Unless Congress comes to its senses, the United States will run out of credit as early as next month. At issue is a federal debt limit set by Congress, now at $31.4 trillion. Unless this ceiling is extended by Congress, the borrowing authority of the U. S. Treasury ends and America becomes the world’s wealthiest deadbeat.
Meanwhile, two interesting plans go ignored.
Some background: Each year, Congress spends money it doesn’t have. To cover the annual deficits, the Treasury sells bonds to U.S. corporations, private investors, local or state governments and Federal Reserve banks. Foreign governments and investors hold about a third of the debt. This year’s budget deficit is $1.7 trillion, bringing the accumulated overall debt to roughly $31.trillion and bumping the law’s limit.
Failing a debt extension next month would prompt an American default, shatter global financial markets and risk a recession tsunami. American credit would plummet and the dollar with it. Enormous federal programs, including Medicare and Social Security, are at risk.
*
The debt ceiling is now hostage to a budget debate ‒ two otherwise separate matters. Republicans who control the House want massive budget cuts in exchange for a credit extension.
The White House and most Democrats believe the debt ceiling should be raised with no conditions; the debt covers spending already authorized by Congress. Payments must be made to prevent bond holders from losing faith in American credit. Bleak scenarios bubble up. Dark forecasts float.
Roughly 85 percent of federal spending goes to the Big Four: Medicaid and Social Security ring with Budget Office alarms that the trust funds will begin to run dry in 15 years or sooner. This would trigger automatic cuts in benefits. Medicaid and military spending complete the Big Four, central in decades of futile debate over spending and debt.
*
A couple of interesting reform proposals have risen above the caterwauling of hard right and diehard left. They deserve another look.
One came earlier this year from Sens. Joe Manchin, a West Virginia Democrat and Mitt Romney, a Utah Republican. They envisioned legislation to create “rescue committees” for endangered trust funds including Social Security, Medicare and the highway trust. Republican and Democratic leaders would appoint members of the rescue committees and give them six months to craft plans for restoring solvency. (The Senate approved a version of this plan two years ago as a non-binding amendment to a budget resolution. That 79-21 vote included all 50 Republicans.)
The Manchin-Romney plan recalls the Simpson-Bowles commission in 2010. That panel was led by former Sen. Alan Simpson, a Wyoming Republican, and Democrat Erskine Bowles, former White House chief of staff for President Clinton. These political opposites went to work, agreed to a plan, and in early 2013 published the first of their blueprints to reduce the federal debt by $4 trillion over a decade and balance the budget.
Under Simpson-Bowles, spending for the “Big Four” would be reduced and some taxes increased to begin paying down the debt. Simpson-Bowles outlined how this could happen, and with ways to resolve a considerable list of obstacles. Among the details were equitable reforms for each of the Big Four, plus measures to achieve certain, less painful tax increases.
Bi-partisan opposition scuttled this plan. Liberals complained about cuts to domestic programs; conservatives objected to the tax increases.
*
Another plan comes from Rep. Jared Golden, 40, a pro-gun, pro-choice Democrat from a Republican district in Maine. Golden, a former Marine, has widely researched the deficit and its causes, and has offered ways to address them. The immediate problem, he says, is stabilizing the deficit so that it grows no faster than annual federal revenue. This could be achieved, he believes, by reducing borrowing by $250 billion each year for two years.
Half the $250 billion could come through spending caps on discretionary spending (but not Social Security or Medicare). The other two of the Big Four, Pentagon and Medicaid funding, may be scrutinized for cuts. Golden would also rescind student debt cancellation and recapture unspent covid relief funding.
The other half of $250 billion would come through a 25 percent tax increase on corporations; imposing a surtax on corporate stock buybacks; and rescinding the Trump tax cuts for individuals making more than $400,000 a year.
Two considerable plans. Opportunity has knocked, but congress can’t be bothered.