Q.what’s been agreed?
A.Spending cuts totalling $2.4 trillion (£1.48 trillion) over 10 years will be approved in two stages, with $917bn available straight away and a further $1.5 trillion subject to a further vote later in the year. President Obama will be allowed to raise the debt ceiling in three steps.
Q.how will the spending cuts work?
A. Almost $1 trillion (£614bn) of cuts will kick in immediately, spread over 10 years and balanced between defence and non-defence spending. A cap on the cuts will be set for each year, with harsher upper limits saved for later in the programme once the economy has (hopefully) stabilised. Less than one per cent of the cuts will be made through 2012.
Q.and the other $1.5 trillion?
A. A so-called bipartisan committee of 12 will be tasked with allocating the extra savings, with the tax code and benefit programmes likely to be high on its list of targets. If an agreement can’t be reached on at least $1.2 trillion of savings, or Congress rejects the plan, automatic cuts of that amount will be implemented from 2013.
Q.How likely is it that the trigger cuts will be used?
A.Quite likely. Democrats have been pushing for tax increases throughout the negotiations, and will be keen to get them back on the table of the bipartisan committee. With Democrat-friendly defence cuts written into the back-up measure, there will be little incentive to vote for the second round of savings unless they include tax hikes. But the remaining discretionary cuts will include Medicare, meaning neither party’s sacred cow is safe.
Q.what about the balanced budget amendment?
A.This clause essentially bans the US from any form of deficit for the fiscal year, with government only allowed to spend what it collects in tax revenue unless three-fifths of the House votes in favour of allowing a spending excess.