Obama Signed the ‘Sequestration’ Spending Caps Into Law 8 Years Ago On This Date - Trump Signs Bill Abolishing Them

UPDATED - 8/2/19: This article has been updated to reflect that President Donald Trump signed the Bipartisan Budget Act of 2019 into law.

On August 2, 2011, President Barack Obama signed the Budget Control Act of 2011 into law, which put in place spending caps known as "sequestration" to force Congress into agreeing to reducing budget deficits. The sequester’s eighth anniversary comes on the same day that President Donald Trump’s signed a bill that will effectively repeal the budget caps for the last two fiscal years of their existence and lift the debt limit.

Why did it come up?

The national debt grew rapidly in recent decades from $3.36 trillion in 1990 (42% of U.S. GDP); to $5.66 trillion in 2000 (33% of GDP); to $12.394 trillion in 2010 (77% of GDP) according to data from USAFacts.

Budget deficits were growing because spending on welfare programs was elevated due to a slow recovery from the financial crisis and the federal government had just spent $787 billion on the American Recovery and Reinvestment Act (aka the stimulus bill) in 2009. Coupled with the ongoing European debt crisis, there were increasing concerns that continued growth of the U.S. national debt could trigger a debt crisis in which the escalating costs of servicing the debt consume the federal budget.

In the summer of 2011, the Treasury warned policymakers that on August 2, 2011, it would exhaust the accounting maneuvers known as “extraordinary measures” it uses to prevent the debt limit from being breached and triggering a first-ever U.S. default on the national debt. 

What did it do?

The Obama administration and Congress initially considered several ways of addressing the debt crisis: a $4.4 trillion “grand bargain” package of spending cuts, tax reforms, and entitlement reforms proposed by Obama & then-House Speaker John Boehner (R-OH); the House GOP’s Cut, Cap, and Balance Act; and a fallback option devised by then-Senate Majority Leader Harry Reid (D-NV) & then-Senate Minority Leader Mitch McConnell (R-KY) that would’ve entailed several smaller debt limit increases along with other votes to register disapproval.

None of the proposals gained sufficient traction in Congress, with fiscally conservative GOP members arguing for entitlement reform & against tax hikes and progressive Democrats arguing for tax increases coupled with modest spending reductions. And so, attention turned to the tool known as sequestration to force Congress into action. One of the authors of the law containing the first sequestration provisions, former Rep. Phil Gramm (R-TX), described the logic as follows:

“It was never the objective… to trigger the sequester, the objective… was to have the threat of the sequester force compromise and action.”

A deal was reached on July 31st to employ sequestration as a means of reducing deficits, and President Obama offered the following comment on the end product:

“Now, is this the deal I would have preferred? No. I believe that we could have made the tough choices required on entitlement reform and tax reform right now rather than through a special congressional committee process. But this compromise does make a serious down payment on the deficit reduction we need and gives each party a strong incentive to get a balanced plan done before the end of the year.” 

The Budget Control Act of 2011 included several key provisions:

• Debt Limit: It authorized an immediate debt limit increase of $400 billion, plus subsequent hikes of $500 billion and up to $1.5 trillion at the president’s request that were subject to disapproval votes.
• Deficit Reduction: To offset the debt limit increase, the bill specified $917 billion in spending cuts over the course of 10 years. It also imposed a sequestration cap on certain non-exempt mandatory spending programs through FY2025 (many mandatory programs like Social Security & Medicaid are exempt, while Medicare was limited to a 2% sequester).
• “Super Committee”: The bill created a special joint committee composed of bipartisan lawmakers from both chambers of Congress that was tasked with developing viable legislation to reduce the deficit by at least $1.5 trillion over a decade.
• Spending Caps: Annual caps on both defense and non-defense discretionary spending were enacted through FY2021. And if the “super committee” failed to produce a viable bill that would reduce the deficit by $1.5 trillion over 10 years, those caps get automatically decreased by $1.2 trillion over the course of a decade (although Congress has discretion about how to allocate spending within the lower limits).
• Balanced Budget Votes: The bill created rules in the House & Senate to hold votes on proposals to enact a Balanced Budget Amendment.

The bill passed the House first on a 269-161 vote with 95 Democrats & 66 Republicans opposed. It passed the Senate the next day on a 74-26 vote which saw 18 Republicans, seven Democrats, and Sen. Bernie Sanders (I-VT) vote no. President Barack Obama signed the bill into law shortly after it cleared the Senate on August 2, 2011.

What has its impact been?

The uncertainty surrounding the debt limit debate had one immediate impact as several credit rating agencies downgraded the credit rating of U.S. debt from their highest respective ratings, although those decisions were a generally a reaction to the political instability rather than the policies embodied in the deal. Additionally, the “super committee” failed to produce a plan for $1.5 trillion in cuts and the required Balanced Budget Amendment votes failed in both chambers.

As the years wore on, the $1.2 trillion in reduced spending caps proved politically unpopular for both sides with Republicans arguing it led to excessively restrained defense spending and Democrats unhappy with lower domestic spending. That created bipartisan support for nudging discretionary spending upwards when Congress considered debt limit and budget cap agreements several times in recent years under the confines of sequestration:

• The Bipartisan Budget Act of 2013 raised spending limits for both defense and non-defense discretionary spending by about $22 billion for FY2014. The Congressional Budget Office (CBO) projected that on balance, it would increase spending by $62 billion and other provisions would reduce deficits by $85 billion from FY2014-FY2023. The national debt was roughly $17.1 trillion at this point.
• The Bipartisan Budget Act of 2015 raised spending limits for defense & non-defense by $25 billion each in FY2016, then by $15 billion each in FY2017. The CBO projected it would increase spending by $79 billion and other provisions would reduce deficits by $80 billion over the FY2016-FY2025 period. The national debt was roughly $18.9 trillion at this point. (It also led to Boehner’s resignation as speaker after losing the confidence of the House GOP.)
• The Bipartisan Budget Act of 2018 raised spending caps for defense by $80 billion and non-defense by $63 billion in FY2018, and raised caps for defense by $85 billion and non-defense spending by $68 billion in FY2019. The CBO projected it’d increase spending by $290 billion and other provisions would reduce deficits by about $38 billion over the FY2018-FY2027 period. The national debt surpassed $22 trillion following this increase.

Congress recently approved the Bipartisan Budget Act of 2019, which would raise budget caps for FY2020-FY2021 and lift the debt limit through July 31, 2021. It passed the House on July 25th on a bipartisan 284-149 vote and the Senate on August 1st on a 67-28 vote, and President Donald Trump signed it into law on August 2, 2019. Here’s how it compares to the other recent budget & debt limit bills:

• The Bipartisan Budget Act of 2019 raises spending caps for defense by $30.9 billion and non-defense by $24.5 billion in FY2020, and in FY2021 it’d raise defense spending by another $1.5 billion and non-defense spending by an additional $5 billion. The CBO projects it’d increase spending by $324 billion and its other provisions would reduce deficits by $77 billion over the FY2020-FY2029 period.

With the Bipartisan Budget Act of 2019 signed into law, it marks the end of sequestration’s budget caps. At present, it’s unclear whether Congress will muster the will to reimpose spending caps of some sort with the CBO projecting the national debt to grow by another $11.6 trillion over the next decade under its baseline estimate.

— Eric Revell

(Photo Credit: Obama White House - Pete Souza via Wikimedia / Public Domain)