How To Make Ends Meet

Posted: July 29, 2011 in analysis

As negotiations in Congress continue, it seems more and more likely that the government will not have the authority to borrow more money come August 2nd.  Last week, I linked to a little widget that allows you to play out different scenarios in that case; what gets paid for and what doesn’t.   As that possibility grows more and more likely, and as various people start talking about what they would pay for and what they wouldn’t, I thought I would return to that subject in a little more detail.  Michelle Bachmann, for example, says that we can pay for our debt servicing, Social Security, Medicare, and Medicaid without running out of money.  And she’s right.  But what else could we pay for at the same time?

So, pretend for a moment that it’s August 3rd, and the government has only 172.4 billion with which to pay 306.7 billion in expenses.  What do we do?

For all of these scenarios, I am using the numbers as provided in the widget by Bloomberg Government, but allowing partial payment of the categories.  The numbers don’t quite add up (as the widget warns) but they’re close enough for this purpose.

Short Term Default

First, lets look at the possibilities in a short term default.  That is to say, where much like a government shutdown, we are simply taking stopgap measures to cover the difference until a deal is worked out.  These are some of the options.

  1. Keep the popular programs, shut down the rest.  Pay off the debt, keep SS checks flowing, pay medicare and medicaid at 90%, pay the military, VA, tax refunds, and unemployment insurance.  We also probably need to pay the Justice department, and about half of the federal workers in order to keep all those other programs running.  Thats 154 of the 172 billion dollars available already allocated.  In the short term, we can’t just zero out anything, since it will have shutdown costs and essential functions that we can’t turn off and expect to ever turn back on.  If everything else is reduced to 10% spending (a reasonable average for minimal support, I think), that brings the total tab to 167 billion.  The remaining 5 billion can be divided among food stamps, the Education department, the Energy Department, the Federal Highway Administration, the Labor Department, NASA, etc., including the $42 billion in “Other” spending.
  2. Scare people into increasing the debt limit by suspending Social Security payments.  Keeping the rest of the plan as above, that means there’s 50 billion to go around, instead of 5 billion.  That would let us fund the rest of the government at about 50% of normal funding.
  3. Special Interests First.  Pay the debt, pay Defense vendors.  Defund HUD, the Energy Department, the Labor Department, and the EPA.  Fund the rest of the general government at 25%.  That leaves 80 billion for the entitlement programs, plus the military and VA.  If they take it all, they get about 75% funding.
  4. My Plan.   Pay debt interest as the only fully funded thing.  Everything else takes cuts.  Social Security is at 80%, Medicare and Medicaid at %75, and everything else is scattered around based on how important I think it is and how much it costs.  There’s enough left over to fund 40% of the remaining government, which is not enough, but if you spread it around, you can pretend it will work for a little while.
Long Term Default

But what if there isn’t any way out of the crisis?  What if the Tea Party “no more debt” position holds, and the debt limit will never go up again?  The scenarios are a designed with different intents now.

  1. Right-Wing Dream.   Zero out the Education Department, Energy Department, Labor Department, the EPA, and the Agency for International Development.  Pay the military, DHS, and defense vendors, and interest on the debt.  Cut safety net programs in half.  Cut the Federal payroll to 30%.  Cut all the little stuff remaining (and other) down to 30% as well.  That leaves enough money to fund the entitlements at 60%.
  2. Save the Safety Net.  Zero out defense vendor payments, NASA, and tax refunds.  Pay half of military salaries.  Entitlement and safety net programs (Unemployment, VA, food stamps and such) get funded at 80%, everything else at 40%.
  3. My Plan.  I don’t have one.   I can’t make a long term plan work with no revenue changes.  No tricks I can come up with or proportions I pick make sense.
Conclusions

If we don’t have a debt ceiling increase in place either by August 2nd or very quickly thereafter, the country is in very serious trouble.  Remember, these numbers are just the payments due in August.  Other months, when costs related to the wars in Iraq and Afghanistan or other special circumstances come due, will be even harder to manage.  The country clearly needs a major reworking of our basic financial structure to avoid further long term debt.  But doing so by just stopping arbitrarily taking on debt RIGHT NOW is about the worst possible way to implement that.

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