We are now somewhere between one and three months away from the U.S. hitting its debt ceiling limit, running out of accounting gimmicks and being unable to pay its bills.
The exact day when the U.S. will run out of cash isn’t known, since ongoing revenue streams are always something of a matter of informed guesswork, but the Treasury estimates it’s very soon. Earlier this year, Treasury Secretary Janet Yellen estimated that the doomsday date would hit in June. Then, with better-than-expected tax revenues coming in, analysts said it could be sometime in August. Now, Yellen has again said the doomsday date could be as early as June 1.
Whenever the government runs out of wriggle room, however, economists are pretty much unanimous in warning that the damage of Congress not raising the debt ceiling — or agreeing to raise it, as the House recently did, but putting in place so many right-wing political priorities as part of the bill that President Biden won’t sign the legislation — would be profound. It would likely trigger a massive contraction in the economy and lead both to soaring interest rates and huge credit crunches, which would result in millions of people losing their jobs, and faith in the U.S.’s good credit, carefully stewarded since the late 18th century, being shattered.
Of course, like so much else in U.S. political life, a debt default wouldn’t hit all people and institutions equally. Both political parties have made clear that they would try to prioritize paying interest owed on Treasury bills, keeping the military funded and covering Social Security and Medicare bills. What wouldn’t be funded in such a situation would be, well, pretty much everything else — meaning services to poor and vulnerable people would be particularly at risk during a default.
Republicans, who control the House of Representatives and thus set the terms of the initial legislative maneuvers to raise the debt ceiling, argue that they have to play political hardball around the debt in order to reduce spending enough to put the U.S. on a more economically sustainable long-term trajectory.
They are right that there is a mismatch between what the federal government brings in via tax revenues and what it spends. But they are wrong in blaming anti-poverty programs, environmental investments, overseas aid, federal education spending and all their usual bugbears, for the U.S.’s finances being so out of whack.
The federal government spends, according to Congressional Budget Office (CBO) estimates, more than $6 trillion per year, nearly half of which is accounted for by Social Security, Medicare and Medicaid. The remaining half is roughly equally divided between defense spending and non-defense discretionary spending. There is, according to these CBO numbers, a gap of approximately $1.4 trillion between what the government will bring in via revenues in 2023 and what it will spend.
The GOP, in the face of massive popular support for programs that provide security to elderly Americans, has declared that Social Security and Medicare are immune from proposed cuts. And since neither political party will tolerate cuts to the country’s huge (and rapidly growing) military expenditures, that gap has to be filled either by borrowing, by increases in taxes or by slashing the non-military, non-Social Security/Medicare parts of the budget.
The GOP has made it clear over the past several decades that it won’t support increased borrowing or increased taxes, which only leaves cutting discretionary spending. And to get anywhere near enough cuts from this part of the federal budget to eliminate deficit spending, Republicans end up embracing slash-and-burn policies on an epic scale against food stamps; against environmental and infrastructure investments; against medical and mental health and drug treatment services for the poor; against public health systems; against government agencies such as the CDC and the IRS; against investments in education; against overseas aid, and so on.
The House legislation calls for a 13 percent across-the-board cut in non-military discretionary spending over the next decade, but it then goes much further in its efforts to roll back particular policies: It calls for an end to President Biden’s student debt relief plan, a rollback of investments in clean energy infrastructure, work requirements for “able-bodied” recipients of Medicaid and SNAP and massive cuts to the IRS — the agency responsible for collecting taxes to fund government operations in the first place.
If implemented, these proposals would likely result in large-scale cuts to affordable housing programs for the poor, to nutritional programs for the elderly, and other services for those low down on the economic ladder. They would further mire low-income Americans — especially Black and Brown Americans’ communities that have long been at the front lines of climate change, and whose members tend to have higher levels of student debt than do Asian or white Americans — in economic insecurity.
This is all entirely disingenuous. The U.S. has a budget-balancing problem not because we spend more than other countries do on supporting the poor — the U.S. ranks low on the list of countries and the proportion of their GDP that they dedicate to social safety net spending — but because U.S. leaders choose to spend far more on the military than do other countries, and also because over the last several decades the U.S. has consistently under-taxed affluent American individuals and lowered the corporate tax rate that companies must pay.
The Center for American Progress recently released a report showing that the increased proportion of the budget that has to be funded by borrowing can be traced back almost entirely to the tax cuts signed into law during the Bush and Trump presidencies. As a result, the country has seen a vast accumulation of largely untaxed wealth at the top of the economic ladder. In the first year of the pandemic, the top 1 percent of wealthy Americans saw their net worth increase by a whopping $12 trillion; that elite group now controls roughly one-third of the country’s total wealth. If we imposed a wealth tax on that $12 trillion, introducing the sorts of marginal top tax rates that had bipartisan support during World War II and in the decades following, much of the country’s budgetary woes could disappear overnight.
In other words, there’s plenty of money to be tapped at the top to fund social programs and, at the same time, to start paying down the national debt. But what there isn’t is a bipartisan political will to go down this more equitable path.
The Progressive Caucus Center has written that the debt ceiling debate is a “manufactured crisis” intended to push through unpopular GOP political priorities as the cost of keeping government functioning. And Congressmember Alexandria Ocasio-Cortez responded to the recently passed House debt ceiling legislation, saying that the GOP was planning to take “food out of babies’ mouths” with their proposals and should instead focus on making the tax system fairer.
The Princeton sociologist Matthew Desmond recently published a book titled Poverty, by America, in which he scathingly denounces those who ask how the U.S. can afford to properly fund anti-poverty programs. It is, he writes, a “sinful question,” and one that belies just how lopsided the political debate around poverty, taxation and federal spending has become.
As the deadline nears for a default on the national debt, more commentators are urging Biden to “negotiate” with the GOP over their proposals. These negotiations must not simply be about the scale of cuts to vital services for the vulnerable. If they are to be real negotiations, they must center discussions of the scale of tax increases that should be imposed on the wealthy in order to keep vital safety net programs intact and expand economic opportunities for those on the lower rungs of the U.S.’s steep economic ladder.
If the Republicans are unwilling to use their legislative clout to support a “clean,” no-strings-attached debt ceiling increase, Democrats ought to attempt to move toward what is called a “discharge petition,” a cumbersome congressional maneuver that would allow the minority party in the House, with a few votes from the handful of remaining moderates in McCarthy’s GOP caucus, to put their own debt ceiling proposal to a vote. It might not succeed, but at least it would allow the Democrats to reset the terms of the debate and to show that, when the Republicans claim they want to negotiate, in reality all they’re really interested in is using the threat of a default on debt to protect tax cuts for the wealthy and extend the economic pain routinely inflicted on the poor.
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