There are plenty of reasons Congress is playing a high-speed game of chicken with the debt-limit negotiations, but one of the main ones is that the two parties can’t agree on what would happen if they crash. On one side, the Obama Administration, Capitol Hill Democrats, Wall Street whizzes and budget experts have been wearing out their thesauruses looking up new words for “catastrophe” as they try to explain to the public that failing to raise the $14.3 trillion federal debt limit by Aug. 2 would result in a radically different country on Aug. 3. On the other, a passel of House Republicans are essentially dismissing these claims as hysterical fear-mongering.
Take, for example, a July 13 press conference at which House Republicans Steve King, Louie Gohmert and Michele Bachmann touted a new bill known as the PROMISES Act, which is designed to ensure that if Congress leaves itself without the money to meet its debt obligations, the military personnel and interest on the national debt would be paid first. This is pretty standard fare for GOP lawmakers, who like to trumpet their support of the troops and have a stake in showing that a failure to raise the U.S.’s borrowing authority would not lead to an immediate default. What was striking was their insistence, in no uncertain terms, that Obama was basically lying to the public to increase his political leverage, and that GOP negotiators had fallen for the ruse. King called the issue “a contest of wills.” Gohmert quoted FDR — “the only thing we have to fear is fear itself” and urged Boehner “not to believe the President anymore.” Bachmann, who is running for President as the Tea Party foil to big government, uncorked a campaign stump speech, chiding Obama for holding America’s credit “hostage” and saying that “we cannot go on scaring the American people…We need to be truthful.”
The truth is that despite these breezy notions that the whole problem is some overblown justification for more government spending, failing to strike a deal would be an enormous, unprecedented disaster. But this is a reality that a chunk of House Republicans have yet to accept. “A solid majority of the conference does not believe that when the clock strikes midnight that everything is going to just blow up,” says a House GOP aide. “Their thought is that there is still a cushion for adjustments to be made.”
In interviews last week, several of these members said that while failing to hike the debt limit would have consequences, it would hardly produce the grim picture Democrats are painting — and might even be the bitter medicine that helps right-size a government that has ballooned beyond its means. “You just have to prioritize what you’re going to do,” says freshman Allen West of Florida. ” You look at the essential functions of this government. There are revenues to take care of our interest payments, take care of our seniors, take care of the military.” Fellow freshman Tim Scott of South Carolina acknowledges the likelihood of “very serious ramifications,” but points to the revenues that would continue to flow into federal coffers and says, “I don’t think it’s do-or-die for America.” Freshman class president Austin Scott of Georgia told the New York Times that “in the end, the sun is going to come up tomorrow.”
That’s not a very high bar. Nonpartisan budget experts have repeatedly stressed the calamity that awaits the U.S. on Aug. 3, as they struggle to convince a nation that’s largely skeptical or simply tuned out. It’s true that the U.S. would not immediately default, and that the government would have enough revenue coming in on that day–about $12 billion–to disburse to some critical programs. But it wouldn’t have nearly enough to cover the $32 billion or so in expenditures it’s scheduled to shell out in that 24-hour period. (Some $23 billion of that is earmarked for Social Security payments — meaning that contrary to Republican claims, Obama was correct to say that failure to raise the debt limit jeopardized those checks.) According to Washington’s Bipartisan Policy Center, from Aug. 3 until the end of the month, the U.S. will take in $172.4 billion in revenue, far short of its $306.7 billion in obligations. Despite issuing an array of dark warnings, the Treasury Department has said little about how it would deal with that ugly hypothetical, probably because it doesn’t want to spook financial markets. But from Congress’s perspective, it could handle a shortfall in two ways. One is to prioritize certain expenditures, as Republicans are urging — paying bills for the military and Social Security checks and interest on the debt first. Or it could distribute the pain evenly and subject the entire federal budget to an immediate 40% haircut.
House Republican leaders have sought to impress on rank-and-file members the severity this would entail. They invited former George H.W. Bush Treasury Department official Jay Powell to give a presentation at a conference meeting last Friday, which members left clutching a color printout replete with graphs. As Powell explained, even if the Treasury Department opted to prioritize payment of certain critical obligations, it would shortchange a slew of other critical government functions. The flow of money into the government’s coffers would be like a skimpy blanket; no matter how you stretch it, it would never be large enough to cover everything. Under one scenario Powell’s group played out, he said in an interview, “What you didn’t pay, which you weren’t able to pay, is a single dollar for defense, including active-duty military pay, including the whole Pentagon and all payments to creditors in the defense area,” Powell told NPR. “You couldn’t keep the Justice Department. We wouldn’t have $1 for the FBI, for the courts, for the prisons. So – and it goes on and on. The Education Department would be closed, and many, many other Cabinet departments. So however you move the chess pieces around here, you lose.”
For Republicans all too eager to sacrifice some of these pieces — the closure of the Department of Education has been a lengthy quest for a few members — this might not seem so bad. But the ensuing economic reverberations could tip a teetering economy back into a recession, if not worse. Last month, 235 economists, including six Nobel laureates, signed a letter urging Congress to raise the debt limit. Ratings agencies have warned that the U.S.’s credit hangs in the balance; a downgrade would cause Treasury bond interest rates to spike. Even a short-term default would cost jobs, cripple markets and freeze lending.
And what was House Republican Todd Rokita’s reaction to this frightening forecast? “I don’t know anything more piggish — I don’t know anything more un-American than saying, ‘Oh, I’m worried about my own little handout or my own little program or my own little economy and we’ll kick this can down the road and let some future generation deal with it,” Rokita, a freshman from Indiana, told ABC News. “It’s not what this country was built on. It’s not the attitude that we’re supposed to have. I’m not sure where we got it. So no, I’m not as worried about Moody’s or anyone else or even if this economy does get worse, when you compare it to what we’re doing to our kids or our kids’ kids.”
At first blush, House Republicans’ dismissal of overwhelming evidence from a bipartisan crop of experts seems staggering. But this is a party whose governing philosophy is predicated on the idea that government is perversely swollen, and that cutting off the circulation to some of its limbs can alleviate pressure without causing irreparable harm. Some Democrats believe that the Republican Party’s antipathy toward government, and their members’ perceived mandate to drastically shrink the budget, has clouded their ability to appraise the severity of the situation. And Democrats are clearly baffled by the challenge of persuading opponents who not only have a different set of priorities, but a different set of facts. “There’s a question about how much the facts matter to them,” says a Democratic official. “And I don’t know what to do about that.”