Losing Sight of What’s at Stake
By Amit Jain
Economists from across the political spectrum warn of catastrophic consequences if Congress fails to raise the debt ceiling before August 2, after which the U.S. government will lack the funds to meet its obligations without borrowing more.
But as this deadline approaches, many members of Congress continue to use it to extract unconscionable funding cuts. Some have publicly expressed doubt that the ceiling needs to be increased at all. These legislators claim that the Treasury Department could harmlessly prioritize interest payments over other expenses to avoid a debt default, despite Treasury Secretary Timothy Geithner’s insistence that such prioritization would be a logistical impossibility. Still, even if default could be avoided, a recent report by the Bipartisan Policy Center confirms that these lawmakers are wrong: failing to raise the debt ceiling would be catastrophic for all Americans, especially the low-income families bearing the brunt of the economic downturn.
Jay Powell, coauthor of the report and former Under Secretary of the Treasury for Finance under President George H.W. Bush, spoke to the House Republican Conference last Friday about the dangers of failing to raise the debt limit. From August 3 to 31, the report states, the Treasury would accrue a cash shortfall of $134 billion, or 44 percent of spending. As an illustration, it notes that government revenue would be fully exhausted by interest on the national debt, defense contract payments, and benefits for recipients of Social Security, Medicare, Medicaid and Unemployment Insurance.
In other words, if Congress does not raise the debt ceiling, just meeting those few obligations would consume all the nation’s resources and require defunding all other government programs and services, including such critical components of the safety net as the Supplemental Nutrition Assistance Program (SNAP), child nutrition programs, Temporary Assistance for Needy Families (TANF) and low-income housing assistance. This failure would additionally decimate programs that help broaden educational opportunities and revitalize our economy, including Pell grants for low-income college students and workforce investment and training programs. Military salaries, veterans’ benefits, small business loans, public education, homeland security, energy and environmental investments would also lose all federal funding. These devastating cuts, which fall far beyond any changes in even the most draconian budget proposals, would halt our slow economic recovery and destroy countless investments in our nation’s present and future.
Unfortunately, two of the most prominent proposals to avert this scenario offer only political theater, not viable solutions. The Cut, Cap and Balance Act, which the House passed on Tuesday, would allow a debt ceiling increase only after Congress and the president sent a constitutional balanced budget amendment to the states with draconian cuts and spending caps. The balanced budget amendment would virtually take tax increases off the table, thereby making raising revenue impossible. It would also severely hamper the federal government’s ability to stimulate the economy with spending. The Center on Budget and Policy Priorities estimated that the amendment would slash 70 percent of funding for all non-defense discretionary programs, crippling Medicaid and other support programs for the most vulnerable. Meanwhile, Senate Minority Leader Mitch McConnell’s alternative debt limit proposal requires President Obama to identify trillions of dollars in spending cuts, but fails to include the revenue increases that are necessary to preserve the nation’s safety net.
At this important juncture, it is critical that President Obama and Congress stand up for what is right for America. The debt ceiling must be raised, and it shouldn’t be held hostage to political maneuvers that would harm the most vulnerable. Accepting ideologically extreme proposals that require sharp spending decreases and preclude revenue increases will only result in drastic cuts to programs that help millions of people access food, housing, education, healthcare, jobs and other services. Instead, our leaders must recall the core American values of equal opportunity and shared sacrifice to ensure not only that the debt ceiling is raised, but also that the nation approaches deficit reduction in a responsible manner that protects low-income children and families.