The month of July in our nation’s capital was the focus of intense debate and transformation as lawmakers and the White House for the first time negotiated a deal with meaningful spending reforms and reductions that would be incorporated with any increase of the debt ceiling.

The Budget Control Act—the legislation that authorized the raising of the debt limit—was not perfect. In fact, it was far from perfect. But with divided government, neither side gets everything they want.

Why was it important to raise the debt ceiling? To begin, because of the uncertainty of raising the debt limit, the S&P downgraded the U.S. from its Triple A rating to AA+, which has the potential to lead to higher interest rates, making it more expensive to actually pay down our debt in the long term. Additionally, raising the debt limit only allows the government to pay the bills it has already racked up, which is why there was concern over which bills would be made a priority if the limit was not raised and there were not enough funds from the general revenue to cover the cost of all the bills.

Passage of the Budget Control Act represents, for the first time, a serious shift in the mindset of how Washington has approached raising the debt ceiling. Over the years, the debt ceiling has been raised nearly 100 times, and lawmakers barely batted an eye when doing so. In fact, under the rules of Congress, the debt ceiling had typically been raised through a procedural motion that didn’t even require lawmakers to vote on the actual increase. This is exactly the systematic issue we were confronted with beginning in January, when the president asked Congress to raise the debt ceiling with no strings attached. As the debate evolved, the president called for tax increases on job creators to try to raise the revenue to offset the increase in the amount of the debt ceiling, which, for me and a majority of my colleagues, was a non-starter. 

After weeks of negotiations, a deal was struck to reduce the deficit over the next decade by at least $2 trillion, and this fall, for the first time in 15 years, the House and Senate are guaranteed to vote on a balanced budget amendment. Government spending will be cut by $918 billion immediately with a bipartisan, bicameral Congressional Joint Committee instructed to find an additional $1.5 trillion in savings by Thanksgiving, with an up-or-down vote on the proposals guaranteed by both the House and Senate by December 23, 2011.

The bottom line is, whether the committee succeeds or not, there will be additional spending reductions in the amount of $1.2 to $1.5 trillion over 10 years. Built into the legislation is a mandatory trigger that Congress must vote to approve what the committee recommends or a process called “sequestration” is automatically triggered with across-the-board cuts. This same mechanism was used in the 1997 Balanced Budget Agreement.

If the committee fails to achieve at least $1.2 trillion in deficit reduction, then the sequestration process begins. These spending cuts would apply to FYs 2013-2021, to both mandatory and discretionary programs. Total reductions would be equally split between defense and non-defense programs and simply represent an equal percentage in every account.

If the Joint Committee’s proposal is enacted or if a Balanced Budget Amendment is sent to the states, the president would be authorized to request a debt limit increase of $1.5 trillion with spending cuts equaling the amount the debt limit is raised, thus avoiding this sequestration process from being triggered.

The sequestration process, if needed, is designed to guarantee that Congress acts on the Joint Committee’s legislation to cut spending and provides great incentive for Congress to work with the committee to ensure common-sense cuts are made by the end of the year.

Even at the end of this process, America still has a debt crisis. The problem has not been solved, but we have made the first steps in the right direction. The efforts over the summer will result in less government spending than the prior fiscal year—something that hasn’t happened since the end of World War II. iBi