President Joe Biden met with congressional leaders Tuesday, May 9, to discuss the debt ceiling and the unsustainable level of government spending. The House of Representatives already passed a bill that pairs reasonable spending cuts with a debt ceiling increase, but the Biden administration is more interested in scare tactics than solutions.
For weeks before the meeting, Biden and Treasury Secretary Janet Yellen tried to set the stage by saying that failing to raise the debt ceiling would necessitate a default, but the math says that’s not true — not by a long shot.
Nevertheless, the Biden administration has gone all-in on the specter of default as a scare tactic to bully conservatives into caving on the issue. And while Yellen is right that the "X date" (the day the Treasury’s cash account falls to zero) will arrive in the coming weeks, that would not be catastrophic.
In fact, it’s happened plenty of times before. When the Treasury runs out of cash and isn’t allowed to borrow more, the government has typically just had a partial shutdown. That is a world different from defaulting on the debt.
To cover its deficits, the Treasury issues debt (bills, notes and bonds) and promises to repay those borrowings with interest. If the Treasury fails to do so — like missing a payment on a mortgage or credit card — that is a default. The Treasury has the ability to prioritize payments, and its own data released on Wednesday show it has more than enough revenue coming in to service the debt and avoid a default in the event the debt ceiling isn’t raised.
Cumulative revenue in the current fiscal year is $2.687 trillion, while net interest on the debt comes to $364 billion. While it’s shocking that the Treasury is paying so much to service the debt, the fact is revenue is over seven times what is needed to avoid a default. In fact, major government programs could still be funded in the event of a partial government shutdown.
Cumulative outlays in the current fiscal year for Social Security, Medicare and Veterans’ Benefits and Services are $770 billion, $426 billion and $157 billion, respectively. That means the Treasury would still have enough money to both pay for these programs and service the debt, all from existing revenue, without the need to issue any new debt.
Additionally, the Treasury would even have enough revenue to pay for the entire bloated defense budget, another $465 billion in cumulative outlays in the current fiscal year, and still have $505 billion left over.
The fact that there is enough revenue to pay for these major expenditures is a significant reason why most Americans probably don’t even notice when partial government shutdowns happen — they are relatively uneventful.
That’s not a reason to be complacent, though. Biden and Yellen’s precious federal bloat is the prime driver of sky-high inflation and interest rates and have dangerously suppressed real economic growth. In fact, it’s difficult to overstate how large that waste is or how urgently spending cuts are needed in the federal budget.
In the first six months of the current fiscal year, the Treasury ran a larger deficit than the first 11 months of the prior fiscal year. In other words, the deficit has roughly doubled in one year. So much for Biden’s claim that he has reduced the deficit.
The assertion that the US will default if the debt ceiling is not raised is equally fallacious, and the Biden administration’s own numbers prove it. That is why Yellen’s and Biden’s talking points on the debt ceiling are becoming so tiresome and now resemble the boy who cried wolf.
The data show that the real risk lies in burgeoning government spending which is driving the deficit and ballooning the $31 trillion debt. The interest expense alone on the debt has exploded, up 32 percent from the comparable period last fiscal year. If spending is not reduced, the debt will grow so large that a default becomes inevitable.
E. J. Antoni is a research fellow for regional economics in The Heritage Foundation’s Center for Data Analysis and a senior fellow at Committee to Unleash Prosperity.