A misguided tea party claim on the debt ceiling
“It is pure baloney to say we have to pay the bills for things Congress has already approved. We are drawing the line on future spending, not the debt or obligations to Social Security, Medicare and the military, which can all be met without an immediate rise in the debt ceiling.”
— Amy Kremer, chairman of the Tea Party Express, in a statement, Jan. 14
Kremer issued that statement after President Obama, in a news conference on Monday, argued that if Congress did not raise the debt limit, the United States would not be able to pay for services rendered in the past: “If congressional Republicans refuse to pay America’s bills on time, Social Security checks and veterans’ benefits will be delayed,” Obama said. “We might not be able to pay our troops, or honor our contracts with small business owners.”
This is an interesting question, which we explored before the last debt limit showdown in 2011. Then, we examined whether Social Security benefits could still be paid even if the debt ceiling was breached; the answer was a bit inconclusive. But after that last crisis, the Treasury Department’s inspector general provided Congress with a detailed look at the options the administration had considered for such a crisis.
Moreover, Kremer has upped the ante by saying the government could pay not only Social Security benefits but also Medicare and the military — three of the biggest parts of the budget — as well as interest payments on the debt. Let’s examine whether her claim is credible.
This year’s debt ceiling showdown is exacerbated by the fact that February is just about the worst month in terms of government finances because relatively little money is collected while lots of bills must be paid, including income-tax refunds. Both the Treasury Department and the Congressional Research Service say that there is tremendous legal uncertainty about whether some payments could be honored while others ignored if the nation goes about the borrowing limit.
The Treasury believes that Congress has never given direction about which payments should receive priority; others (such as the Government Accountability office in 1985) have concluded there is no requirement that Treasury must pay bills in the order in which they are received.
This is a bit of an academic dispute. The sheer volume of transactions — as many as 5 million a day — would make it difficult to pick and choose. Moreover, Treasury says its systems are designed to make payments in the order in which they are due.
After the 2011 showdown, Treasury concluded that “the least harmful option available to the country at the time, of these very bad options,” was a delayed payment regime. In other words, Treasury would only pay all of the bills for a particular day once it had collected enough cash for every outstanding claim due that day.
So, in theory, Monday’s payments would be held until, say, Wednesday. Then, Tuesday’s payments would be held until enough money was collected for that day’s payments, which could be Thursday or Friday. So the government could start the following week already three days behind in payments — and continue to fall ever farther back.
Taylor Budowich, a spokesman for the Tea Party Express, defended Kremer’s statement, pointing us to a recent report by the Bipartisan Policy Center, which he said included “some options” for spending priorities.
“It is unadvisable to get into a situation where we must prioritize spending, but it is irresponsible and absolutely unacceptable to continue down a path of increased debt, increased spending, and increased taxes,” Budowich said.
We looked at the Bipartisan Policy Center report and actually found that it completely undercut Kremer’s statement. We also double-checked with Steve Bell, a co-author of the report and a former staff director of the Senate Budget Committee under Sen. Pete V. Domenici (R-N.M.). He agreed that Kremer’s statement was incorrect.
“You don’t have to be an MIT mathematician to figure this out,” Bell said. “As a matter of math, the tea party person is wrong.” On a given day, he said, payments for Social Security, Medicare, active-duty soldiers and interest on the debt would add up to $53 billion — while the government would have only collected $20 billion.
Bell also agreed that as a practical matter it was all but impossible for Treasury to pay a defense contractor ahead of a Social Security recipient, or vice versa.
Here’s an example of cash-flow problem as illustrated by the Bipartisan Policy Center:
The Bipartisan Policy Center, in its report, also provides a few illustrative examples, such as Treasury not paying any income tax refunds in order to pay higher-priority bills first. But it says none of the options are practical and would be difficult to maintain for a period of time.
The Pinocchio Test
Kremer used pretty strong language — “baloney”— to condemn Obama’s statement, but the evidence provided by the Tea Party Express actually supports the president’s point. By available evidence, it appears all but impossible for the Treasury Department to pick and choose among payments — or to keep up that balancing act up for very long.
UPDATE: Taylor Budowich, the Tea Party Express spokesman, took issue with our analysis and asked to provide a further response. We are happy to oblige – especially because the Tea Party Express now appears to acknowledge the need for at least a temporary increase in the debt ceiling to get past the months of February and March. But we see no reason to alter or amend our ruling on Kremer’s initial statement.
“Our statement was challenging the fundamental point made by President Obama that we had to PERMANENTLY increase the debt ceiling as he requested or we would not be able to pay for our military, debt, Social Security and other government programs. What the President said was incorrect, and we called him on it.
“We appreciate and agree that government income fluctuates, some days ending in a surplus and others a deficit. There are cash flow issues that might necessitate a temporary debt ceiling increase, which would then be reduced when tax revenues balloon in March and April. We are not opposed to responsibly meeting essential obligations. We are correct in pointing out that it is just scare tactics by Obama, and not accurate for him to claim that military, debt obligations and Social Security might be jeopardized.
“Even when taking into account the cash flow straw man you created to dispute our essential premise, there is plenty of evidence that limiting spending could be successful. If you consider an entire month (similar to the analysis on pages 24-28 of the Bipartisan Policy Center), we can pay Interest on Debt ($38.1B), Medicare/Medicaid ($72.5B), Social Security Benefits ($61.1B), Military Pay and Retirement ($13.2B), and Veterans Benefits ($4.2B), with $87.9 Billion left over.
“That alone should suffice as support for our statement. While some days we may have deficits and others surpluses, we can easily place a temporary increase in the borrowing (debt) limit for Tuesday, knowing it will be paid for on Wednesday. Put more generally, we can cover the prioritized bills in a way that ends each month with the same debt burden, while accepting there are moderate debt fluctuations from day to day.
“Mr. Bell was right, it does not take an MIT mathematician to figure this out, and this statement should not have resulted in ANY Pinocchios. If you want to disagree with our tactics and ideology, that is fine, but the facts are on our side. You can’t take the cash flow argument from Mr. Bell and use that to prove that we can’t meet our major obligations. I hope you will print a retraction.”
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