That 1% cut in federal spending in the debt limit law? It’s complicated.

By: - August 16, 2023 7:08 pm

Under the debt limit law, domestic spending actually would get a boost compared to what it’s supposed to be if Congress can’t do its job and pass its spending bills by next spring. Getty Images

WASHINGTON — The debt limit law Congress approved earlier this year included a much-publicized provision that would cut all federal spending by 1% if Republicans and Democrats fail to reach agreement on the dozen government funding bills before Jan. 1.

That sounds pretty threatening. But, the across-the-board automatic spending cut wouldn’t actually have any real-world effects until April 30, and it will never go into effect if Congress can pass its appropriations bills before that date.

Another quirk in the provision is that if those spending cuts were to take effect, the amount of funding for nondefense programs during the next fiscal year would actually increase compared to the spending level included in the debt limit law.

In other words, domestic spending would get a boost compared to what it’s supposed to be if Congress can’t do its job and pass its spending bills by next spring.

“There’s some weird incentives and disincentives here,” said Bill Hoagland, senior vice president at the Bipartisan Policy Center.

Hoagland spent more than 30 years of his career working for the federal government, including as director of budget and appropriations for Senate Majority Leader Bill Frist, a Tennessee Republican, and as director of the Senate Budget Committee.

Details of how the cut would work

The funding level for defense programs would move from the $886 billion the debt limit law sets for fiscal 2024 to about $850 billion, if Congress triggers that spending cut in late April.

That means the Pentagon would get hit with a budget reduction.

But, Hoagland noted, spending on nondefense programs would go from the $704 billion spending level set in the debt limit law to $736 billion because the 1% across-the-board cut is determined by current funding levels.

So nondefense programs — think of everything from the Transportation Security Administration to national parks to assistance for vulnerable families — actually could see their budgets increased compared to the level set in the debt limit law.

Congress provided $858 billion in defense and $744 billion in nondefense spending for the current fiscal year slated to end on Sept. 30 when it approved an omnibus funding package in December. The 1% cut would be taken from each of those totals.

“So there are some strange disincentives here when you get more than would be in the agreement … if you didn’t get your work done by next year,” Hoagland said.

Another provision in the law says that if Congress approves several, but not all, of its dozen annual spending bills, the cut would still be triggered for all discretionary accounts.

Hoagland said he’s not entirely sure the negotiators who included the 1% provision in the debt limit law thought about a scenario where Congress approves several of the 12 bills, but not all by the April 30 deadline.

“Boy, I don’t think that was in any way, shape, or form what the people who constructed this thought would happen, but that’s a possibility,” Hoagland said.

If Congress does trigger the 1% provision, Hoagland said, he expects that it would require each account that exists within federal departments and agencies to take the 1% spending cut compared to current funding levels. There are more than 2,300 accounts, he said.

Skepticism cut will kick in

David Wessel, a senior fellow in Economic Studies at Brookings and director of the Hutchins Center on Fiscal and Monetary Policy, said he doesn’t expect the 1% provision will ever take effect.

“That’s the problem with these provisions — Congress says ‘We’re going to take the tough medicine,’ except when we get close to the date when the dosage is going to be administered, they don’t.” Wessel said.

This provision, he said, seems like an attempt to keep the wheels of the annual appropriations process turning while encouraging a House-Senate compromise sooner rather than later.

“It’s very tough to write these provisions because if you write them so they’re mild, nobody cares. And if you write them so they’re tough… they go away,” he said. “So I think the people who negotiate these bills are struggling to keep the wheels of the budget process turning in a world with so much anger that a lot of people seem to be pouring sand into the gears.”

Philip Wallach, senior fellow at the American Enterprise Institute, said there’s no way to know just yet if the 1% provision has had any significant impact on the annual appropriations process or if it will help lawmakers to broker a bipartisan agreement in the months ahead.

He said some of that will depend on how Speaker Kevin McCarthy and the Freedom Caucus, a group of about 50 far right House Republicans, approach the end-of-the-year conference process between the House and Senate.

That is typically the time when the dozen spending bills become much more bipartisan so that they can pass both chambers and garner the president’s signature.

That group of especially conservative Republicans tend to vote against any legislation that President Joe Biden plans to sign, he said. They also consistently vote against bipartisan spending packages.

“That’s just been kind of a constant through this whole process. And to my mind, that very much diminishes their influence on these negotiations,” Wallach said of the Freedom Caucus.

The more members of the Freedom Caucus talk about the motion to vacate, the procedural maneuver that could be used to try to remove McCarthy as speaker, the more attention they could get, though that’s not guaranteed, Wallach said.

“I do think there’s some people that think that they’re really just going to make their play and use their motion to vacate the chair,” Wallach said. “The more we hear threats about all that, the more we can assume that’s sort of on McCarthy’s mind.”

“The other question is whether we could get a shutdown in trying to negotiate that dynamic between McCarthy and his right wing,” Wallach said. “It almost seems to me like some of those members want to shut down — they somehow see it as amplifying their leverage. Although I have to admit that I don’t know why they think that.”

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Jennifer Shutt
Jennifer Shutt

Jennifer covers the nation’s capital as a senior reporter for States Newsroom. Her coverage areas include congressional policy, politics and legal challenges with a focus on health care, unemployment, housing and aid to families.

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