Image National Debt Clock [retrieved 15-Nov-2021]
Short answer: No.
There are news stories galore about the impending disaster and hardships that not raising the national debt limit would bring to the American and global economy.
The effects described include:1
- 15 million seniors could stop receiving Social Security payments, or see delays.
- 30 million families could stop receiving President Joe Biden’s expanded Child Tax Credit payments, or see delays.
- U.S. military servicemembers could stop receiving paychecks.
- Veterans’ benefits could stop or be delayed.
- Postal workers and federal employees could stop receiving paychecks.
- The United States’ credit worthiness could be downgraded, spiking interest rates, which would raise mortgage, car and credit card payments.
- Doubt in the typically reliable U.S. currency could tank the markets, hurting 401ks and other investments.
- FEMA funding for hurricane and wildfire victims could stop.
- Public health funding for pandemic mitigation efforts could be cut off.
- Child nutrition program and other food assistance could stop.
- Moody’s Analytics has estimated that even a long impasse over the debt ceiling could cause the loss of nearly 6 million jobs, increase the unemployment rate to 9% (from 5.2% now) and cause the stock market to lose about a third of its value, wiping out $15 trillion in household wealth.
Treasury Secretary Janet Yellin added to the hysteria:2
“It is imperative that Congress swiftly addresses the debt limit,” Treasury Secretary Janet Yellen said in remarks to the Senate Banking Committee.
Failing to act could spark an economic catastrophe, Yellen also said.
“Nearly 50 million seniors could stop receiving Social Security checks for a time. Troops could go unpaid. Millions of families who rely on the monthly child tax credit could see delays.
“In a matter of days, millions of Americans could be strapped for cash.”
If we look at the numbers, it raises the question of why these would be the outcomes:3
Income taxes will contribute $1.932 trillion. Another $1.373 trillion will come from payroll taxes. This includes $1.011 trillion for Social Security, $308 billion for Medicare, and $43 billion for unemployment insurance. Corporate taxes will add another $284 billion.
The Federal Reserve, whose revenue comes from a variety of sources, contributes $71 billion.
The remainder of federal revenue comes from excise taxes ($87 billion), tariffs on imports ($54 billion), estates taxes ($22 billion), and miscellaneous receipts ($40 billion).
This tells us is that the government brings in an annual $3.9 trillion with a monthly average of $321 billion.
- Payroll taxes are collected from every paycheck and are separate from income taxes. They are used for Social Security, Medicare, and unemployment insurance payments. So, these would continue being paid.
If we take away payroll taxes, that leaves us with average tax receipts of $208 billion per month.
The interest payments on the national debt average $47 billion per month.4
Paying $47 billion for national debt interest from $208 billion leaves $161 billion per month (or nearly $2 trillion per year) to pay for other programs besides Social Security, Medicare, and unemployment insurance.
Defense spending is $61 billion per month, veterans benefits are $18 billion per month, etc.5 We won’t break down every expenditure, but from these numbers you can see there should not be any panic. The important stuff can be fully funded.
Buried far down in a White House press release about the debt ceiling, is this nugget:
If the Treasury Department uses all of its extraordinary measures and cash, the government would have to pay all its obligations using only its incoming revenues. If these revenues happened to cover the promised payments, then the government would be able to meet its obligations.6
Therefore, defaulting on the debt is not a necessity – the federal government would need to deliberately choose to default.
For sure, there would not be enough to pay for every government obligation. Some contracts would need to be suspended, perhaps a Department of Agriculture that doesn’t grow anything or a Department of Education that doesn’t teach anyone could be trimmed back temporarily. But, there would be enough to pay for all the scare items noted at the top of the page.
Here’s a typical article where CNN presents falsehoods as facts:7
The arguments in favor [of raising the debt limit] are generally the same every time. One is that the money’s already been spent — raising the debt limit just lets us keep paying back our creditors. (More on that in a second.) Another is that failing to raise the limit would cause the US to default on some of its obligations, triggering a crisis in the financial system.
A couple of points:
- The money has not already been spent. You wouldn’t need to borrow it now if it was already spent. It may have already been obligated, but it has not already been spent.
- As noted in this post, failing to raise the limit would not require the US to default, triggering a financial system crisis.
1 What is the debt ceiling? Why a government default could directly affect your wallet
2 Here’s what the debt limit standoff means for you
3 US Federal Government Tax Revenue
4 Total interest expense on debt held by the public
5 Federal Spending by Category and Agency
6 The Debt Ceiling: An Explainer
7 Debt ceiling: What to know as Congress nears an October 18 deadline