What Is the Budget Control Act (BCA)?
The Budget Control Act is a federal statute passed by Congress and signed into law by President Barack Obama on Aug. 2, 2011. The Budget Control Act (BCA) of 2011 was enacted in response to the 2011 debt ceiling crisis. The purpose of the BCA was to increase the United States' debt ceiling, thereby avoiding the risk of sovereign default that was set to occur on or about Aug. 3, 2011. In addition, the BCA contained procedures for reducing the deficit by a minimum of $1.2 trillion over the fiscal year 2012 to fiscal year 2021.
Key Takeaways
- The Budget Control Act (BCA) was created to allow the U.S. to raise its statutory debt limit while enforcing a reduction in spending.
- In 2011, the U.S. was facing a debt ceiling crisis that risked national debt default, sparking Congress's move to enact the BCA.
- The Budget Control Act raised the debt ceiling by $2.1 trillion and required $1.5 trillion in spending cuts over 10 years.
- If a set level of cuts were not made, an automatic process called sequestration was designed to kick in to force across-the-board cuts in federal spending.
Understanding the Budget Control Act (BCA)
In the U.S., a federal debt ceiling, or statutory debt limit, has been in place since 1917. If the U.S. hits its debt limit, it would no longer be able to issue debt and could default on interest payments to creditors.
The consequences of such an event could be late, partial, or missed payments to federal pensioners, Social Security, and Medicare recipients, as well as higher interest rates for future federal borrowing.
2011 Debt Ceiling Crisis
The 2011 U.S. debt ceiling crisis brought the country close to default risk before the BCA was enacted to immediately raise the debt ceiling and cut the deficit. The BCA allowed an immediate increase of $400 billion to the debt ceiling, bringing the fiscal year 2013 spending cap to $1.047 trillion. The BCA also required a super committee to develop measures to cut $1.5 trillion in spending over 10 years. The BCA stipulated that if the super committee failed to propose by the end of 2012 a minimum of $1.2 trillion in cuts that would occur over 10 years, automatic spending cuts would occur in January 2013. These automatic spending cuts are called sequestration.
Since the Super Committee failed to make a proposal reducing the deficit, sequestration did occur in January 2013 to avoid what is called the fiscal cliff.
As a result of the sequester, budget cuts were to continue through 2021, cutting discretionary spending by $109.3 billion in total.
Although the spending cuts were considered “across the board,” certain programs like Temporary Assistance for Needy Families (TANF) and the Supplemental Nutritional Assistance Program (SNAP)were exempt from the sequester.
Later legislation continued the cuts through 2031, maintaining 2021 percentages.
For budget years 2016 through 2021, sequestration was not needed, the Office of Management and Budget reported. That doesn't mean, however, that government spending or the national debt are under control. The Congressional Budget Office projects a $1.4 trillion federal budget deficit in 2023, and a cumulative deficit of $3.1 trillion through 2032.
What Did the Budget Control Act Do?
In simple terms, the Budget Control Act was designed to handle the 2011 debt ceiling crisis by raising the debt ceiling and setting a plan for spending cuts. It immediately added $400 billion to the debt ceiling, established a super committee to oversee specific spending cuts, and laid out consequences called sequestration if the required spending reductions were not met.
Who Created the Budget Control Act?
The Budget Control Act was approved by the 112th U.S. Congress and signed into law by President Barack Obama.
How Does the Budget Control Act Affect Medicare?
The Budget Control Act of 2011 (and its later amendments) lowered Medicare payouts to providers by 2% through sequestration and will continue to restrict Medicare spending until 2031.
The Bottom Line
The Budget Control Act was created to address the 2011 debt ceiling crisis. It expanded the debt ceiling and established a super committee in charge of identifying $1.5 trillion in spending cuts. It also established a mechanism called sequestration that would put into place across-the-board cuts if the committee failed in its mission. Some spending reductions from the Budget Control Act are still in place, with certain reductions not scheduled to phase out until 2032.
FAQs
In simple terms, the Budget Control Act was designed to handle the 2011 debt ceiling crisis by raising the debt ceiling and setting a plan for spending cuts.
What did the budget Act do? ›
The Budget and Accounting Act of 1921 gave the President overall responsibility for budget planning by requiring him to submit an annual, comprehensive budget proposal to the Congress; that act also expanded the President's control over budgetary information by establishing the Bureau of the Budget (renamed the Office ...
What does the budget and Impoundment control Act allow Congress to do group of answer choices? ›
The Congressional Budget and Impoundment Control Act of 1974 was enacted to establish a congressional budget process for the determination of national budget priorities, the appro- priate level of total revenues, expenditures and debt for each year, and for legislation review of impoundments proposed by the President.
What is budget control? ›
Budget control refers to the process of managing, monitoring, and adjusting a company's budget and cash flow to ensure that the business remains on track to meet its financial goals and deliver on the organisation's objectives.
What is budget control quizlet? ›
Budgetary control. - the use of budgets in controlling operations. - compare budget reports - actual to planned - and determines causes. - provides management with feedback.
What does the budget act as a tool for? ›
Creating a budget is to manage personal or organizational finances effectively. It predicts future financial activity and sets spending limits. This tool helps you track your spending, identify areas where you can save money, and make informed investment and saving decisions.
What is the Budget impoundment and Control Act quizlet? ›
It sets limits on revenues and spending that may be enforced in Congress through procedural objections called points of order. It was passed in response to feelings in Congress that President Nixon was abusing his power of impoundment by withholding funding of programs he opposed. Still in effect.
What does the Budget and Impoundment Control Act require? ›
It requires the President to report promptly to the Congress all withholdings of budget authority and to abide by the outcome of the congressional impoundment review process.
Why does Congress control budget? ›
The Constitution makes clear that Congress holds the power of the purse, giving it authority “to lay and collect Taxes, Duties, Imposts and Excises,” and specifying that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by law.” In short, federal taxing and spending requires ...
Why is budget control important? ›
Budget controls are necessary to ensure that a government does not spend more than the amount legally appropriated by its governing body. By establishing clear spending boundaries, budget controls also promote accountability and bolster trust throughout the organization.
Budgetary control is financial jargon for managing income and expenditure. In practice it means regularly comparing actual income or expenditure to planned income or expenditure to identify whether corrective action is required.
What is the main objective of budgetary control? ›
The main aim of budgetary control is to ensure the efficient use of resources and achieve the organization's objectives. It is the setting and adjusting of the financial plans for a business, organization, or individual to check whether they are utilizing their resources productively and systematically.
What did the Budget Enforcement Act do? ›
Provisions. Introduced caps on discretionary spending, thus limiting the amount of funds Congress could provide in annual appropriations bills. Members of Congress could enforce these caps while a bill was under consideration by raising a point of order.
What does the Budget and Impoundment Control Act do? ›
The Impoundment Control Act of 1974 created the procedural means by which the Congress considers and reviews executive branch withholdings of budget authority.
Who created the Budget Control Act of 2011? ›
In truth, the BCA passed with bipartisan majorities in both chambers. In the House,174 Republicans and 95 Democrats voted for it; in the Senate, 28 Republicans and 45 Democrats voted for it; and President Obama ultimately signed it into law.
What is the S 365 Budget Control Act of 2011? ›
Prohibits the debt limit from being raised (except for the $400 billion increase) if, within 50 calendar days after Congress receives a presidential certification or within 15 calendar days after Congress receives such additional certification (regardless of whether Congress is in session), there is enacted into law a ...
