As I was writing this article I re-read my original pieces on the 2011 debt ceiling debate/deal and got a major sense of deja-vu. After 18 months we are back in the same place with a dysfunctional Congress, who barely passed legislation to avert the fiscal cliff, trying to reach a new deal to keep the nation from the edge of financial ruin. But it’s my job to write about stories that affect our personal finances so here I go with details and early rumblings on the 2013 debt ceiling debate.
In fact by the end of 2012, America has already passed its legal debt limit or “ceiling” (currently $16.4 trillion) which forced the Treasury to use “extraordinary measures” to ensure that the government can continue to meet its payment obligations. But these measures only provided a two month extension before the credit lines will truly run dry. Some experts estimate that we will reach the extended debt ceiling limit even sooner – sometime in mid February – meaning the government won’t be able to borrow further to fund its spending.
With federal government spending ($450 billion a month) over 50% more than the revenues ($275 billion a month) it brings in, the government will have to default on a number of its funding obligations. This includes interest payments on the debt, Social Security, Medicare, Medicaid, defense, education, food stamps and other discretionary spending. It could also mean another continuing resolution that would shut down the government and freeze federal worker wages through 2013. There could also be significant delays in processing tax refund payments as these will be prioritized well below other expenditures. Having to cut 50% of national spending means that everyone will be affected and all Americans will feel the impact of these cuts.
Here’s what some of the major players are saying about the debt ceiling and the impact if Congress does not approve a raise
“If extraordinary measures were allowed to expire without an increase in borrowing authority, Treasury would be left to fund the government solely with the cash we have on hand on any given day,” Treasury Secretary Tim Geithner said in a letter to congressional leaders.
“The consequences of failing to increase the debt ceiling are real, but so too are the consequences of allowing our spending problem to go unresolved,” said Republican House Speaker John Boehner who said that the American people do not support raising the debt ceiling without reducing government spending at the same time.
“[Republicans] will not collect a ransom in exchange for not crashing the American economy,” President Obama vowed. “The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip….I want to be clear about this: The debt ceiling is not a question of authorizing more spending,” he said. “Raising the debt ceiling does not authorize more spending. It simply allows the country to pay for spending that Congress has already committed to.” (NY times)
Obama’s prediction (via CNN) on failing to raise the debt ceiling: “Social Security checks and veterans benefits will be delayed. We might not be able to pay our troops or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear materials wouldn’t get their pay checks.”
The Federal Reserve chairman, Ben S. Bernanke, also called on Congress to increase the debt ceiling to cover bills that it has already incurred. “The right way to deal with this problem is for Congress to do what it is supposed to do and what it needs to do.”
Now Congress could easily avert this manufactured crisis by raising the debt limit as has been done in the past. But Republicans, who control the House in Congress, are vehemently against raising the debt ceiling without some serious spending cuts to lower the growing national debt. With the President saying publicly that he is against debating the debt ceiling increase and placing the full faith of the US government’s credit at risk, we can expect another round of political theatrics over the next few weeks.
I’ll post updates as the debt ceiling story evolves and encourage you to stay in touch via RSS, Email, Facebook or Twitter to get the latest news.
4 thoughts on “2013 Debt Ceiling Debate – Spending Cuts, Soaring Deficit, Tax Refund Delays and Political Theatrics”
Dear Member of Congress:
Please think about doing the following:
RULE #1 — STAY UNITED !!
As soon as one person in the GOP makes a stupid statement, the press will pounce and keep that the story in the headlines every day.
RULE #2 — STICK TO FOUR (4) TALKING POINTS !!
REPEAT Obama’s own words for the first three talking points:
(1) this is a “sign that the U.S. Govt can’t pay its own bills”;
(2) “Washington is shifting the burden of bad choices today onto the back of our children and grand-children”;
(3) “America has a debt problem and a failure of leadership”;
and, since you have both the MATH and voters on your side, stress that:
(4) “Our National Debt has gone $10.6 trillion to $16.4 trillion — which is over a 50% increase in four years! Meanwhile the number of Federal Employees making over a $100,000 per year has increased from (insert statistics here). The average citizen can’t get yet another credit card whenever they don’t have the money to pay their existing credit card bills, and neither should the Obama Administration!!”
Whatever you do, do it soon — DO NOT PLAY CHICKEN WITH THE DEADLINE!! Come up with something, pass it and then send it over to sit on Obama’s desk. If he suggests reasonable changes, you might consider them. BUT DON”T NEGOTIATE AGAINST YOURSELF!
An Average Taxpayer
America’s government and Congress as well as Senate are becoming more and more like a spoiled child. They cannot understand that when it’s time to stop playing games and start doing your homework you have to do it and not thinking about how to conceive your mommy. Now the government and political class try to do every trick but to do what is right – to spend less and to put your life in order. It’s pathetic and irresponsible even consider ”not to negotiate” about either going broke and being a spending madman or to finally stand your ground, pull yourself together, working hard and regain a press of being logical, foreseeing and sane nation. The constitution has a reason to exist – and the debt ceiling has it to – to constrain the government so it cannot borrow money on behalf of all the citizens and spend it on it’s friends of interest groups. The rules create a clear and lawful environment. Meddling with it and trying to round it could only lead the States to a disaster and to a dictatorship – something that Tocqueville was contemplating two hundred years ago
Breaching the debt ceiling is irrational and dangerous and Repubs should realize that using the debt ceiling increase as a bargaining chip to get more spending cuts, trigger another government shutdown and reforms to entitlement programs like Medicare is crazy.
So I just a cut in my paycheck with the expiry of the payroll tax credit. As a GS-8 worker are you saying I won’t get the 0.5% planned increase in March 2013 if the debt ceiling is not resolved? WTF – I should move to Canada.