What You Need to Know About the 2018 (BCA) Spending Caps

The Budget Control Act of 2011 (BCA) reinstated limits on discretionary spending that were in place from 1991 through September 2002. The new limits on discretionary spending went into effect in 2012 and will expire after 2021. There are no limits on discretionary spending after 2021. 

Specifically, the limits were established by section 101 of the BCA that amended section 251(c) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA). For instance, limits on total discretionary spending as set by the section 101 of the BCA are $1.156 trillion in FY 2018 and $1.182 trillion in FY 2019

However, section 401 of the BCA also established the Joint Select Committee on Deficit Reduction (aka the “Super Committee”) tasked with the goal of achieving at least $1.5 trillion in deficit reduction. The law also specified that if the Super Committee could not agree to at least $1.2 trillion in deficit reduction, section 302 of the BCA would revise the aggregate spending limit by splitting it between security and non-security thereby creating a firewall between defense and domestic discretionary spending. For instance, the new security category would be $603 billion in FY 2018, while the non-security category would be $553 billion (the sum of which is $1.156 trillion). 

Furthermore, if the Super Committee failed to reach agreement by December 9, 2011, each category would be reduced by the amount equivalent to the difference between whatever deficit reduction that the Committee agreed to and the $1.2 trillion (minus debt service) spread over the period covering 2013 to 2021. As you know, the Super Committee did fail to achieve agreement on any deficit reduction, therefore triggering a $1.2 trillion reduction in the spending limits that has been referred to as The Sequester

This comes out to an additional reduction in the discretionary spending limits of $54 for defense and $37 billion for domestic spending applied each year until 2021 (once a special mandatory sequester is applied that we will not go into here in any detail). The difference in the two numbers is that domestic program spending has more to give through the mandatory sequester, but at the end of the day the cut is spread equally between the two categories.

President Obama's budgets called for an increase in both defense and domestic discretionary by $37 billion each year. In other words, his budget proposed cancelling the additional reduction in domestic discretionary with an increase in defense by an equal amount (but leaving about a third of the defense reduction in place). Democrats have referred to this principle of $1 in domestic spending for $1 in defense spending as "parity" in previous budget negotiations. President Trump's first budget, on the other hand, called for cancelling the additional reduction in defense spending paid for with an equal reduction in domestic discretionary spending. 

It is uncertain how much further Congress will increase discretionary spending as part of a "budget caps deal" in the next few weeks. However, budget analysts should look to the defense authorization bill (NDAA) for signals on where we are headed. The 2018 NDAA signed by President Trump on December 12 authorizes $634 billion in total defense base spending. This is $85 billion more than the BCA's spending limit for that year as well as $31 billion more than Trump's budget and $48 billion more than Obama's budget. 

This sends a strong signal that Congress is considering a cap adjustment that would exceed simply rolling back the additional spending reductions.