Dem
51
GOP
49
There have been various stories about a secret three-page side deal Speaker Kevin McCarthy (R-CA) made with the MAGA 20 to get the speakership. Nothing in D.C. remains secret very long. The Washington Post got a hold of (part of) it Saturday and published an article about what McCarthy agreed to do about the federal debt.
Recall, once again, that the debt-limit fight is NOT about future spending. It is about refusing to pay for spending Congress approved in the past. Greatly simplified, it is about the Pentagon asking for a new and expensive weapons system and Congress approving it and appropriating the money. Then, after the contract was signed, and the weapons were built, delivered, tested and accepted, the Republicans said: "We have decided not to pay the manufacturer's bill as stated in the contract." Small-time con artists like Donald Trump stiff their vendors. The U.S. government is not supposed to do this. Most people can understand the concept that after Congress has approved buying something and it is delivered, deciding not to pay the bill is not acceptable or legal. And it is completely different from a discussion about what Congress should buy next year.
The debt limit ($31.4 trillion) will be reached on Thursday, but Secretary of the Treasury thinks she can pull enough rabbits out of her hat to keep the debt under the limit until around June. At that point the government's monthly income from taxes will not cover the monthly expenditures for items Congress approved long ago. The Republicans' secret plan is to prioritize which bills get paid and which ones don't. On a microeconomic level, this would be like a family short of cash deciding to buy food but not pay the rent. Or deciding to pay the electricity bill but not the water bill. The details of the prioritization are not finalized yet, but some things are already known. One would be prioritizing paying interest on the federal debt, some of which goes to Chinese banks. Social Security, Medicare, and defense could potentially be spared, but that would mean enormous hits to the rest of the budget.
Cutting spending will be very difficult. Here are federal spending and revenues for 2022. The inner "pie chart" is revenue and the blue ring around it shows spending.
As soon as the prioritization plan is published, the sh*t will hit the fan. The Democrats' ads write themselves; for example: "The Republicans think that paying interest to Chinese banks is more important than providing lunch to hungry American schoolkids." It will be brutal. If air traffic control is deprioritized and all airline flights stop, we predict it will take less than 24 hours for the ensuing uproar to force the Republicans to back down as business leaders explain to them precisely what will happen next. Especially in terms of campaign donations.
What the Republicans would like to do is cut "welfare" and leave everything else intact. The problem is that the math doesn't work. The 2022 budget deficit was $1.375 trillion, or about $115 billion/month. That means if no new debt can be issued (because the limit has been reached), monthly expenditures have to be cut by $115 billion in order to balance the budget. That's per month. Trying to get to that number would require eliminating many popular programs completely. The uproar would be much louder that the noise that would be picked up by placing a microphone between the rails while a New York City express subway train roared over it at full speed. In fact, it would be the loudest noise ever made, except for when Donald Trump dines alone.
We have seen this movie before. In 2011 and 2013, when the Republicans also came with a prioritization plan, then-President Obama said the government makes millions of payments every day and there is no way to change the software to prioritize some payments and not make others. That would require redoing the government's software systems. That would first require writing a detailed specification, getting bids from vendors, analyzing them, picking a winner, and then getting the winner to write and test the software. The whole process would take years and the software would be full of bugs for years after that, especially if it had to beeen written overly fast to meet some deadline.
The problems with a prioritization plan are numerous. First, it would have to pass the House. No Democrat will vote for it so all it would take is five Republicans to vote "No" to kill it. Second, even if it passed the House, Senate Majority Leader Chuck Schumer (D-NY) would probably not even bring it to the floor. Third, if he did, it would be defeated even if every Republican senator voted for it. Fourth, if it magically passed the Senate, Joe Biden would veto it. It will never become law and the optics of even trying will lay bare either: (1) Republicans' true priorities or (2) Republicans inability to do simple arithmetic that any third grader can do. OK, with 13-digit numbers, maybe any fourth grader.
When push comes to shove in the late spring, what will the Democrats do? Biden might address the nation and explain the consequences of defaulting on the debt—a worldwide depression, a stock market crash, millions of jobs lost, etc. Then he will try to find five sane House Republicans to nip the plan in the bud. Where is Diogenes when you need him? If that fails and the Republicans simply will not budge, Biden has two options left. The first one is to order the U.S. Mint to produce some number of trillion-dollar platinum coins. It's sneaky, but it is absolutely legal. If the coins are deposited in the Fed's bank account and stored in Fort Knox but not spent, this stunt won't cause inflation because inflation happens when too much money is chasing too few goods and services. That wouldn't be the case here. This is just a stupid accounting trick.
The second one is for Biden to cite the Fourteenth Amendment and say that the debt-limit law is unconstitutional, so he will just ignore it and order the treasury to keep issuing debt. Section 4 starts out as follows:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
What does that actually mean? (Note to John Roberts: If you are reading this, please drop us a line and explain it to us.) If Biden claimed the debt-limit law was unconstitutional, the Supreme Court would have to make the call—eventually. The Court would no doubt prefer not to make the call, so it would almost certainly insist on the case first being heard in a district court, then in an appeals court. It could take years to get to the Supreme Court, by which time it might have been solved some other way. In the unlikely event that it went this route and the Court took the case immediately and issued a ruling immediately, one of two things would happen. If the Court ruled that the law was constitutional, the government would probably abide by it and the world economy would crash. Guess who would get the blame? Hint: Not Biden. If the Court ruled that the Constitution says that debts incurred by Congress must be paid, then the problem would be solved for all time. Note that "pensions" are specifically mentioned in the Amendment. The Supreme Court could easily rule that includes Social Security (which did not exist in 1868 but is a kind of pension).
In short, we can't see how this stunt would be a winner for House Republicans once the voters understand what they are doing and its consequences. (V)