Treasury Secretary Timothy Geithner’s warning that refusing to increase the debt ceiling would plunge the nation into fiscal catastrophe is unfounded, at least according to some congressional Republicans.
In a Jan. 6 letter to Senate Majority Leader Harry Reid, the Treasury secretary warned failing to increase the national debt ceiling would “precipitate a default by the United States” and potentially “lead to the loss of millions of American jobs.”
Geithner claimed not raising the limit would have a “catastrophic” economic impact that would last for decades, and it could lead to the immediate cessation of the payments for military salaries and social security benefits, among other consequences.
He warns this looming default could happen as soon as March if Congress does not act.
But some Republicans, such as freshman South Carolina Rep. Mick Mulvaney and freshman Pennsylvania Sen. Pat Toomey, argue default would not necessarily occur if the GOP holds the line on increasing the debt ceiling.
Mulvaney calls Geithner’s rhetoric partisan and inaccurate because the federal government’s obligations will continue to be paid even if Congress votes against raising the debt ceiling.
In Dec. 2001, then-Treasury Secretary Paul O’Neill wrote a similar letter to Congress warning the government would be out of money, and it took another seven months before Congress hammered out a deal to raise the limit.
According to Mulvaney, this Bush-era scenario proves Geithner is trying to create a “fabricated crisis” to avoid discussion of the issues.
“The reason you are hearing there will be an automatic default is that Treasury does not as a checkbook function have the ability to prioritize,” Mulvaney said. “What they are saying is, ‘Whenever a check comes in we’ll pay it until we don’t have any money left.’
“Let’s give them the ability to prioritize and prioritize for them and say, ‘Let’s pay the debt first.’ And if you do that, you can put off this default for many, many months, and this spectre of an immediately impending default goes away.”
Toomey has introduced legislation in the Senate that would do just that.
According to Toomey’s Jan. 19 Wall Street Journal opinion piece, the U.S. Treasury has more than enough money to service its debt without raising the debt ceiling because 6.5 percent of all projected revenues will be available to cover the debt. A further 67 percent of all projected revenues are available to cover all other government expenditures.
“With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?” Toomey asked.
Federal tax receipts are at their highest around the mid-March time period when Geithner believes the federal government faces default unless the debt ceiling is increased, which Mulvaney said calls into question the timing of the Treasury secretary’s requested debt-ceiling hike.
Mulvaney and Toomey contend the GOP’s stated refusal to increase the debt limit is tied to the need for a debate over spending cuts.
“The intent of having a debt ceiling in the first place is that it should prompt this sort of a debate,” Mulvaney said. “This is not an unusual thing for the government to bump up against the debt ceiling and for it to say, ‘How do we get our spending under control?’”
Mulvaney argues that the United States could find itself in the same fiscal shape as Greece, Portugal and Ireland. Crippling debt due to overspending has placed each of these nations in need of a bailout from the E.U.
“None of those countries have defaulted on their debt yet, and those countries are in the condition they are in because their spending is out of control,” Mulvaney said. “They say we are wrecking the full faith and credit of the United States government by not raising the debt ceiling. Well, I say they are doing that already with their spending practices.”
According to Toomey, matters will become worse as entitlement spending becomes the dominant driver behind the national debt.
Brookings Institution Senior Fellow Ron Haskins disputes their contentions.
“This is the first time I have ever heard about this,” Haskins said. “With the way the debt has been increasing in recent years at about $1 trillion per year … there is no way to manipulate our way out of this.
“There is no way we are going to cut $1 trillion from the budget.”
The nation needs to borrow money when taxes do not cover all of its fiscal obligations, and he believes that raising the debt limit is the only way to meet America’s financial obligations.
“Defaulting on the debt isn’t any different than paying a bank from the kitchen table,” Haskins said. “If you can’t pay your bills, you default.”