Growing up in Eisenhower’s America, my parents spent their summers preoccupied with beach vacations and baseball pennant races – both a welcome relief from the tough tasks of earning a living and raising children. This summer we get to obsess about whether the federal government will run out of money.
Treasury Secretary Steven Mnuchin has announced the $19.8 trillion debt ceiling should be raised before the congressional August recess or the federal government will not be able to keep spending at its authorized pace.
Technically, the Treasury hit the limit in March but has been using various cash management techniques – polite accountant talk for the federal equivalent of kiting checks – to keep the government spending but those options will run out soon.
Displaying their penchant for scare tactics and deception, Democrats in Congress will warn if the ceiling is not raised, Uncle Sam will default on the national debt. And they tell us additional borrowing is needed to pay bills Uncle Sam has already incurred. Nothing could be further from the truth.
In 2017, the federal government needs to borrow an estimated $603 billion, above what it collects in taxes, to spend $4.1 trillion. Hence, failing to raise the borrowing limit would leave the US government 15 percent shy of what it needs to keep up its normal pace of activity.
The Treasury could easily refinance the existing federal debt – sell new federal government bonds to replace those that mature each month – if it keeps paying the interest on the total debt – $276 billion. It simply can’t add to the debt by selling even more bonds.
The bonds outstanding cover past spending. Raising the debt ceiling only permits Uncle Sam to spend more than it collects in taxes in the future.
Essentially, if the federal bureaucracy is put on a diet and compelled to get along on the $3.5 trillion it collects in taxes, pays the interest on the debt and sends out in Social Security checks, it would have $2.2 trillion left to fund remaining planned spending of $2.8 trillion.
Does anyone really believe the federal government, in a pinch, could not get along spending 21 percent less or that the United States of America would collapse if it tried?
Curbing federal spending by that amount would require the president and the director of the Office of Management and Budget Mick Mulvaney to prioritize among obligations and planned new initiatives.
Certainly, the Army and Navy have to be paid, but entitlements could be curtailed. For example, it could send block grants to the states to finance Medicaid with instructions to afford priority to mothers of young children, their offspring and the elderly above working age adults who are not working full time and have not made a credible effort to find employment.
Similarly, federal agencies could take a dose of that medicine in administering food stamps, Medicare and other entitlements. For example, it could slash what it pays for prescription drugs for the elderly, the poor and others by benchmarking federal payments to prices paid by governments and private insurers in Europe and Canada – that would end the gravy train for Big Pharma but it’s about time anyway.
Inside the bureaucracy, federal programs regulating, for example, public education, colleges and universities, could be suspended and setting standards for the schools and universities then would be left to the states.
Funding could be slashed or ended for regional agencies, such as the Appalachian Regional Commission and others, which seem to cultivate dependency on federal programs more than private investment and economic development. Or for NPR, which is already endowed and richer than most private broadcasters.
What it comes down to is curtailing politicians from buying votes with other people’s money – the business model of the Democratic Party and increasingly of moderate Republican governors and senators who oppose, for example, limiting Medicaid and other entitlements to the elderly and truly needy.
Democratic votes in Congress will be needed to lift the debt ceiling but Nancy Pelosi says “I don’t have any intention of supporting a lifting of the debt ceiling to enable the Republicans to give another tax break to the wealthy in our country.” Fine, then force the Trump administration to do triage on federal spending and see whose ox gets gored.