The Biden administration’s budget request for the fiscal year beginning in October proposes $6.9 trillion in federal spending and a $1.4 trillion deficit.
Our national embarrassment is back, as members of Congress bicker whether to pay bills they’ve already rung up. Leaders of America, the global powerhouse, are in knots over extending the nation’s credit. The debtor’s clock winds toward a deadline next month.
Meanwhile Janet Yellen, the U.S. Treasury Secretary, is rifling America’s sock drawer and scratching under the sofa for loose change to keep the lights on and the ice box stocked.
With no resolution, America, richest nation on Earth, will lose the credit it needs and become the globe’s wealthiest deadbeat. The threat is real: Farm programs, health care, highways, housing, schools, social programs and more will lose financing.
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An uncountable number of programs that keep America going are blessed each year by the Congress. The costs often outrun the money needed to pay for them, so the Treasury Department borrows money (sells bonds) to cover the difference. This adds to budget deficits and the overall national debt, now at roughly $31 trillion. The debt limit ‒ $31.4 trillion by law ‒ is controlled by Congress and must be raised to extend the borrowing authority of the Treasury Department.
The bonds are owned by U.S. corporations, private investors, local or state governments and Federal Reserve banks. Foreign governments and investors hold about a third of the debt.
Failing an extension next month would prompt an American default, shatter global financial markets and risk a recession tsunami. Faith in American credit would plummet and the dollar with it.
The White House and House Republicans are in a face-off. Republicans insist that any increase in the debt limit must be tied to significant cuts in spending. The White House would reduce the debt by increasing taxes on corporations and the rich.
Among Republican proposals:
‒ Reclaim from $50 to $60 billion in unspent covid relief.
‒ Cap spending at 2022 levels to save $3.6 trillion over ten years; specifics to come, inviting fights over domestic vs. defense spending.
‒ Climate measures in the Inflation Reduction Act (health, climate and tax law reforms) would be rolled back to save from $270 million to $2 trillion.
‒ Take back $80 billion to expand the Internal Revenue Service, although adding new staff and equipment was to recover an estimated $200 billion from tax cheats.
‒ Block $100 billion to $350 billion in student loan forgiveness.
‒ Raise the debt limit temporarily, to March next year.
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These are piddling measures, set to draw attention away from Medicare, Social Security Medicaid and Military Spending. These programs drive at least 85 percent of the deficit and cradle most congressional careers.
A study in late 2021, before Congress last raised the limit, said failure to extend the debt ceiling could erase $15 trillion in wealth and cost up to six million jobs. Try raising sympathy for a farm bill or federal revenue sharing after that.
Raising the debt limit has been a necessary, if guarded, procedure in Congress. According to the Treasury Department, Congress has raised the limit 78 times since 1960.The alternatives were ruinous.
In October 2015, the federal debt was $18.1 trillion. By the summer of 2022 it was $23 trillion. Congress raised the debt limit last year by $2.5 trillion.
During the Biden administration, $5 trillion has been added to deficits. This includes the president’s $2 trillion (Covid) economic stimulus bill, a list of trillions in spending initiatives approved by Congress, and student-loan debt forgiveness estimated to cost $400 billion over 30 years.
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Conservatives in Congress insist on trading spending cuts for raising the debt limit. But the federal debt is a product of spending authorized by the Congress. Debt allows government borrowing to pay bills rung up by the Congress and ordered on credit. Congress has maxed out.
There is no reason to stiff the credit ceiling. The budget deficit in fiscal 2022 was $1.38 trillion, half the deficit in 2021 and $1.8 trillion lower than the deficit that Biden inherited from Trump.
We have a deficit problem and a credit problem. Above all, we have a Congress problem.
Saying no to a credit increase is Congress’ way of saying we bought all this stuff but now we don’t want to pay for it. This does nothing to resolve the issue of spending in the first place, but should the United States be known as the world’s wealthiest deadbeat?
(Next: A way out?)
