By Judd Gregg - 07/25/11 10:00 AM EDT
Some interesting things will happen if the debt ceiling is not raised, but they are not the same things that are most often mentioned in the swirl of discussion about default. There will be no default. Social Security checks can go out. The military will be funded. Even most of the costs of Medicare could be reimbursed.
What happens when the debt ceiling is not raised is that the government must be run off the revenues it takes in. Today, approximately 41 cents of every $1 spent by the federal government is borrowed and the rest is covered by tax receipts. The practical effect of hitting the debt limit is not that the entire activities of the government suddenly stop. It is that 41 percent of the government stops.
My former Democratic colleagues wore everyone out talking about how much they supported the idea of “paygo.” This is paygo on steroids. You only get to spend what you can pay for with revenues.
The president, through his minions at the Office of Management and Budget and the Treasury Department, would have to choose who to pay and who not to pay with the revenue coming into the treasury. At least in August this would be about $200 billion, or approximately 59 percent of the revenue needed to meet the current obligations of the federal government.
First, of course, they would spend money to support the military in the field, fighting. This would take approximately 15 percent of total spending. Then the interest on the debt would need to be paid so there would be no default, which would take another 12 percent. On top of this, you would want Social Security checks to go out because so many seniors need this money to make ends meet. We could also pay at least 85 percent of the Medicare costs’ runup. I pick this number because we know, based on estimates discussed by the commission chaired by former White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson (R-Wyo.), that Medicare has a fraud and waste factor of about 15 percent, so why pay for that in tough times?
At this point, you have used up most of the revenues that are available, but there would be enough left over to take care of critical things like the Federal Aviation Administration and even the Department of Homeland Security. But choices would have to be made which, as we have seen, is not something this president likes to do. The Labor Department would have to close, along with the Commerce and Transportation departments. Agricultural subsidies would be abated and ethanol would no longer be funded, along with payments for growers of cotton and wheat. Commodities would have to be sold based on what the markets would pay.
Obviously, much more would occur and the disruption would be dramatic, potentially chaotic and would give new meaning to the term “stark.”
But the government would not stop and it would not default.
Unfortunately, because the decision as to who and what gets paid is left to the president and his people, it is more than likely that the politics of the situation might cause them to choose not to send out Social Security checks or pay Medicare. This would give them the double benefit of enraging seniors, whose rage the president’s party would adeptly (with the assistance of NPR) direct at the Republicans while continuing to fund their favored departments such as Labor and Transportation that take care of their issues and friends.
This is why the Republican House needs to pass a bill that outlines how it thinks the revenues that will be coming in should be spent. They need to be on record as opposing a default and supporting paying the military, Social Security and Medicare, otherwise they will be brutalized in this political battle by a White House that may not know how to govern but certainly knows how to blame others.
I hope all this disruption will not occur. But if it does, it should end rather promptly, as the parties who allegedly are governing need to determine a way to pass a debt-ceiling increase.
This must be done at some point in the near future because, like a credit card, the money has been spent and when the bill comes in, you need to pay it. In the interim, however, there would be a forced sorting of priorities. This, though, is precisely what we need to do if we are ever going to get our spending excesses and our debilitating debt under control.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and also as ranking member of the Senate Appropriations Foreign Operations subcommittee.