With expected August 2 passage in the Senate of a House-approved measure to increase the federal debt ceiling limit by as much as $2.4 trillion over the current $14.3 trillion limit, the federal government appears poised for a new era of austerity.

The bill, the Budget Control Act of 2011 passed the House 269-161 after weeks of brinksmanship that saw Democrats give up their demand that a reduction in federal spending be accompanied by increase in tax revenue. If the Senate does not approve the bill, the United States again faces the prospect of defaulting on its obligations by the end of August 2.

The deal allows President Barack Obama to make an immediate increase to the debt ceiling of $400 billion, and another this fall by $500 billion unless Congress approves by a super-majority a joint resolution opposing the increase.

The amount of a third increase to the debt limit under the act could be $1.2 trillion or $1.5 trillion, depending on whether a Congressional Joint Select Committee on Deficit Reduction created by the act succeeds in having Congress enact legislation by Jan. 15, 2012 that cuts $1.5 trillion through 2021 from federal spending. If the legislation passes, the president can increase the limit by $1.5 trillion; if not, then by $1.2 trillion.

If legislation from the committee isn't enacted, the government would be forced to make across-the-board spending cuts worth $1.2 trillion, except to some programs including Social Security, Medicaid, veterans' benefits, and federal retirement benefits.

The act also places caps on federal spending effective with the start of fiscal 2012, which begins on Oct. 1. During the first year of caps, government discretionary spending would be limited to $1.043 trillion, about $7 billion below what Congress appropriated in the current fiscal year. The discretionary cap would reach $1.234 trillion in 2021. The caps would not apply to wars nor to "program integrity" measures that seek out fraud in benefits programs.

A Congressional Budget Office analysis projects the act will result in deficit reduction of at least $2.1 trillion through 2021, with $917 billion of that due to caps. 

For more:  
- download the text of the bill (.pdf)
- download the CBO analysis (.pdf)
- see how the House voted

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