To Raise or Not to Raise (the Debt Limit)

Al Globus, May 2011

The U.S. government has spent more than it earns every year since the early 2000s. The government has now borrowed all the money it legally can and is using tricks to keep paying for itself. The tricks will run out in August. If Congress does not vote to raise the debt limit by then, the U.S. government will not be able to pay the bills. The Republicans forced a vote in the House of Representatives on raising the debt limit and, on purpose, voted it down. One thing they avoid saying is what, exactly, it will mean if the debt limit is not raised.

This fiscal year the U.S. government is expected to borrow a total of $1.65 trillion, 43% of all expenditures. When the tricks run out we must immediately balance the budget; i.e., raise taxes or cut 43% of all expenditures. While I'm a big fan of balancing the budget, doing so immediately would have some serious consequences.

Consider that government expenditures are more-or-less as follows:

Defense and security 21%
Social security 21%
Medicare, Medicaid and SCHIP 19%
Safety net 9%
Interest on the debt 9%
Everything else 21%

So, how to cut 43% immediately? Here's a couple of possibilities:

Eliminate "everything else" which includes food inspection, health research, NASA, all national parks, air traffic control, road maintenance, college loans, environmental protection, regulation of Wall Street and the banks, etc. This would get about half the job done. It could be finished by eliminating social security or medicare or defense. Alternately, you could eliminate safety net programs and interest plus a quarter of one of the others.
Eliminate social security, medicare, plus 1/3 of the safety net programs. This would put millions of people on the street, many of whom would die. Unfortunately, even if you eliminate social security and medicare you have to keep medicare and social security taxes or there is no fiscal benefit.
Cut defense, social security, medicare, and "everything else" in half. This would require the end of all new weapons programs, eliminating our world wide military presence, probably losing the war in Afghanistan, big reductions in social security checks, pushing people out of medicare, and eliminating NASA, NIH, national parks, etc.

You get the idea, any of these options -- or any other combination -- would seriously weaken America. Millions would be thrown into the street, national security would be seriously damaged, many important government functions would disappear. All this would happen on a time scale of months.

Now consider eliminating the interest on the debt, which would solve less than 1/4 of the problem. It would immediately make $14 trillion in government bonds worthless. The resulting economic crash would tank tax income and you'd need to make even more massive cuts.

The bottom line is that failing to raise the debt limit is gross fiscal irresponsibility. If the Republican threat is real, they are willing to seriously weaken America to get their way. This is particularly bizarre as every penny of spending must be approved by the Republican-controlled House of Representatives so they have all the power they need to cut spending via the normal budget process.

When election time comes, remember who is acting responsibly and who is not.

Al Globus' Politics