fraud detection. A separate Government Accountability Office case study review issued in May 2014 found that average wait times for Customs and Border Protection inspections rose at two studied airports from 19.7 minutes to 22.8 minutes and from 20.9 minutes to 26.8 minutes between fiscal 2012 and fiscal 2013, and that the military services protected training for units preparing to deploy by canceling or limiting training for other units. Attribution divided along institutional lines. Secretary of Defense Chuck Hagel, in statements during 2013, described readiness and service losses as the direct product of the uniform structure. House Budget Committee Chair Paul Ryan of Wisconsin, in statements during the December 2013 budget negotiations, described the sequestration as an imperfect instrument that had nevertheless delivered deficit reduction that negotiated processes had failed to deliver.

After fiscal 2013, the sequestration changed form. The Congressional Research Service explained in 2014 that in fiscal 2013 the automatic reduction was carried out through an across the board sequester, meaning a cancellation of previously authorized budgetary resources, while from fiscal 2014 forward the automatic reduction for discretionary spending was carried out through reductions in the overall discretionary caps rather than through a sequester order against individual accounts. The annual amount remained fixed by formula. The Congressional Research Service calculated in 2014 that the automatic reduction totaled 109.3 billion dollars in budget authority for each year from fiscal 2013 to fiscal 2021, divided at 54.7 billion dollars for defense and 54.7 billion dollars for nondefense, after a deduction of 18 percent for debt service savings from the 1.2 trillion dollar target, a formula the Office of Management and Budget restated in its fiscal 2020 report issued on March 18, 2019. For discretionary spending, the formula operated by lowering the statutory caps before appropriations were written. The Office of Management and Budget calculated in its March 18, 2019 report that the joint committee reductions would lower the fiscal 2020 discretionary cap for the defense category by 54 billion dollars and for the nondefense category by 35 billion dollars, with the balance of the nondefense share taken from mandatory programs. Within the lowered caps, the appropriations committees decided the distribution among accounts and programs through ordinary legislation. In the ordinary course after 2013, the discretionary reduction arrived as a constraint on drafting rather than as a cancellation order in the middle of a fiscal year.

Mandatory spending followed the older form without interruption. An annual sequestration order canceled a uniform percentage of nonexempt direct spending in each year, and the percentages moved within a narrow band as the composition of nonexempt spending changed. The Office of Management and Budget reports, as tabulated by the Congressional Research Service, set the defense mandatory reduction at 9.8 percent for fiscal 2014, 9.5 percent for fiscal 2015, 9.3 percent for fiscal 2016, 9.1 percent for fiscal 2017, 8.9 percent for fiscal 2018, 8.7 percent for fiscal 2019, and 8.6 percent for fiscal 2020. The same Office of Management and Budget reports set the reduction for nondefense mandatory programs other than Medicare benefit payments at 7.2 percent for fiscal 2014, 7.3 percent for fiscal 2015, 6.8 percent for fiscal 2016, 6.9 percent for fiscal 2017, 6.6 percent for fiscal 2018, 6.2 percent for fiscal 2019, and 5.9 percent for fiscal 2020. Medicare benefit payments remained at the statutory ceiling in every year, at 2 percent from fiscal 2013 through fiscal 2020, according to the Congressional Research Service tabulation of the Office of Management and Budget reports. The dollar weight of the mandatory sequester rested overwhelmingly on Medicare. The Congressional Research Service reported in an insight issued in 2019 that the fiscal 2020 mandatory sequester required a 2 percent reduction in Medicare spending amounting to 15.3 billion dollars and reductions in other mandatory accounts that brought the total reduction in mandatory outlays to 20.7 billion dollars for fiscal 2020, with 19.86 billion dollars applied to nondefense programs and 0.84 billion dollars applied to defense programs. Medicare beneficiaries faced no reduction in defined benefits under the order, because the 2 percent reduction applied to payments to providers and health plans, a distinction the Congressional Research Service emphasized in its reports on Medicare sequestration issued in 2018 and 2019.

The extension of the mandatory sequestration beyond the original period became the standard financing device for agreements that raised the discretionary caps. The Bipartisan Budget Act of 2013, Public Law 113-67, enacted on December 26, 2013, raised the defense and nondefense discretionary caps by roughly 22 billion dollars each for fiscal 2014 and by roughly 9 billion dollars each for fiscal 2015, and extended the mandatory sequestration to fiscal 2022 and fiscal 2023, an extension the Congressional Research Service estimated in 2014 to reduce the deficit by a total of 28 billion dollars. Public Law 113-82, enacted on February 15, 2014 to revise the cost of living adjustment for certain military retirees, extended the mandatory sequestration through fiscal 2024, as the Congressional Research Service recorded in its report on the Budget Control Act. The Bipartisan Budget Act of 2015, Public Law 114-74, enacted on November 2, 2015, raised the caps for fiscal 2016 by 25 billion dollars for each category and for fiscal 2017 by 15 billion dollars for each category, and extended the mandatory sequestration through fiscal 2025, according to the Congressional Research Service summary of the act. The Bipartisan Budget Act of 2018, Public Law 115-123, enacted on February 9, 2018, raised the fiscal 2018 defense cap by 80 billion dollars to 629 billion dollars and the nondefense cap by 63 billion dollars to 579 billion dollars, raised the fiscal 2019 defense cap by 85 billion dollars to 647 billion dollars and the nondefense cap by 68 billion dollars to 597 billion dollars, and extended the mandatory sequestration through fiscal 2027, as the Congressional Research Service reported in 2018. The Bipartisan Budget Act of 2019, Public Law 116-37, enacted on August 2, 2019, raised the fiscal 2020 defense cap by 90 billion dollars to 666.5 billion dollars and the nondefense cap by 78 billion dollars to 621.5 billion dollars, raised the fiscal 2021 caps by 81 billion dollars for defense and 72 billion dollars for nondefense, and extended the mandatory sequestration through fiscal 2029, as the Congressional Research Service reported in an insight dated August 5, 2019.

By February 2020, the annual sequester had settled into a routine administered by the Office of Management and Budget alongside the transmission of each presidential budget, with a report to Congress for each fiscal year calculating the cap reductions and listing the percentage reduction for each nonexempt account with direct spending. The trigger that fired on March 1, 2013 had produced two distinct legacies through February 15, 2020. The across the board cancellation of discretionary resources occurred once, in fiscal 2013, and was replaced by lower caps that Congress repeatedly raised. The cancellation of mandatory resources recurred every year, was extended five times between December 2013 and August 2019 as the price of discretionary relief, and converted a nine year device scheduled to end after fiscal 2021 into an eighteen year reduction reaching to fiscal 2029.

Deals, Offsets and the War Account

The discretionary caps that took effect after the failure of the Joint Select Committee on Deficit Reduction were never allowed to run for long at the reduced levels. Between December 2013 and August 2019, Congress and the President enacted four statutes, each titled the Bipartisan Budget Act, and each raising the caps for two fiscal years at a time. The Congressional Budget Office tabulated the pattern in testimony delivered on February 27, 2019: the first three of those acts raised the caps for fiscal 2014 through fiscal 2019 by a combined 439 billion dollars in budget authority, with about 54 percent of the increase assigned to defense, and a fourth act followed in August 2019 for fiscal 2020 and fiscal 2021. Each negotiation paired the relief with offsets, and the character of those packages changed across the decade. The agreements of 2013 and 2015 paired two years of higher discretionary spending with ten years of mandatory savings, fee increases, and asset sales that the Congressional Budget Office scored as fully covering the cost of the relief. The agreement of 2018 paired far larger relief with offsets covering only a small fraction of the cost, and the agreement of 2019 rested its scored savings almost entirely on two provisions scheduled for the final years of the window. Alongside the negotiated increases, a second channel operated outside the caps altogether: amounts designated for overseas contingency operations required no offset and faced no ceiling.

The first agreement was the Bipartisan Budget Act of 2013, Public Law 113-67, signed on December 26, 2013, and known as the Murray-Ryan agreement after its negotiators, Senator Patty Murray and Representative Paul Ryan. The Congressional Research Service recorded that the act raised the defense cap and the nondefense cap by about 22 billion dollars each in fiscal 2014 and by about 9 billion dollars each in fiscal 2015. The combined increase in budget authority was 63 billion dollars, divided evenly between the two categories. The Congressional Budget Office, in its cost estimate dated December 11, 2013, estimated that appropriations at the revised limits would produce about 62 billion dollars in additional outlays over the period from fiscal 2014 through fiscal 2023, and scored the remaining provisions as reducing deficits by about 85 billion dollars over the same period, so that the agreement as scored reduced deficits on net by between 20 billion and 23 billion dollars.

The largest single offset in the 2013 agreement was an extension of mandatory sequestration by two years, through fiscal 2022 and fiscal 2023. The Congressional Research Service reported that the extension alone was projected to reduce the deficit by 28 billion dollars. The device established a template that every later agreement repeated: relief concentrated in the first two years of the window, paid for in part by reductions scheduled for the final two years. The remaining offsets were spread across fees, retirement contributions, and program changes. The aviation security fee paid by airline passengers rose to a flat 5.60 dollars for a one way trip, and the Congressional Budget Office scored the change at 12.63 billion dollars in offsetting collections over ten years. Federal employees hired on or after January 1, 2014, were required to contribute 4.4 percent of pay toward their pensions, a rate 1.3 percentage points higher than the rate for employees hired during 2013. The annual cost of living adjustment for retired members of the armed forces under age 62 was set at one percentage point below inflation, for scored savings of 6.235 billion dollars. Premiums charged by the Pension Benefit Guaranty Corporation were increased, for scored savings of 7.88 billion dollars. Customs user fees, scheduled to expire during fiscal 2021, were extended through fiscal 2023, for collections exceeding 3 billion dollars in each of fiscal 2022 and fiscal 2023. The military retirement provision proved the least durable element of the package: legislation enacted in February 2014, Public Law 113-82, exempted members who had entered service before January 1, 2014, from the reduced adjustment, and the lost savings were replaced by a further one year extension of mandatory sequestration, through fiscal 2024.

The second agreement was the Bipartisan Budget Act of 2015, Public Law 114-74, signed on November 2, 2015. The Congressional Research Service recorded increases of 25 billion dollars to each cap in fiscal 2016 and 15 billion dollars to each cap in fiscal 2017, again divided evenly between defense and nondefense. The combined increase was 80 billion dollars in budget authority. The Congressional Budget Office estimated in October 2015 that appropriations at the revised limits would raise discretionary outlays by 79 billion dollars over the period from fiscal 2016 through fiscal 2025, and that the other provisions of the act would reduce deficits by about 80 billion dollars over the same period. A summary prepared by the Senate Republican Policy Committee put total offsets at 80.9 billion dollars, composed of 47.6 billion dollars in lower direct spending, 32.3 billion dollars in additional revenue, and 1.1 billion dollars in program integrity savings. The 2015 act also suspended the statutory debt limit through March 15, 2017, a pairing that the agreements of 2018 and 2019 repeated.

The offset package of 2015 followed the structure of 2013 while substituting asset sales and revenue timing provisions for part of the fee and retirement items. Mandatory sequestration was extended by one year, through fiscal 2025. The act directed the sale of 58 million barrels of oil from the Strategic Petroleum Reserve, and the Heritage Foundation, citing the Congressional Budget Office estimate, recorded 5.5 billion dollars in assumed proceeds from those sales. The act authorized additional auctions of electromagnetic spectrum licenses for commercial wireless use, with the proceeds recorded as offsetting receipts. Pension provisions operated in the opposite direction from the retirement contribution increase of 2013: the act extended pension smoothing, which reduced required employer contributions to defined benefit plans and thereby raised taxable corporate income and federal revenue within the budget window. The Committee for a Responsible Federal Budget observed in an October 30, 2015, analysis that the additional revenue was a timing effect, since lower contributions inside the window implied higher required contributions, and lower tax receipts, outside the window. The act capped the rate of return for companies administering the federal crop insurance program at 8.9 percent under the standard reinsurance agreement, down from a negotiated rate of about 14.5 percent. The act also reallocated payroll tax revenue toward the Social Security Disability Insurance trust fund and held down the scheduled increase in Medicare Part B premiums for fiscal 2016. The Committee for a Responsible Federal Budget calculated that, after interest costs, the agreement was only about 65 percent offset and added 56 billion dollars to the debt over ten years.

The third agreement broke the scale of the first two. The Bipartisan Budget Act of 2018, Public Law 115-123, was signed on February 9, 2018, after a brief lapse in appropriations. For fiscal 2018, the act raised the defense cap by 80 billion dollars, to 629 billion dollars, and the nondefense cap by 63 billion dollars, to 579 billion dollars. For fiscal 2019, the act raised the defense cap by 85 billion dollars, to 647 billion dollars, and the nondefense cap by 68 billion dollars, to 597 billion dollars. The combined increase was 296 billion dollars in budget authority, or 143 billion dollars for fiscal 2018 and 153 billion dollars for fiscal 2019. The Congressional Budget Office noted in its February 27, 2019, testimony that the 2018 act was the first of the agreements to lift the caps above the levels that the Budget Control Act had set for those years before the automatic reductions took effect, and that defense received 56 percent of the increase in each year, ending the equal dollar division that the agreements of 2013 and 2015 had observed. The act suspended the debt limit through March 1, 2019, and it carried provisions well beyond the caps, including supplemental appropriations for hurricane and wildfire response, an extension of the Children’s Health Insurance Program, extensions of expiring health and tax provisions, and the repeal of the Independent Payment Advisory Board created by the Patient Protection and Affordable Care Act.

The offset arithmetic of 2018 differed from the earlier agreements in kind rather than in degree. In the February 27, 2019, testimony, the Congressional Budget Office stated that the mandatory spending and revenue provisions of the 2018 act would reduce deficits by 38 billion dollars over the period from fiscal 2018 through fiscal 2027, a figure 258 billion dollars smaller than the increase in discretionary spending produced by the higher caps, and that the supplemental appropriations carried in the act would increase deficits by a further 68 billion dollars over the same period. The offset provisions themselves resembled the earlier packages in composition. Mandatory sequestration was extended by two years, through fiscal 2027. Customs user fees were extended, for savings that the Heritage Foundation, in a July 19, 2019, issue brief, recorded at 8.5 billion dollars. Immigration related fees were extended, covering the travel promotion fee under the Visa Waiver Program and the filing fees attached to L-1 and H-1B visa petitions, and aviation security fees were directed to produce about 3.3 billion dollars in collections during fiscal 2026 and fiscal 2027, according to the summary of the act prepared by the Republican Study Committee. The Department of Energy was directed to sell 100 million barrels of crude oil from the Strategic Petroleum Reserve between fiscal 2022 and fiscal 2027, for proceeds that the Heritage Foundation recorded at 6.4 billion dollars, and the surplus funds that Federal Reserve Banks were permitted to retain were reduced, transferring 2.5 billion dollars to the general fund of the Treasury. The Committee for a Responsible Federal Budget, in a June 20, 2019, paper, stated that the 2018 agreement raised discretionary spending by 16 percent between fiscal 2017 and fiscal 2019 and left a scheduled reduction of 126 billion dollars to take effect in fiscal 2020, a cliff that set the terms for the fourth negotiation.

The fourth agreement was the Bipartisan Budget Act of 2019, Public Law 116-37, signed on August 2, 2019. The Congressional Budget Office, in its cost estimate for the act, recorded a total increase in the caps of 324.016 billion dollars in budget authority, composed of 171.132 billion dollars for fiscal 2020 and 152.884 billion dollars for fiscal 2021. The Congressional Research Service itemized the cap changes by category: for fiscal 2020, the defense cap rose by 90.3 billion dollars, to 666.5 billion dollars, and the nondefense cap rose by 78.3 billion dollars, to 621.5 billion dollars, and for fiscal 2021, the defense cap rose by 81.3 billion dollars, to 671.5 billion dollars, and the nondefense cap rose by 71.6 billion dollars, to 626.5 billion dollars. The category figures summed to about 322 billion dollars, and the Congressional Budget Office explained that its larger total included a new adjustment of up to 2.5 billion dollars to the nondefense cap for the decennial census in fiscal 2020. The act suspended the debt limit through July 31, 2021, with the limit to be reinstated on August 1, 2021, at a level accommodating obligations incurred during the suspension.

The offset package of 2019 was the smallest in composition of the four, resting on two provisions. The Congressional Budget Office scored the offset provisions at 77.3 billion dollars in budget authority and 54.5 billion dollars in outlay savings over the period from fiscal 2020 through fiscal 2029. The extension of mandatory sequestration supplied the larger share: extending the reductions by two years, through fiscal 2028 and fiscal 2029, was scored at 61.8 billion dollars in budget authority and 39 billion dollars in outlays. The second provision extended the authority to collect customs user fees, including the merchandise processing fee, through September 30, 2029, and was scored at 15.6 billion dollars. Both provisions produced their scored savings in the final years of the ten year window, against relief delivered in fiscal 2020 and fiscal 2021. The National Taxpayers Union Foundation, in a July 2019 analysis, objected that the customs fees financed defined inspection services and that counting an extension of fees already in effect through fiscal 2027, scored in fiscal 2028 and fiscal 2029, as payment for spending in fiscal 2020 and fiscal 2021 repeated a device that earlier agreements had also used. Treasury Secretary Steven Mnuchin, who conducted the negotiation with Speaker Nancy Pelosi, had sought 150 billion dollars in offsets before accepting the 77 billion dollar figure recorded in the final text. The act also set targets for overseas contingency operations funding of 79.5 billion dollars in fiscal 2020 and 77 billion dollars in fiscal 2021, figures that the Congressional Research Service described as targets rather than limits.

Why did the overseas contingency operations account escape the caps altogether?

The Budget Control Act placed no ceiling on amounts designated for overseas contingency operations, and the statute supplied no definition of eligible activity. Designation required action by Congress in the appropriations act and a matching designation by the President, and designated amounts then raised the caps by the same sum.

The designation mechanism dated from the wars in Iraq and Afghanistan, when Congress funded operations through emergency and supplemental appropriations outside the regular defense budget. The Budget Control Act preserved the channel by providing that appropriations designated by Congress, and subsequently designated by the President, for overseas contingency operations or the Global War on Terrorism would trigger an upward adjustment of the caps in the amount designated. The Congressional Research Service, in its report on exceptions to the discretionary spending limits dated June 19, 2019, recorded that the statute fixed no limit on the amount that could be designated and defined no category of eligible activity. The Congressional Budget Office calculated that overseas contingency operations funding accounted for 723 billion dollars of cap adjustments between fiscal 2012 and fiscal 2019, or 73 percent of all adjustments allowed under the act during that period.

The totals designated in the second half of the decade showed the scale of the channel in years without a large ground war. The Congressional Research Service, in its report on overseas contingency operations funding, estimated total designated appropriations at 74.0 billion dollars in fiscal 2016, composed of 58.9 billion dollars for the Department of Defense and 14.9 billion dollars for the Department of State and the United States Agency for International Development. The corresponding total for fiscal 2017 was 103.4 billion dollars, composed of 82.5 billion dollars for defense and 20.8 billion dollars for the State Department and the development agency. The total for fiscal 2018 was 78.1 billion dollars, composed of 65.9 billion dollars for defense and 12.0 billion dollars for the State Department and the development agency. For fiscal 2019, the Congressional Research Service recorded 68.8 billion dollars for the Department of Defense alone. Defense funding through the channel therefore exceeded the entire two year cap increase of the 2013 agreement in each of those three years, and the channel required no offsets of any kind.

The composition of the account drew sustained criticism, stated on the record by named officials and analysts. The Congressional Budget Office, in a report dated October 2018 on funding for overseas contingency operations and its impact on defense spending, estimated that since fiscal 2012 the account had carried an average of about 50 billion dollars per year, in 2019 dollars, for enduring activities, meaning activities that would continue in the absence of contingency operations and that could have been carried in the base budget. Theresa Gullo, the assistant director for budget analysis at the Congressional Budget Office, testified on February 27, 2019, that enduring activities had accounted for almost 60 percent of overseas contingency operations spending since the Budget Control Act was enacted, and that a base budget absorbing those activities would have run about 9 percent higher per year on average since fiscal 2012. Mick Mulvaney, director of the Office of Management and Budget and later acting White House chief of staff, described the account as a slush fund and described the financing of base budget requirements through the account as budget gimmicks, in statements recorded by the Congressional Research Service. Mackenzie Eaglen, a resident fellow at the American Enterprise Institute, stated in March 2019, after the administration proposed a fiscal 2020 request of about 174 billion dollars, that the difference from earlier practice was that the Department of Defense no longer denied the purpose. Representative Adam Smith, chairman of the House Armed Services Committee, applied the label fake OCO to the portion of the fiscal 2020 request that the department itself identified as base requirements, and the department had itemized that request as 25.4 billion dollars for direct war requirements, 41.3 billion dollars for enduring requirements, and 97.9 billion dollars for base requirements financed through the account because of the caps. The fiscal 2020 appropriations enacted in December 2019 did not adopt the requested structure, and the Senate Appropriations Committee summary recorded 70.6 billion dollars in enacted overseas contingency operations funding for defense.

The defense of the account, also stated by named officials, rested on the character of war costs. Robert Hale, who served as comptroller of the Department of Defense from 2009 to 2014, and Michael McCord, who succeeded him in that office, each described the account as a safety valve that protected military readiness from the sequestration mechanism and allowed Congress to reach the bipartisan cap agreements. Elaine McCusker, deputy under secretary of defense for comptroller matters, stated during the presentation of the fiscal 2020 request in March 2019 that the accounts placed in the overseas contingency operations request had been funded in whole or in part through that account in earlier years, and that the request received scrutiny equal to the scrutiny applied to the base budget. Department officials also maintained that the costs of operations in Afghanistan, Iraq, and Syria depended on force levels and operational tempo that could not be fixed a year in advance, and that a channel outside the caps allowed appropriations to follow those decisions.

Two further adjustment channels operated at smaller scale and under tighter statutory conditions. The disaster relief adjustment allowed appropriations for major disasters declared under the Robert T. Stafford Disaster Relief and Emergency Assistance Act to raise the nondefense cap by an amount set by formula, based principally on the average of disaster relief appropriations over the preceding ten years, excluding the highest and lowest years. The Congressional Research Service, citing the Office of Management and Budget, recorded the allowable adjustment for fiscal 2019 at 14.965 billion dollars and a projected figure of 17.3 billion dollars for fiscal 2020. The Congressional Budget Office calculated that almost 70 billion dollars had been provided for disaster relief through the adjustment since fiscal 2012, separate from the larger sums appropriated under the uncapped emergency designation, which supplied 110 billion dollars in fiscal 2018 alone after Hurricanes Harvey, Irma, and Maria. The program integrity adjustments rewarded appropriations for activities intended to reduce improper payments, and each adjustment required a base appropriation before additional amounts could pass outside the caps. For continuing disability reviews and redeterminations by the Social Security Administration, the base amount was 273 million dollars and the allowable adjustment for fiscal 2019 was 1.410 billion dollars, according to the table published by the Congressional Research Service, with 1.309 billion dollars allowed for fiscal 2020. For health care fraud and abuse control activities, the base amount was 311 million dollars and the allowable adjustment was 454 million dollars for fiscal 2019 and 475 million dollars for fiscal 2020. The Bipartisan Budget Act of 2015 had expanded the disability review adjustment to cover cooperative disability investigation units and fraud prosecutions, and the Bipartisan Budget Act of 2018 added the reemployment services adjustment, capped at 33 million dollars for fiscal 2019 and 58 million dollars for fiscal 2020. The Congressional Budget Office recorded 11 billion dollars in program integrity funding provided through the adjustments since fiscal 2012, against 5 billion dollars in base appropriations for the same activities.

Across the four agreements, the arithmetic traced a consistent exchange. Congress and the President obtained two years of appropriations certainty and, in three of the four statutes, a suspension of the debt limit, and the price recorded in the text was a set of offsets weighted toward the end of the ten year scoring window and, after 2015, toward amounts far smaller than the relief. The overseas contingency operations channel stood outside that exchange entirely, delivering sums comparable to the negotiated relief with no offsets, no ceiling, and no statutory test of eligibility. By February 15, 2020, the caps for fiscal 2020 and fiscal 2021 stood at the levels set by the Bipartisan Budget Act of 2019, and mandatory sequestration stood extended through fiscal 2029.

The cap and deal timeline records the original statute, each agreement that raised the caps, the offsets claimed for each agreement, and the spending routed outside the caps through designations that required no offset.

Statute	Fiscal years covered	Cap change	Offsets claimed	Routed outside the caps
Budget Control Act of 2011, Public Law 112-25	2012 to 2021	Original caps totaling 1,043 billion dollars in the first year rising to 1,234 billion in the last	None, the caps were themselves the savings (917 billion dollars of deficit reduction estimated by the Congressional Budget Office)	Overseas contingency operations and emergency designations exempt without limit
American Taxpayer Relief Act of 2012, Public Law 112-240	2013 to 2014	Sequestration delayed two months and reduced by 24 billion dollars; caps lowered by 4 billion and 8 billion dollars	Revenue from the Roth conversion provision	None stated
Bipartisan Budget Act of 2013, Public Law 113-67	2014 to 2015	Caps raised by about 63 billion dollars	About 85 billion dollars scored, including mandatory sequestration extended into 2022 and 2023, aviation security fees and retirement contributions	Overseas contingency designations continued outside the caps
Bipartisan Budget Act of 2015, Public Law 114-74	2016 to 2017	Caps raised by about 80 billion dollars	About 80 billion dollars, including spectrum auctions, a petroleum reserve sale and a sequestration extension through 2025	Overseas contingency designations of 74.0 billion dollars in 2016
Bipartisan Budget Act of 2018, Public Law 115-123	2018 to 2019	Caps raised by about 296 billion dollars	About 38 billion dollars of deficit reduction claimed against the relief, including customs fees and a sequestration extension through 2027	Supplemental appropriations and overseas contingency designations outside the caps
Bipartisan Budget Act of 2019, Public Law 116-37	2020 to 2021	Caps raised by about 324 billion dollars	77.3 billion dollars in budget authority, from customs fees and a sequestration extension through 2029	Overseas contingency targets of 79.5 billion dollars for 2020 set in the act itself
Expiry under the 2011 act as amended	After 2021	Caps ended on September 30, 2021 as enacted	Not applicable	Not applicable

The Record and the Expiry

The Budget Control Act of 2011 produced two records that pointed in opposite directions, and an assessment dated February 15, 2020, had to hold both in view. Discretionary spending, the annual funding for defense, veterans health care, education, transportation, housing assistance, research, law enforcement, and diplomacy, occupied a markedly smaller place in the economy in fiscal 2019 than in fiscal 2011. The deficit, by contrast, rose in each year from fiscal 2016 through fiscal 2019, and debt held by the public rose with it. The statute succeeded on the narrow terms of its caps and failed on the broader hope attached to its enactment, the hope that pressure on one category, backed by an automatic penalty, would force a settlement of the difference between revenues and outlays.

The counter-reading deserves full strength, because its figures came from the standard historical series maintained by the Congressional Budget Office and the Office of Management and Budget. In testimony before the Joint Select Committee on Deficit Reduction in 2011, the Congressional Budget Office described discretionary outlays in fiscal 2010 and fiscal 2011 as totaling about 9 percent of gross domestic product, the highest share in about twenty years, lifted by military operations in Afghanistan and Iraq and by funding under the American Recovery and Reinvestment Act of 2009. The historical appendix in the Congressional Budget Office outlook of January 2019, sourced to the Congressional Budget Office and the Office of Management and Budget, placed total discretionary outlays at 9.1 percent of gross domestic product in fiscal 2010, 8.7 percent in fiscal 2011, 8.0 percent in fiscal 2012, 7.2 percent in fiscal 2013, 6.8 percent in fiscal 2014, 6.5 percent in fiscal 2015, 6.4 percent in fiscal 2016, and 6.2 percent in both fiscal 2017 and fiscal 2018. The long-term outlook of June 2019 placed discretionary outlays at 6.3 percent of gross domestic product in fiscal 2019. From about 9 percent to 6.3 percent, the category surrendered close to three tenths of its original share of national output during years of economic expansion.

The dollar figures reinforced the point. The Congressional Budget Office put discretionary outlays at about 1.35 trillion dollars in fiscal 2011, close to 40 percent of all federal outlays. By fiscal 2019, discretionary outlays again totaled roughly 1.35 trillion dollars, consistent with a 6.3 percent share of a much larger economy and with total outlays of 4.45 trillion dollars. A category that spent about the same nominal total eight years apart had absorbed a large reduction relative to the economy, despite repeated statutory increases in the caps, and the compression was not confined to war funding. On the same series, defense discretionary outlays fell from about 4.6 percent of gross domestic product in fiscal 2010 to about 3.1 percent in fiscal 2018, and nondefense outlays fell from about 4.4 percent to about 3.2 percent.

Appropriations practice supplied the second strand of the counter-reading. Congress raised the original cap levels for specified pairs of years in the Bipartisan Budget Act of 2013, the Bipartisan Budget Act of 2015, the Bipartisan Budget Act of 2018, and the Bipartisan Budget Act of 2019, and annual appropriations were then enacted close to those adjusted levels in most years rather than in breach of them, with adjustments claimed under categories the statute allowed, principally overseas contingency operations, emergency requirements, and disaster relief. The pattern cuts in both directions. The deals demonstrated that the original 2011 levels had not survived, and the adjusted figures for fiscal 2018 and fiscal 2019 allowed substantial increases over the reduced levels that would otherwise have applied. The same pattern demonstrated that the cap mechanism continued to set the terms of negotiation, because each increase required a statute stating a dollar figure for each category and each year, and each was paired with offsets, most visibly extension of the mandatory sequestration. Appropriators operated under a ceiling throughout the period. The ceiling moved, repeatedly and by large amounts, but appropriations did not return to an unconstrained process in any year of the regime. Exemptions qualified the restraint without overturning it. The overseas contingency operations designation placed real defense funding outside the caps, at levels recorded as exceeding the cost of operations in the field in particular years, and emergency designations softened totals further.

Did the caps control the deficit?

No. The caps governed discretionary appropriations only, and that category fell sharply as a share of the economy between fiscal 2011 and fiscal 2019. The overall deficit nevertheless rose because mandatory outlays grew on statutory formulas, the tax act of 2017 reduced revenues, and net interest climbed as accumulated federal debt increased.

The deficit figures leave no ambiguity. The federal deficit totaled 585 billion dollars in fiscal 2016 and 665 billion dollars in fiscal 2017, equal to 3.5 percent of gross domestic product in fiscal 2017 on the Congressional Budget Office accounting in its monthly budget review for fiscal 2019. The deficit rose to 779 billion dollars in fiscal 2018, or 3.8 percent of gross domestic product, and to 984 billion dollars in fiscal 2019, or 4.6 percent, an increase of 205 billion dollars in one year. The Congressional Budget Office noted that a timing shift, caused by October 1, 2017, falling on a weekend, had moved payments from fiscal 2018 into fiscal 2017, and that without the shift the fiscal 2018 deficit would have totaled 823 billion dollars, or 4.0 percent of gross domestic product. The adjustment changes the slope between fiscal 2017 and fiscal 2018 and does not change the sequence. A deficit below 600 billion dollars in fiscal 2016 approached one trillion dollars by fiscal 2019, during years of expansion and low unemployment.

Mandatory spending supplied the largest structural reason for the divergence, because mandatory programs grew under formulas in permanent law and lay outside the annual caps. The Congressional Budget Office baseline tables of August 2019 divided fiscal 2019 outlays into mandatory spending of 12.8 percent of gross domestic product, discretionary spending of 6.3 percent, and net interest of 1.8 percent, against total outlays of 20.8 percent. Within the mandatory total, Social Security accounted for 4.9 percent of gross domestic product and the major health care programs, principally Medicare, Medicaid, the Children’s Health Insurance Program, and marketplace subsidies under the Affordable Care Act, accounted for 5.3 percent. The Congressional Budget Office outlook of January 2019 attributed the rise in those components to the aging of the population and to growth in health care spending per beneficiary. None of that growth required an annual appropriation, and the mandatory sequestration that touched part of the category exempted Social Security, Medicaid, and most low income programs entirely and limited the Medicare reduction to 2 percent. A ceiling on the discretionary third of the budget could coexist with expansion across the mandatory majority of noninterest spending, and after fiscal 2015 that coexistence described the enacted budget.

Revenue legislation supplied the second reason. The staff of the Joint Committee on Taxation estimated in December 2017 that the legislation that became Public Law 115-97, the Tax Cuts and Jobs Act, would reduce revenues by about 1,633 billion dollars and decrease outlays by about 219 billion dollars from fiscal 2018 to fiscal 2027, increasing the deficit by about 1,414 billion dollars before added debt service. The Congressional Budget Office, in an April 2018 analysis incorporating estimated macroeconomic effects, concluded that the act would increase the primary deficit by about 1.3 trillion dollars from fiscal 2018 to fiscal 2028 and raise debt service by roughly 600 billion dollars, for a total addition of nearly 1.9 trillion dollars. Recorded receipts bore out the direction, as revenues fell from 16.4 percent of gross domestic product in fiscal 2018 to 16.3 percent in fiscal 2019 on the Congressional Budget Office monthly review, even though nominal receipts rose by 133 billion dollars. The 2011 statute contained no mechanism connecting its ceilings to revenue decisions, so a tax act scored above one trillion dollars passed through the budget without breaching any limit the statute enforced.

Net interest supplied the third reason, compounding the other two, because each year of deficits added to the debt stock on which interest was paid. The Congressional Budget Office update of August 2019 estimated net interest at 372 billion dollars in fiscal 2019, or 1.8 percent of gross domestic product, up from 325 billion dollars in fiscal 2018, primarily because short term interest rates had been higher and the debt was larger. Debt held by the public reached 79.2 percent of gross domestic product at the end of fiscal 2019, up from 77.4 percent at the end of fiscal 2018. Discretionary spending in fiscal 2019 represented about 30 percent of total outlays, roughly one dollar in three, down from close to 40 percent in fiscal 2011. The accurate assessment, in attributed form, matched those proportions. Marc Goldwein of the Committee for a Responsible Federal Budget, commenting on the fiscal 2019 deficit in October 2019, attributed the growth in the near term deficit to Congress and the President continuing to pass legislation without paying for it.

The enforcement theory rested on a behavioral premise that the record tested twice and falsified twice. The premise held that an automatic outcome damaging enough to both parties’ priorities would compel acceptance of a negotiated alternative each party found less damaging. Failure by the Joint Select Committee on Deficit Reduction to secure enactment of at least 1.2 trillion dollars in deficit reduction would trigger sequestration divided between defense and nondefense categories, imposing deep reductions on military programs valued by Republicans and domestic programs valued by Democrats, while exempting Social Security and most low income programs and capping the Medicare reduction. President Barack Obama reinforced the design in the autumn of 2011 by promising to veto legislation that turned off the automatic cuts without a comparable alternative. The theory assumed that the parties ranked any plausible negotiated package above the automatic result. At the decisive moments, pivotal legislators ranked the automatic result above the concessions a package required.

The committee stage supplied the first falsification. The Joint Select Committee, twelve members divided evenly between the parties and the chambers, faced a statutory deadline of November 23, 2011, for legislation reducing the deficit by at least 1.2 trillion dollars, against a stated goal of 1.5 trillion dollars, with expedited consideration guaranteed. On November 21, 2011, co-chairs Senator Patty Murray and Representative Jeb Hensarling announced that a bipartisan agreement would not be possible before the deadline, and the committee ended without a recommendation. No procedural accident explained the result, since the central dispute over revenues and entitlements had been fully aired during the summer negotiation between the President and Speaker John Boehner. The penalty was known, quantified, and scheduled, and the committee chose the penalty over the available terms of agreement. Congressional acceptance of the 2013 sequestration supplied the second falsification in stronger form, because the penalty moved from prospect to experience. The American Taxpayer Relief Act, enacted at the start of January 2013, postponed the reductions from January 2 to March 1, 2013, and reduced the fiscal 2013 amount. On March 1, 2013, sequestration took effect, imposing about 85 billion dollars in reductions for the remainder of fiscal 2013, compressed into seven months and divided between defense and nondefense accounts under formulas that allowed agencies little discretion over which activities absorbed the loss. Congress then governed under the result for the rest of the year. Relief arrived selectively. Legislation in late April 2013 let the Federal Aviation Administration transfer funds within its accounts, ending controller furloughs that had produced flight delays, by shifting 253 million dollars from an airport construction account. The December 2013 budget agreement raised the caps for fiscal 2014 and fiscal 2015 while leaving the architecture of automatic reductions in place for later years. A mechanism built to be intolerable had been tolerated, priced, and renegotiated at the margins.

The restraint argument, stated by its named holders at full strength, answered that falsification of the compulsion theory did not settle the value of the caps. The Committee for a Responsible Federal Budget argued across its analyses of the successive budget acts that the caps, for all the increases written into them, generally constrained the growth of defense and nondefense discretionary spending and effectively limited appropriations in the earlier cap years, and the organization treated extension of the mandatory sequestration as a genuine offset, because the mandatory reductions in the extension years were scored as real savings against the cost of raising the caps for fiscal 2020 and fiscal 2021. On that account, the relevant comparison was a capped budget against the uncapped appropriations process that preceded 2011, in which no statutory ceiling forced a trade between defense and nondefense priorities or required an offsetting statute to raise totals. The organization also policed exaggeration from the restraint side, disputing claims by Senator David Perdue in August 2019 that discretionary spending would fall sharply as a share of gross domestic product under the 2019 act and estimating instead that the share would remain broadly stable across fiscal 2020 and fiscal 2021. The caps had delivered measurable restraint and had imposed a negotiating structure on every cycle, even though the restraint fell short of the original 2011 figures and later deals spent part of the original savings.

The governing-risk argument, stated by its named holders at full strength, answered that restraint purchased through indiscriminate formulas carried costs a dollar total could not capture, because sequestration reduced accounts rather than programs and denied managers the ability to protect the highest value activities inside an account. Secretary of Defense Leon Panetta set out the defense version in February 2013, notifying Congress that the Department of Defense was preparing furloughs for civilian personnel and warning employees that the rigid nature of the cuts and their scale would result in a serious erosion of readiness across the force. Panetta and General Martin Dempsey, Chairman of the Joint Chiefs of Staff, had warned in January 2013 that reductions of that design risked creating a hollow force, retaining structure on paper while losing training, maintenance, and modernization in practice, and department planning contemplated furloughs affecting most of an 800,000 person civilian workforce alongside reduced naval operations and Air Force flying hours. The domestic version arrived through operating agencies. Secretary of Transportation Ray LaHood and Federal Aviation Administration Administrator Michael Huerta informed the airline industry in February 2013 that the agency faced a reduction of about 600 million dollars, that roughly 47,000 employees faced furloughs of approximately one day per pay period, that more than one hundred air traffic control facilities faced closure, and that flights at major hubs faced delays of up to ninety minutes at peak periods. Controller furloughs began in April 2013, and Congress intervened for that single agency within days. The common element in the agency accounts of that spring was not the aggregate size of the reduction but its compression into part of a year and the limits on moving funds between accounts to meet it. The settlements of the decade implicitly conceded part of each argument, raising the caps for the two years immediately ahead while leaving a cap structure in place beyond each deal, paid for in part by extending the mandatory sequestration.

The expiry followed the schedule written into the statute and its amendments, and the schedule in force on February 15, 2020, divided the inheritance into three parts with three end dates. The discretionary caps ran through fiscal 2021 and no further. The Congressional Research Service description of the Bipartisan Budget Act of 2019 identified fiscal 2020 and fiscal 2021 as the final two years for which discretionary spending caps were scheduled to be in effect under the Budget Control Act, and that act raised the fiscal 2020 defense cap to 666.5 billion dollars and the nondefense cap to 621.5 billion dollars, and the fiscal 2021 defense cap to 671.5 billion dollars and the nondefense cap to 626.5 billion dollars, without adding cap years beyond fiscal 2021. Fiscal 2021 was scheduled to end on September 30, 2021, and appropriations for fiscal 2022 were left, under law enacted by February 2020, to a process without the ceilings and sequestration enforcement that had governed the category since fiscal 2012. No enacted law by that date had extended the cap regime as a regime. The final increases of 2019 were increases to the last two years of a closing schedule, not the opening terms of a successor framework.

The mandatory sequestration followed the opposite path and survived, on the enacted schedule, eight years beyond the caps. As originally enacted, the Joint Committee sequestration of nonexempt mandatory programs was scheduled to run through fiscal 2021, the same horizon as the caps. Successive laws converted the backstop into a standing source of offsets. The Bipartisan Budget Act of 2013 extended the mandatory sequestration through fiscal 2023, a February 2014 law adjusting cost of living benefits for certain military retirees extended the sequestration through fiscal 2024, the Bipartisan Budget Act of 2015 extended the sequestration through fiscal 2025, the Bipartisan Budget Act of 2018 extended the sequestration through fiscal 2027, and the Bipartisan Budget Act of 2019 extended the sequestration through fiscal 2029. The Congressional Research Service summary of the 2019 act recorded that the extension covered fiscal 2028 and fiscal 2029 and that the Congressional Budget Office estimated a reduction in budget authority of a combined 61.8 billion dollars from fiscal 2019 to fiscal 2029. A penalty Congress had proved willing to accept in 2013 had become a financing device for raising the caps, valuable because the reductions were automatic, broadly spread, limited for Medicare to 2 percent of payments, and concentrated in years beyond the appropriations being increased.

The debt limit, the third element of the 2011 settlement, shared the closing calendar without sharing either fate. The Bipartisan Budget Act of 2019, signed on August 2, 2019, suspended the statutory debt limit through July 31, 2021, and provided that on August 1, 2021, the limit would be increased by the amount of obligations issued during the suspension. The suspension therefore expired about two months before the caps were scheduled to lapse, placing the borrowing question and the appropriations question in the same legislative season on the calendar enacted by February 2020. The record available at the February 2020 date of this profile thus closed with a demonstrated distinction between controlling a category and controlling a deficit. The caps controlled a category measurably across ten fiscal years, through a sequestration that took effect and four statutes that raised the ceilings to levels that appropriations then met. The deficit escaped control because the larger part of the budget grew by formula, because revenue legislation in 2017 reduced receipts, and because interest converted past deficits into a rising charge. The ceilings were scheduled to end on September 30, 2021, the borrowing suspension on July 31, 2021, and the mandatory reductions that no agreement had ever replaced were scheduled to run through fiscal 2029, an afterlife that measured how thoroughly a penalty built to force negotiation had been absorbed into the ordinary financing of the government.

Designed to be intolerable and tolerated anyway. The closing record returns to that claim because every later stage of the statute tested the premise behind the trigger and left the premise weakened. The penalty then moved from prospect to experience in March 2013, when sequestration canceled about 85 billion dollars in budgetary resources during a shortened fiscal year, produced furloughs and service reductions recorded by the Government Accountability Office, and governed appropriations practice for the remainder of that year. Congress raised the caps for the following two years and left the automatic architecture in place for later years. Acceptance, rather than replacement, became the repeated response.

The counter-reading deserves statement at full strength, because the caps constrained the category that the caps covered. The Congressional Budget Office figures in Section 6 placed discretionary outlays at about 9 percent of gross domestic product at the start of the decade, with the historical series recording 9.1 percent in fiscal 2010 and 8.7 percent in fiscal 2011, followed by a decline through the cap years to 6.3 percent in fiscal 2019. Discretionary outlays totaled about 1.35 trillion dollars in fiscal 2011 and roughly 1.35 trillion dollars again in fiscal 2019, against a much larger economy. A category with a broadly unchanged nominal total across eight years of expansion absorbed a substantial reduction relative to the economy, despite four statutes that raised the original ceilings.

The same record explains why restraint in one category did not produce control of the deficit. The deficit rose from 585 billion dollars in fiscal 2016 to 984 billion dollars in fiscal 2019, equal to 4.6 percent of gross domestic product, during years of expansion. Mandatory spending accounted for 12.8 percent of gross domestic product in fiscal 2019, against discretionary spending at 6.3 percent and net interest at 1.8 percent, on the Congressional Budget Office baseline tables of August 2019. Mandatory sequestration exempted Social Security, Medicaid, and most low income programs while limiting the Medicare reduction to 2 percent of payments. Revenue legislation enacted in 2017 reduced receipts by amounts scored above one trillion dollars across the budget window, and the 2011 statute contained no mechanism connecting the ceilings to revenue decisions. Discretionary spending represented about 30 percent of total outlays in fiscal 2019, down from close to 40 percent in fiscal 2011, so even exact control of that share left the larger part of the budget outside the instrument.

Enforcement comparison sharpens the distinction between a ceiling and a penalty. Under the design examined in the comparison of sequestration and pay-as-you-go enforcement, sequestration cancels budgetary resources or lowers ceilings by formula after a breach or a failed test, while pay-as-you-go enforcement measures legislation itself against a scorecard. The Budget Control Act used sequestration as a cancellation order against discretionary accounts in fiscal 2013 and thereafter as lowered discretionary caps paired with annual cancellation of a percentage of nonexempt mandatory spending. A formula could execute a reduction without creating agreement on revenue or benefit formulas.

That distinction frames the record of whether budget process reform controlled spending across the decade covered by the statute. Process rules changed the terms on which appropriations were written, because each cap increase required a statute stating a figure for each category and each year, paired with offsets recorded in the text. The settlements of the decade conceded part of each argument by raising the caps for the two years immediately ahead while leaving a cap structure in place beyond each deal.

Appropriations practice after each deal followed the adjusted ceilings through the omnibus packages through which later appropriations moved, and the pattern confirmed that appropriators operated under a ceiling throughout the regime even as the ceiling moved repeatedly. Overseas contingency operations designations qualified that restraint in a material way, placing 723 billion dollars of funding outside the original caps between fiscal 2012 and fiscal 2019 on the Congressional Budget Office calculation, with no statutory ceiling and no definition of eligible activity. Exemption reduced the share of defense funding that the negotiated totals governed in any given year.

Expiry divided the inheritance into three schedules, each fixed by law enacted before February 15, 2020. The discretionary caps were scheduled to run through fiscal 2021 and to end on September 30, 2021. The suspension of the debt limit under the Bipartisan Budget Act of 2019 was scheduled to expire on July 31, 2021. Mandatory sequestration followed the opposite path, extended in successive agreements through fiscal 2029, eight years beyond the caps that the sequestration had originally served to enforce. A penalty converted into a financing device acquired the longest life in the settlement. Readers assembling a research file on the statute can keep your statute notes, citations, and case chronologies together free on VaultBook as a single organized record. The final distinction remains the durable one. The caps controlled a category measurably across ten fiscal years. The deficit escaped control because the larger part of the budget grew by formula, because revenue legislation reduced receipts, and because interest converted past deficits into a rising charge.

Frequently Asked Questions

Q: What did the Budget Control Act trade for a debt limit increase?

The statute traded borrowing authority for restraint on discretionary spending and for a further deficit reduction process. The Congressional Research Service summarized the increase as at least 2.1 trillion dollars and up to 2.4 trillion dollars under specified conditions, delivered in tranches through presidential certification and congressional disapproval. Against that authority, the statute imposed caps on discretionary budget authority for fiscal years 2012 through 2021, estimated by the Congressional Budget Office to reduce deficits by 917 billion dollars apart from the committee provisions. The statute also created the Joint Select Committee on Deficit Reduction, charged with at least 1.5 trillion dollars in further reduction, and required votes on a balanced budget amendment.

Q: What was the supercommittee in the Budget Control Act?

The supercommittee was the informal name for the Joint Select Committee on Deficit Reduction, a temporary body created by Title IV of the statute. The committee had twelve members, with three appointments each from the Speaker of the House, the House minority leader, the Senate majority leader, and the Senate minority leader, producing six members from each chamber and an even division between the parties. Senator Patty Murray and Representative Jeb Hensarling served as cochairs. The committee received a charge to produce legislation reducing the deficit by at least 1.5 trillion dollars over fiscal years 2012 to 2021, with expedited procedures guaranteeing prompt votes without amendment in both chambers.

Q: Why did Budget Control Act sequestration start in 2013?

Sequestration started in 2013 because the statute set that timetable for the automatic process that followed committee failure. The test was enactment by January 15, 2012 of legislation reducing the deficit by at least 1.2 trillion dollars over fiscal years 2012 to 2021. The Joint Select Committee announced failure on November 21, 2011, and no qualifying legislation was enacted, so the formula in section 251A applied. The first order was scheduled for January 2, 2013. The American Taxpayer Relief Act of 2012 then delayed the order by two months and reduced the fiscal 2013 amount by 24 billion dollars, and the President issued the sequestration order on March 1, 2013.

Q: What is the OCO loophole around Budget Control Act caps?

The OCO channel allowed appropriations designated for overseas contingency operations to pass outside the caps without limit. Designation by Congress in an appropriations act, followed by a matching designation by the President, raised the measured cap by the amount designated, so designated funding could not by itself create a breach. The statute fixed no dollar ceiling for the designation and supplied no definition of eligible activity. The Congressional Budget Office calculated that overseas contingency operations funding accounted for 723 billion dollars of cap adjustments between fiscal 2012 and fiscal 2019. Critics including Congressional Budget Office analysts and Representative Adam Smith described part of the account as funding for enduring and base budget activities rather than for operations in the field.

Q: How many times were Budget Control Act caps raised?

Congress and the President raised the caps in four statutes, each titled the Bipartisan Budget Act and each covering two fiscal years. The act of 2013 raised the caps for fiscal 2014 and fiscal 2015 by about 63 billion dollars. The act of 2015 raised the caps for fiscal 2016 and fiscal 2017 by about 80 billion dollars. The act of 2018 raised the caps for fiscal 2018 and fiscal 2019 by about 296 billion dollars. The act of 2019 raised the caps for fiscal 2020 and fiscal 2021 by about 324 billion dollars on the Congressional Budget Office calculation. A separate statute in January 2013 delayed and reduced sequestration rather than raising the caps as the later agreements did.

Q: Did the Budget Control Act cause a credit downgrade?

Standard and Poor’s lowered the long term sovereign rating of the United States from AAA to AA plus on August 5, 2011, three days after enactment, and cited the agreement itself in the stated reasoning. The agency stated that the fiscal consolidation plan fell short of the amount judged necessary to stabilize medium term debt dynamics and that the prolonged controversy over the debt ceiling showed a weakening in the effectiveness and predictability of policymaking. No federal payment had been missed. The Treasury Department disputed the decision and identified a 2 trillion dollar error in the draft analysis. Moody’s Investors Service and Fitch Ratings affirmed the highest rating during August 2011.

Q: When did Budget Control Act caps end?

Under the schedule in force on February 15, 2020, the discretionary caps covered fiscal years 2012 through 2021 and were scheduled to end on September 30, 2021, the final day of fiscal 2021. The Bipartisan Budget Act of 2019 raised the caps for fiscal 2020 and fiscal 2021, the final two years identified by the Congressional Research Service for the cap regime, without adding cap years beyond fiscal 2021. Appropriations for fiscal 2022 were therefore left to a process without the ceilings and the associated sequestration enforcement. Mandatory sequestration followed a different schedule, extended by successive agreements through fiscal 2029, and the debt limit suspension in the 2019 act was scheduled to expire on July 31, 2021.

Q: Was the Budget Control Act supposed to be unattractive?

Yes. The automatic reductions were designed as a penalty that each party would rank below a negotiated agreement. The Congressional Research Service explained in 2011 that the process presumably was intended to encourage agreement, because failure produced defense reductions that Republicans opposed and nondefense reductions that Democrats opposed. Acting Director Jeffrey Zients of the Office of Management and Budget described the sequester in 2012 as a means of encouraging responsible bipartisan deficit reduction rather than as a program of destructive reductions. Secretary of Defense Leon Panetta described sequestration as a meat ax approach. The committee nevertheless ended without agreement in November 2011, and Congress governed under the reductions during fiscal 2013 after a two month delay.

Q: Which president signed the Budget Control Act?

President Barack Obama signed the Budget Control Act on August 2, 2011, the date the Treasury Department had projected for exhaustion of borrowing capacity. Obama had negotiated with Speaker John Boehner during July 2011 on a larger agreement combining spending reductions, benefit program changes, and revenue measures, and those exchanges ended without agreement on July 22, 2011. Obama announced on July 31, 2011 that leaders of both parties in both chambers had reached the agreement that became the statute. On the day of signing, Obama also submitted the first presidential certification under the statute, and the debt limit rose by 400 billion dollars to 14.694 trillion dollars.

Q: What is the public law number of the Budget Control Act?

The Budget Control Act of 2011 was enacted as Public Law 112-25 and published at 125 Statutes at Large 240. The measure carried the bill designation S. 365. The House of Representatives passed the final bill on August 1, 2011 by a vote of 269 to 161, and the Senate passed the bill on August 2, 2011 by a vote of 74 to 26, according to the Congressional Research Service chronology. President Barack Obama signed the measure on August 2, 2011. The statute placed the discretionary caps in the Balanced Budget and Emergency Deficit Control Act of 1985 and added section 3101A to title 31 of the United States Code for the debt limit certification procedure.

Q: How were the automatic reductions divided between defense and nondefense?

The formula divided the annual amount in equal dollars between the defense function and the nondefense function. The calculation began with 1.2 trillion dollars, subtracted any enacted deficit reduction, subtracted 18 percent of the remainder as an allowance for debt service savings, divided the result by nine for fiscal years 2013 to 2021, and divided the annual figure by two. Complete committee failure therefore produced 984 billion dollars in spending reductions and an annual amount of 109.3 billion dollars, at 54.7 billion dollars for defense and 54.7 billion dollars for nondefense. Equal dollars produced unequal percentages, because each function rested on a different base of nonexempt spending, and the fiscal 2013 order reduced nonexempt defense discretionary spending by 7.8 percent and nondefense discretionary spending by 5.0 percent.

Q: Which programs were exempt from the automatic reductions?

Section 255 of the Balanced Budget and Emergency Deficit Control Act exempted a large share of federal spending. Exempt categories included Social Security benefits and Tier I railroad retirement benefits, all programs administered by the Department of Veterans Affairs, net interest, refundable income tax credits, civilian and military retirement, federal aid highways, and unemployment compensation. Low income programs on the exempt list included Medicaid, the Children’s Health Insurance Program, Supplemental Security Income, the Supplemental Nutrition Assistance Program, and Temporary Assistance for Needy Families. The Congressional Research Service reported that roughly three quarters of mandatory spending was exempt. Medicare occupied a separate position under special rules, with benefit payment reductions capped rather than exempted entirely.

Q: What role did the Office of Management and Budget play under the Budget Control Act?

The Office of Management and Budget supplied the operative estimates and calculations for both cap enforcement and the automatic reductions. Section 254 required three sequestration reports for each fiscal year, a preview report with the presidential budget, an update report in August, and a final report after the end of a session of Congress. The Congressional Budget Office issued parallel estimates, but the statute assigned the legal determination of a breach to the Office of Management and Budget. A breach found in the final report led to a presidential sequestration order within the breached category. For the joint committee trigger, the office calculated the annual reduction amounts, the uniform percentages for nonexempt accounts, and the fiscal 2013 reduction of about 85 billion dollars reported to Congress on March 1, 2013.

Q: How did the debt limit increase proceed in stages under the Budget Control Act?

The increase proceeded through presidential certification subject to congressional disapproval. Section 301 added section 3101A to title 31, providing an increase of 400 billion dollars when the President certified that debt subject to the limit stood within 100 billion dollars of the limit and that further borrowing was required. President Obama submitted that certification on August 2, 2011. Authority for a further 500 billion dollars took effect after the disapproval period lapsed without enactment of a joint resolution of disapproval, and that increase took effect on September 22, 2011. A further procedure governed an increase of 1.2 trillion dollars, or 1.5 trillion dollars under specified conditions. A disapproval resolution required passage by both chambers and presentation to the President, whose veto required two thirds of each chamber to override.

Q: How large a reduction could Medicare face under the Budget Control Act trigger?

Medicare benefit payments faced a reduction capped at 2 percent under the special rules in section 256 of the Balanced Budget and Emergency Deficit Control Act. The cap applied in each year of the automatic process, and Medicare remained at that statutory ceiling from fiscal 2013 through fiscal 2020 on the Congressional Research Service tabulation of Office of Management and Budget reports. The reduction fell on payments to providers and health plans rather than on defined benefits for beneficiaries. Because the cap limited savings from Medicare, the Office of Management and Budget raised the uniform percentage applied to nondefense discretionary appropriations and to nonexempt non-Medicare direct spending to offset the shortfall. The fiscal 2020 mandatory sequester included a 2 percent Medicare reduction amounting to 15.3 billion dollars.

Q: Why were the caps written against budget authority rather than outlays?

The caps bound budget authority because appropriations grant budget authority, and budget authority is the legal permission to incur obligations. The Congressional Research Service explained that an appropriation providing budget authority in a fiscal year counted against the ceiling for that year in the year of enactment, even though disbursement could occur in later years. Construction and procurement accounts showed the lag clearly, because agencies obligated funds under authority granted in one year and paid cash across the life of a project. Outlays measure disbursement during a fiscal year and determine the deficit for that year together with revenues. A ceiling on the authority granted at enactment therefore controlled the decision point in the appropriations process, while the effect on outlays and on the deficit unfolded over several years.

Q: What is a cap adjustment under the Budget Control Act?

A cap adjustment raised the measured ceiling for a designated purpose without repealing the cap. Section 251(b) of the Balanced Budget and Emergency Deficit Control Act, as amended, allowed adjustments for changes in concepts and definitions, emergency requirements, overseas contingency operations and the global war on terrorism, continuing disability reviews and redeterminations, health care fraud and abuse control, and disaster relief. Appropriations covered by a designation did not by themselves create a breach, because the ceiling rose by the designated amount. Emergency and overseas contingency designations carried no statutory dollar limit. Disaster relief followed a formula based on average funding across the preceding ten years, excluding the highest and lowest years, and the program integrity adjustments carried small specified maxima for each fiscal year.

Q: Who led the agreement that first raised the Budget Control Act caps?

Senator Patty Murray and Representative Paul Ryan led the negotiation that produced the Bipartisan Budget Act of 2013, and the agreement carried the name Murray-Ryan in contemporary and official summaries. Murray had served as Democratic cochair of the Joint Select Committee on Deficit Reduction, and Ryan served as chair of the House Budget Committee during the period covered by the sections. President Barack Obama signed the act on December 26, 2013. The agreement raised the defense and nondefense caps by about 22 billion dollars each for fiscal 2014 and by about 9 billion dollars each for fiscal 2015, a combined increase of about 63 billion dollars, and the Congressional Budget Office scored the remaining provisions as reducing deficits by about 85 billion dollars across the ten year period.

Q: How much did the Congressional Budget Office estimate the original caps would save?

The Congressional Budget Office stated on August 1, 2011 that the legislation apart from the joint committee provisions would reduce deficits by 917 billion dollars between 2012 and 2021, measured against the March 2011 baseline adjusted for enactment of appropriations for 2011. The composition matters for accuracy. Discretionary savings accounted for 741 billion dollars of the total, mandatory spending reductions accounted for 20 billion dollars, and lower debt service accounted for 156 billion dollars. Within the discretionary component, establishment of the caps accounted for a reduction of 756 billion dollars, partly offset by 15 billion dollars for program integrity initiatives. Measurement against the January 2011 baseline instead produced discretionary savings of about 920 billion dollars and deficit reduction of about 1.1 trillion dollars.

Q: Did the Budget Control Act caps apply to mandatory spending?

No. The caps applied to discretionary budget authority provided in annual appropriations acts. Mandatory spending, also called direct spending, flowed from authorizing statutes that set eligibility and payment rules, and changes in beneficiary numbers or benefit formulas could raise or lower mandatory outlays without creating a cap breach. Social Security benefits, Medicare benefits, Medicaid payments, and interest on the public debt sat outside the section 251 ceilings. A separate automatic process in the same statute reached part of mandatory spending through different rules, by sequestration of nonexempt direct spending each year from fiscal 2013 to fiscal 2021. That mandatory sequestration exempted most large programs and capped the Medicare payment reduction at 2 percent, so the reach into mandatory spending remained narrower than the discretionary caps.