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Investopedia explains 'Budget Control Act - BCA'
In the U.S., a debt ceiling has been in place since 1917. If the debt ceiling were hit, the U.S. could default on interest payments to creditors, the consequences of which could be late, partial or missed payments to federal pensioners, Social Security and Medicare recipients and higher future interest rates at which the U.S. could borrow. The 2011 U.S. Debt Ceiling Crisis brought the country close to default risk before the BCA was enacted to immediately raise the debt ceiling and cut the deficit. The BCA allowed an immediate increase of $400 billion to the debt ceiling, bringing the fiscal year 2013 spending cap to $1.047 trillion. The BCA also required a Super Committee to develop measures to cut $1.5 trillion in spending over 10 years. The BCA stipulated that if the Super Committee fails to propose by the end of 2012 a minimum of $1.2 trillion in cuts that will occur over 10 years, automatic spending cuts will occur in January 2013. These automatic spending cuts are called sequestration. Since the Super Committee failed to make a proposal reducing the deficit, sequestration will occur in January 2013 unless Congress takes legislative action to avoid what is called the Fiscal Cliff.
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