Debt deal: Behind the legislation

Highlights of the deficit-reduction package:

Debt limit: The legislation immediately increases the debt limit by $400 billion, with Obama permitted to order another $500 billion increase this fall unless both House and Senate override him by veto-proof margins; a third installment of between $1.2 trillion and $1.5 trillion would be made available after enactment of matching levels of additional spending cuts recommended by a special joint committee of lawmakers. The full $1.5 trillion could also be available if Congress adopts and sends to the states for ratification a balanced budget amendment to the Constitution.

Spending caps: The measure will cut more than $900 billion over 10 years from the day-to-day operations of Cabinet agencies whose budgets are passed each year by Congress. Caps such “discretionary” spending at $1.043 trillion in 2012, $7 billion below 2011 levels and $44 billion below an inflation-adjusted “baseline.” But while sounding harsh, the measure represents a significant $24 billion increase over even deeper cuts sought by tea party-backed Republicans controlling the House.

After a near-freeze in 2013, discretionary spending will increase by about 2 percent a year, which is sure to spark infighting as defense hawks and backers of domestic programs wrangle over who gets the money.

It’s up to the appropriations committees to allocate the money, picking winners and losers from among programs like school aid, housing subsidies, defense, foreign aid and health research – among others – along with bureaucracies like the Environmental Protection Agency, the IRS and the Housing and Urban Development Department.

Both security and nonsecurity programs will absorb outright cuts in 2012. Defense hawks are protesting likely cuts to the Pentagon, which would have received a $17 billion, 3 percent increase under a recent House spending bill. The Pentagon is among a group of programs that together will absorb a $4 billion cut from current levels next year. Other programs in the security category include foreign aid, intelligence, homeland security and veterans’ programs.

Additional cuts: The legislation creates a 12-person, House-Senate committee evenly divided between the political parties, and charged with producing up to $1.5 trillion more in deficit cuts over 10 years.

This second wave of spending cuts will focus on so-called mandatory programs whose spending levels are set by formula. They include Medicare, the Medicaid health program for the poor and disabled, farm subsidies and federal retirement programs.

The committee is likely to borrow from numerous sources in producing the cuts, including Obama’s fiscal commission, a group led by Vice President Joe Biden and talks involving House Speaker John Boehner and Obama himself. Options include increasing copayments for Medicare and military health care and prescription drug coverage, cuts in direct cash payments to farmers, sales of broadcast spectrum to telecommunications companies and rules restricting insurance policies that supplement Medicare.

Republicans vow the panel won’t propose tax increases as called for by Obama and fellow Democrats.

If a majority of the committee agrees on a plan, it would receive a vote in both the House and the Senate. If the panel deadlocks or fails to produce at least $1.2 trillion in additional cuts, or if Congress fails to enact its recommendations, the White House budget office would impose spending cuts across much of the federal budget, including the Pentagon, domestic agency budgets and farm subsidies. Many federal benefits programs, however, would not be covered by this, including Social Security, Medicaid, and veterans’ and federal retirement benefits.

Other: The legislation also requires both the House and Senate to vote on a balanced budget amendment to the Constitution; establish “program integrity” initiatives aimed at stemming abuses in Social Security and federal health care programs; and preserve recent funding increases for Pell Grants for low-income college students by $17 billion over 2012-’13, financed by curbs in student loan subsidies.

Associated Press