Why Congress must not raise the debt ceil­ing

Curb­ing spend­ing re­quires stop­ping politi­cians from buy­ing votes with other peo­ple’s money

The Washington Times Daily - - COMMENTARY - By Peter Morici Peter Morici is an econ­o­mist and busi­ness pro­fes­sor at the Univer­sity of Mary­land, and a na­tional colum­nist.

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 U.S. 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.

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.

IL­LUS­TRA­TION BY LINAS GARSYS

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