Friday, July 15, 2011

You can argue debt politics, but you can’t repeal arithmetic

Politicians can argue all they want about the best policies, but try as they like, they can’t repeal mathematical certainties. If the debt ceiling is not increased by August 2, the federal government will not have enough cash on hand in August to meet its legal obligations.

Let’s look at the arithmetic.

According to the highly respected Bipartisan Policy Center, the U.S. in August will take in a total of $172.4 billion in revenue against obligated payments of more than $306 billion. This will leave a $134 billion shortfall if the debt ceiling is not increased. The Treasury department would then have to decide which among 80 million monthly payments would be paid and which ones would not.

A new interactive tool based on the Bipartisan Policy Center’s analysis, shows how difficult such choices will be. I used the Washington Post’s tool to see what would happen if the government started out by funding only Social Security checks, Medicare and Medicaid reimbursement, active military duty pay, Defense contractors, IRS refunds, and the VA.

Guess what? The Treasury would be left with $2.8 billion in cash on hand and $137.1 billion in remaining obligated payments due. Here is a list of what it wouldn’t be able to fund, according to the Post’s tool:

  • Tuition assistance for college students, special education programs
  • Current and retired Federal workers
  • 3.7 million people on unemployment benefits
  • Food stamp recipients, child nutrition programs, and the Women, Infants, and Children program
  • HHS grants, such as National Institutes of Health, Centers for Disease Control and Prevention and Food and Drug Administration, for research and projects
  • Housing assistance for 1.2 million poor households, rental assistance recipients
  • Support of local and state governments in design, construction and maintenance of the national highway systems and programs involving the national transportation infrastructure
  • Energy research, national nuclear programs
  • FBI, federal courts
  • Job training and employment services
  • Programs that support public transportation systems such as buses, ferries, light rail and subways
  • Programs protecting health and the environment, such as oil spill cleanup and air quality
  • Programs for small businesses, such as loans, training and contracting
  • Smaller costs in such agencies as State Department, Agriculture Department, Federal Railroad Administration, and U.S. Post Service money orders and District of Columbia funds

The Treasury could take its remaining $2.8 billion cash on hand under this scenario to fund a few of the above programs—but almost the entire federal workforce ($14.2 billion for salaries and benefits) would still have to be laid off.

This is why I still think it is very possible that the Treasury department would suspend paying doctors and hospitals for taking care of Medicare patients, freeing up $50 billion to keep more agencies open and public servants on the payroll.

The numbers don’t settle the political argument, of course, but maybe it will get people to put aside their ideological talking points for a second and look at the facts.

The fact is that small, across-the-board cuts in every federal agency, as one reader of this blog suggested, won’t be enough to make up for the cash shortfall. The federal government simply won’t be able to meet its payments on the debt, send ending out Social Security and Medicare checks, and issue paychecks to active duty personnel, without eliminating much of everything else the government does including most of the federal workforce. The safety of food and drugs, medical research, the VA, and many other programs of concern to physicians and patients would be among those at risk.

Or it can cut off payments to doctors and hospitals to keep some of these programs open.

Just do the math.

Today’s question: Try out the Debt Interactive Tool yourself and tell us what you think it says about the consequences for Medicare and Medicaid, the VA, CDC, NIH, and many other public health and safety programs if the debt ceiling is not increased.


skysurfer96 said...

Unfortunately, raising the debt limit only gives Congress permission to continue to spend this country into oblivion. Just as Obama is trying to extort Seniors into supporting his side of the argument by threatening to stop Social Security and Medicare payments, you are trying to extort physician support by stating that medicare payments will be cut. Medicare and Social Security are Ponzi schemes that have run their course and everyone is now realizing the falacy of big government socialism. Everyone is going to have to feel the pain or we are going to allow Congress to kick the can down the road again. Like it or not it is time to swallow a bitter pill and tell Congress to cut wide and deep and remove the melanoma of big government.

Steve Lucas said...

Sadly, this is my understanding of our current situation. I have seen these projections in a number of places and they all work out the same.

My personal belief is we need to pass a debt increase. Return the budget to 2008 levels and reevaluate our priorities based on the new budget limitations.

I am not holding my breath.

Once again “Facts are the enemy of truth.”

Steve Lucas

Harrison said...

We have one of the highest unemployment rates in the last 50 years or more, and we have two political parties who can't say fast enough that they are about jobs.
So what is their focus?
Cuts in federal spending that will result in taking money out of the hands of people who spend, and move our economy, that's what.
A clean debt ceiling increase followed by job creation bills will help us.

Yes I get it that we need to cut our deficit over the next decade or so.
But why does that have to be with cuts to valuable government programs now?
Why do we want to hurt our economy now?
Why can we not accept the debt for now, and find ways to help the economy grow, and then with a growing economy we will have more tax revenues and a lower deficit potentially, and then we can find those cuts.

The reality of 'big government socialism' is that we had money in the hands of people who didn't have money before and we created investors out of people in the middle class, and we grew our economy in ways that history has never before seen. And we sustained that growth for longer than any culture had done in history with more people enjoying wonderful living standards than ever before.

Just a thought.


Steve Lucas said...


You are right in that both parties have done a disservice to the public in general by pandering to their base. We have a situation I have not seen since the late 70’s, and in some ways it is worse.

Regarding government employment at all levels, while necessary for a civil society, and for the most part nice folks, when we pay teachers, firemen, police and others that is a transfer payment. We are taking money from one group, taxpayers, and giving it to another group, and while these folks are necessary, they do not generate any economic activity.

Yes, they spend the money they receive in salary, but that money would have been invested or distributed to shareholders had it not been taxed and transferred. There is also the tremendous loss of revenue to the Washington machine as it deems who will receive these funds. One dollar in taxes does not buy one dollar of goods or services.

So now comes the hard part, balancing the need for a certain number of tax supported public servants, providing necessary services, with the need to minimize this number to hold taxes at a minimum, to promote economic growth.

The truth is we would like to help all those folks now suffering due to often political miscalculations. The facts are we do not have the money.

A further complication is the lobbying of those who want to control this system. For me, the stimulus all went to union workers, who in turn, via dues, supported the union apparatus. It has been admitted that those shovel ready projects were not so shovel ready.

This is not to let business off, who did everything they could do to feed at the trough.

Frustrating for me is there are ideas from both sides that while not perfect, are good starting points to reduce and redirect government spending. Canada has done it, as well as countries in the EU.

If we don’t we will end up with the scenario of the July 18th WSJ op-ed piece, Get Ready for a 70% Marginal Tax Rate.

Steve Lucas