F ollowing a lengthy debate over raising the debt limit, the Budget Control Act of 2011 (BCA; P.L. 112-25 ) was signed into law by President Obama on August 2, 2011. In addition to including a mechanism to increase the debt limit, the BCA contained measures intended to reduce the budget deficit through spending restrictions. Combined, these measures were projected to reduce the deficit by roughly $2 trillion over the FY2012-FY2021 period. The spending reductions in the BCA are achieved mainly through two mechanisms: (1) statutory discretionary spending caps covering 10 years that came into effect in 2012 and (2) a $1.2 trillion automatic spending reduction process (sometimes referred to as the "sequester") covering nine years that was initially scheduled to come into effect on January 2, 2013. 112-240 ) postponed the start of the FY2013 spending reductions, commonly known as the sequester, until March 1, 2013, and canceled the first two months of spending cuts. 113-67 ) raised the caps under the BCA on defense and non-defense discretionary spending in FY2014 and FY2015, and extended BCA mandatory sequestration through FY2023. 114-74 ) raised the discretionary spending caps in FY2016 and FY2017, and further extended mandatory sequestration. This report discusses the effects of the BCA on spending and the deficit, assuming that the automatic spending reductions proceed as scheduled from FY2016 to FY2021 and the discretionary spending caps remain in place. In FY2015, the deficit totaled 2.4% of GDP, or 7.4 percentage points below its peak in 2009. Legislative Changes to the BCA

Since the enactment of the BCA, its spending reductions have been modified by three pieces of legislation, the American Taxpayer Relief Act of 2012 (ATRA), the Bipartisan Budget Act of 2013 (BBA 2013), and the Bipartisan Budget Act of 2015 (BBA 2015). BCA Spending Cuts Relative to a Baseline Projection

For FY2012 to FY2021, discretionary and mandatory spending under the BCA as amended by ATRA, BBA 2013, and BBA2015 is projected to be reduced relative to baseline levels. The amount of the cuts to mandatory spending is lower than those to discretionary spending because much of mandatory spending is exempt from the BCA's automatic cuts and mandatory spending is not subject to caps similar to those implemented for discretionary spending. Because those categories of spending are effectively exempt from the caps, it is possible that the trend of growth in overall discretionary spending (spending subject to the cap plus exempt spending) could turn out to be higher than growth in discretionary spending subject to the BCA caps in future years, even if there is strict compliance with the caps. From FY2011 to FY2015, discretionary budget authority subject to the caps fell in real terms each year. Discretionary spending is forecasted to rise by 5.1% on a nominal basis and 3.7% in real terms in FY2016, and fall by 1.4% in real terms (though rise by 0.5% on nominal terms) in FY2017. Since the BCA caps nominal spending, whether real spending increases or decreases from FY2016 to FY2021 will be highly sensitive to the inflation rate. The decline in spending subject to the caps in FY2013 follows a nominal decline in FY2011 and a nominal increase in FY2012 that was less than the rate of inflation (resulting in a decline in real terms). Discretionary spending over the FY1962-FY2011 period averaged 9.1% of GDP. In 2018, discretionary spending under the baseline would reach its lowest share of GDP since data were first available, at 5.9% of GDP, and would continue to decline thereafter. It is projected to increase from $2.0 trillion (12.9% of GDP) in FY2015 to $3.9 trillion (14.1% of GDP) in FY2021. In FY2021, total spending is projected to equal 21.3% of GDP. The legislation that increased the deficit the most relative to current law was ATRA.
Following a lengthy debate over raising the debt limit, the Budget Control Act of 2011 (BCA; P.L. 112-25) was signed into law by President Obama on August 2, 2011. In addition to including a mechanism to increase the debt limit, the BCA contained a variety of measures intended to reduce the budget deficit through spending restrictions. There are two main components to the spending reductions in the BCA: (1) discretionary spending caps that came into effect in FY2012 and (2) a $1.2 trillion automatic spending reduction process that was initially scheduled to come into effect on January 2, 2013. Combined, these measures were projected to reduce the deficit by roughly $2 trillion over the FY2012-FY2021 period. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) reduced and postponed the start of the FY2013 spending reductions, commonly known as the sequester, until March 1, 2013. The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67) increased the discretionary spending caps in FY2014 and FY2015 and extended mandatory sequestration through FY2023. The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) raised the discretionary spending caps in FY2016 and FY2017, and further extended mandatory sequestration.
Congress has debated whether to maintain scheduled spending cuts in future years. To inform that debate, this report discusses the effects of the BCA as amended on spending and the deficit, assuming that the discretionary spending caps remain in place. From FY2012 to FY2021, the BCA is projected to cut discretionary spending by $1.5 trillion. Discretionary spending subject to the caps was 4.3% lower on a nominal basis and 9.7% lower on a real (inflation-adjusted) basis than in FY2011, the year before BCA discretionary caps were established. Real discretionary spending subject to the caps is projected to remain relatively constant from FY2016 to FY2021, with real growth projected to be 1.0% in that time period. Total discretionary spending (which includes discretionary outlays not subject to the BCA caps) under the BCA was 13.7% lower on a nominal basis and 18.6% lower on a real basis in FY2015 than it was in FY2011. The current budget outlook projects that real spending in FY2021 will be 3.9% lower than that in FY2015.
The BCA imposes smaller reductions to mandatory outlays. Mandatory spending under the BCA is cut by less than $0.2 trillion from FY2012 to FY2021, with most non-Medicare mandatory spending exempted from spending cuts. Mandatory spending accounted for 66% of spending in FY2015, but received only 16% of the sequester cuts. Total mandatory spending from FY2011 to FY2015 increased by 13.4% on a nominal basis and 7.0% in real terms. The rise in mandatory spending is projected to accelerate in the latest budget outlook, as mandatory spending in FY2021 is forecasted to be 49.9% higher in FY2021 (67.7% on a real basis) than it was in FY2015.
Under the BCA, discretionary spending is projected to average 6.4% of GDP from FY2012 to FY2021, a notable decline from the 9.1% of GDP average from FY1962 to FY2011. From FY2018 on, overall discretionary spending would be below its lowest share of GDP since data were first collected in 1962 (6.0% of GDP), assuming current levels of uncapped discretionary spending. However, because projected growth in mandatory spending, total federal spending from FY2012 to FY2021 is projected to average 21.0% of GDP, which is lower than its peak of 24.4% in FY2012 but above the post-World War II average.
Although the BCA reduced projected deficits, its savings has been mitigated by subsequent legislation that has increased current law deficits since the BCA was enacted. Altogether, legislative changes since August 2011 have increased the deficit by $1.5 trillion from FY2012 to FY2021. As a result, the federal debt is projected to continue to increase relative to GDP in future years.