Getting down and dirty with the debt ceiling
If you’re anything like me, these periodic tussles over the debt ceiling, like the one that officially got underway today, are one of those “whatever the hell that is” things you would rather not get too far into for fear of losing what’s left of your functioning brain cells. But we’re here, so let’s burn off a few more synapses trying to understand what the hell is going on.
It all starts with the budget. That’s the thing that the Congress is supposed to pass and the president is supposed to sign by April 15 of each year. The way it’s supposed to work is, Congress passes tax laws, the Treasury collects the taxes, and Congress appropriates money to spend on the various functions of the government – for defense, homeland security, law enforcement (the Department of Justice), education, health, the State Department, and all the other ways our tax dollars are spent.
In the years – yes, there have been a few – when the amount of taxes collected equals or exceeds expenditures, then the budget is said to be balanced. From 1970 to 1997, the United States ran budget deficits year after year. That means, the government did not collect enough taxes to cover our expenditures. In 1999, 2000, and 2001 under President Bill Clinton, amazingly, there were budget surpluses. Then George Bush was elected, the Republicans went on a spending spree (chiefly on “The War on Terror” after the attacks on Sept. 11), while at the same time going on a tax cutting spree, quickly reducing taxes twice. When Bush, at a meeting of his cabinet, asked an innocent question about the wisdom of cutting taxes while one war was going on in Afghanistan and another, against Iraq, was being contemplated and planned, his vice president, Dick Cheney, answered, “It’s our due,” and they went ahead and cut taxes.
We’ve run a deficit ever since. What that means is, we have to borrow the money we didn’t take in from taxes in order to fund the expenditures that exceed tax revenue. We do that chiefly by issuing bonds, which are bought by governments (like China), banks, insurance companies and other organizations like labor unions, and individuals seeking a place to invest their money safely. The reason U.S. government bonds are considered safe is because they are backed by what is commonly referred to as “the full faith and credit of the U.S. government.”
It's not talked about much, but this is apparently the case because the Constitution contains a clause, “The validity of the public debt of the United States … shall not be questioned,” that guarantees the federal government will pay its debts.
There are a lot of “buts” involved in the entire mishigas of the way taxes are collected and budgets are set and money is spent on government programs in this country. This is a gross simplification, but the biggest “but” involves the essential difference between our two political parties. The Democratic Party wants the government to do stuff that helps keep the country going and people from starving and being homeless and so forth, so the Democrats are generally in favor of larger expenditures in the budget for reasons like those, and that means Democrats are more likely to be in favor of higher taxes (chiefly on the rich). The Republican Party is less disposed to want government to spend on so-called “entitlement programs” and more disposed to want to cut taxes (chiefly on the rich). This means, in short, that we spend more money than we take in.
It's important to note that the budget deficits we run are to cover money that has already been spent from appropriations in the previous year or years. In other words, it’s as if we used a credit card to buy stuff we already have and now it’s time to pay for it.
The debt ceiling is a law passed by Congress that puts a limit on the borrowing the government can do in any fiscal year or portion of a year. The debt ceiling has been modified, or raised, more than 100 times since World War II to cover the borrowing we have done through issuance of our government bonds. The fight that arises periodically over the debt ceiling is usually associated with one party controlling one part of the government and the other party controlling the other part, which is where we are right now. The Democratic president in the White House proposes budgets, including deficit spending, and the now Republican-controlled House is supposed to pass them with negotiations over how much should be spent and how much taxes should be collected to cover those expenditures, including how much money should be borrowed to cover the excesses that arise from spending exceeding tax revenues.
This involves periodically raising the debt ceiling so more money can be borrowed to cover the debts we have already incurred in the previous year, which in this case, was in the previous Congress. Republicans have discovered that they can hold raising the debt ceiling hostage so they can achieve with blackmail what they couldn’t achieve at the ballot box, which would be the last Congress, which they did not get enough votes to control, which passed the continuing resolution which substituted for the budget that didn’t pass, no budget having been passed since 2015.
I’m sure that I’ve probably gotten some things wrong in this down and dirty summation of the situation we find ourselves in, but isn’t it fascinating? Doesn’t it hurt your head?
It hurts mine, too, but the only thing you need to remember as this clusterfuck over the deficit plays itself out is this: it’s both parties’ responsibility, but it’s the Republicans’ fault.
Brief quote from the Huffington Post: "Michael Steele, former chair of the Republican National Committee, tore into Rep. Marjorie Taylor Greene (R-Ga.) for insisting she wouldn’t vote to raise the debt limit.
The Treasury Department needs Congress to raise that limit so it can borrow money to pay off the country’s obligations. Democrats want a “clean” bill, increasing that limit with no strings attached, but Greene and other Republicans say they want major spending cuts in return.
“I for one will not sign a clean bill raising the debt limit,” Greene insisted during a Fox News interview.
House members do not “sign” bills, as MSNBC’s Stephanie Ruhle pointed out on Wednesday night, causing Steele to erupt.
“She doesn’t know what the hell she’s talking about,” he said in disbelief as Ruhle did a face-palm. “This woman has no clue.”
Steele took Greene to school:
“If you understand how this works, Marjorie, then you know that this is about bills that have already been created, not new spending. So this is not a spending question. This is just paying the damn credit card of the country for the $8 trillion your president ran up between 2016 and 2020. So stop with the stupid.”
Steele called the refusal by Greene and others to raise the limit “Kevin’s problem,” referring to House Speaker Kevin McCarthy (R-Calif.).
House Republicans Are Preparing for Hitting the Debt Limit
There have been various stories about a secret three-page side deal Speaker Kevin McCarthy (R-CA) made with the MAGA 20 to get the speakership. Nothing in D.C. remains secret very long. The Washington Post got a hold of (part of) it Saturday and published an article about what McCarthy agreed to do about the federal debt.
Recall, once again, that the debt-limit fight is NOT about future spending. It is about refusing to pay for spending Congress approved in the past. Greatly simplified, it is about the Pentagon asking for a new and expensive weapons system and Congress approving it and appropriating the money. Then, after the contract was signed, and the weapons were built, delivered, tested and accepted, the Republicans said: "We have decided not to pay the manufacturer's bill as stated in the contract." Small-time con artists like Donald Trump stiff their vendors. The U.S. government is not supposed to do this. Most people can understand the concept that after Congress has approved buying something and it is delivered, deciding not to pay the bill is not acceptable or legal. And it is completely different from a discussion about what Congress should buy next year.
The debt limit ($31.4 trillion) will be reached on Thursday, but Secretary of the Treasury thinks she can pull enough rabbits out of her hat to keep the debt under the limit until around June. At that point the government's monthly income from taxes will not cover the monthly expenditures for items Congress approved long ago. The Republicans' secret plan is to prioritize which bills get paid and which ones don't. On a microeconomic level, this would be like a family short of cash deciding to buy food but not pay the rent. Or deciding to pay the electricity bill but not the water bill. The details of the prioritization are not finalized yet, but some things are already known. One would be prioritizing paying interest on the federal debt, some of which goes to Chinese banks. Social Security, Medicare, and defense could potentially be spared, but that would mean enormous hits to the rest of the budget.
Cutting spending will be very difficult. Here are federal spending and revenues for 2022. The inner "pie chart" is revenue and the blue ring around it shows spending.
Federal spending and revenue in 2022
As soon as the prioritization plan is published, the sh*t will hit the fan. The Democrats' ads write themselves; for example: "The Republicans think that paying interest to Chinese banks is more important than providing lunch to hungry American schoolkids." It will be brutal. If air traffic control is deprioritized and all airline flights stop, we predict it will take less than 24 hours for the ensuing uproar to force the Republicans to back down as business leaders explain to them precisely what will happen next. Especially in terms of campaign donations.
What the Republicans would like to do is cut "welfare" and leave everything else intact. The problem is that the math doesn't work. The 2022 budget deficit was $1.375 trillion, or about $115 billion/month. That means if no new debt can be issued (because the limit has been reached), monthly expenditures have to be cut by $115 billion in order to balance the budget. That's per month. Trying to get to that number would require eliminating many popular programs completely. The uproar would be much louder that the noise that would be picked up by placing a microphone between the rails while a New York City express subway train roared over it at full speed. In fact, it would be the loudest noise ever made, except for when Donald Trump dines alone.
We have seen this movie before. In 2011 and 2013, when the Republicans also came with a prioritization plan, then-President Obama said the government makes millions of payments every day and there is no way to change the software to prioritize some payments and not make others. That would require redoing the government's software systems. That would first require writing a detailed specification, getting bids from vendors, analyzing them, picking a winner, and then getting the winner to write and test the software. The whole process would take years and the software would be full of bugs for years after that, especially if it had to beeen written overly fast to meet some deadline.
The problems with a prioritization plan are numerous. First, it would have to pass the House. No Democrat will vote for it so all it would take is five Republicans to vote "No" to kill it. Second, even if it passed the House, Senate Majority Leader Chuck Schumer (D-NY) would probably not even bring it to the floor. Third, if he did, it would be defeated even if every Republican senator voted for it. Fourth, if it magically passed the Senate, Joe Biden would veto it. It will never become law and the optics of even trying will lay bare either: (1) Republicans' true priorities or (2) Republicans inability to do simple arithmetic that any third grader can do. OK, with 13-digit numbers, maybe any fourth grader.
When push comes to shove in the late spring, what will the Democrats do? Biden might address the nation and explain the consequences of defaulting on the debt—a worldwide depression, a stock market crash, millions of jobs lost, etc. Then he will try to find five sane House Republicans to nip the plan in the bud. Where is Diogenes when you need him? If that fails and the Republicans simply will not budge, Biden has two options left. The first one is to order the U.S. Mint to produce some number of trillion-dollar platinum coins. It's sneaky, but it is absolutely legal. If the coins are deposited in the Fed's bank account and stored in Fort Knox but not spent, this stunt won't cause inflation because inflation happens when too much money is chasing too few goods and services. That wouldn't be the case here. This is just a stupid accounting trick.
The second one is for Biden to cite the Fourteenth Amendment and say that the debt-limit law is unconstitutional, so he will just ignore it and order the treasury to keep issuing debt. Section 4 starts out as follows:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
What does that actually mean? (Note to John Roberts: If you are reading this, please drop us a line and explain it to us.) If Biden claimed the debt-limit law was unconstitutional, the Supreme Court would have to make the call—eventually. The Court would no doubt prefer not to make the call, so it would almost certainly insist on the case first being heard in a district court, then in an appeals court. It could take years to get to the Supreme Court, by which time it might have been solved some other way. In the unlikely event that it went this route and the Court took the case immediately and issued a ruling immediately, one of two things would happen. If the Court ruled that the law was constitutional, the government would probably abide by it and the world economy would crash. Guess who would get the blame? Hint: Not Biden. If the Court ruled that the Constitution says that debts incurred by Congress must be paid, then the problem would be solved for all time. Note that "pensions" are specifically mentioned in the Amendment. The Supreme Court could easily rule that includes Social Security (which did not exist in 1868 but is a kind of pension).
In short, we can't see how this stunt would be a winner for House Republicans once the voters understand what they are doing and its consequences. (V)
This item appeared on www.electoral-vote.com.