I read this in Forbes, it a moot point now...

Posted: Oct 16, 2013

Don't Believe The Debt Ceiling Hype: The Federal Government Can Survive Without An Increase Are you sure T-bills are considered a super-safe asset? Have you checked our credit rating lately? Ignore what you hear and read in the news. The federal government actually reached the legal debt ceiling about four months ago. Since then, the government has been financing its monthly budget deficit by stealing/borrowing money from other government funds, like the federal government employees’ pension fund. In about two weeks, the government will run out of tricks to keep operating as if nothing has happened. If the debt ceiling is not raised by then, the government has to balance its budget. That’s right. As much as the politicians and news media have tried to convince you that the world will end without a debt ceiling increase, it is simply not true. The federal debt ceiling sets a legal limit for how much money the federal government can borrow. In other words, it places an upper limit on the national debt. It is like the credit limit on the Reaching the debt ceiling does not mean that the government will default on the outstanding government debt. In fact, the U.S. Constitution forbids defaulting on the debt (14th Amendment, Section 4), so the government is not allowed to default even if it wanted to. In reality, if the debt ceiling is not raised in the next two weeks, the government will actually have to prioritize its expenses and keep its monthly, weekly, and daily spending under the revenue the government collects. In simple terms, the government would have to spend an amount less than or equal to what it earns. Just like ordinary Americans have to do in their everyday lives. Once the reality of what hitting the debt ceiling means is understood, the important question is: can the government actually live with a balanced budget? How much money could it spend? Could enough spending be cut to live within a balanced budget? The answer is yes, the federal government could live with a balanced budget. Below I will show you precisely how. The federal government estimates it will collect almost $3 trillion in revenue for the fiscal year that runs from October 1, 2013 until September 30, 2014. Below I demonstrate one possible way the federal government could institute some priorities and spend only the amount it receives in revenue. (All the numbers I use to construct the balanced budget below can be found here.) To begin with, the interest on the national debt must be paid. I will budget $240 billion for that. The White House is guessing a little lower, but interest rates have been rising, so I will play it safe. Next, social security payments should run about $860 billion. Place that as the second priority and we already have spent $1.1 trillion of the $3 trillion we have. Holding Medicare spending to about its fiscal year 2013 total and making some small cuts to Medicaid and other health spending would keep health care spending by the government to $860 billion. This does not include additional spending for the Affordable Care Act, but we need to prioritize and I am making it a lower priority than the health spending we have already been incurring. Also, there is no need for extra spending for the Affordable Care Act before January 1 since the coverage does not start until then. So as long as the debt ceiling is raised before then, there is no problem. Veteran’s benefits will cost another $140 billion if we leave it unchanged. Department of Justice programs and general government functions add another $83 billion if their spending levels are held roughly constant. We can save some money by cutting science funding to $10 billion and international affairs spending to $13 billion which is enough to operate the State Department and embassies, but not pay foreign aid. This takes total spending to $2.2 trillion. Cutting spending on conservation programs in half and paying only for agricultural research programs (no more farm subsidies) would cost $25 billion. Some moderate cuts to transportation spending bring it to $90 billion. Slicing education spending in half would reduce it to about $40 billion. The total for annual spending is now $2.36 trillion. Retirement programs for federal employees add $137 billion to our spending. Cutting welfare programs back to basically food security programs (food stamps, WIC, the school lunch program) and housing assistance programs will leave federal welfare spending at $150 billion. Total spending has risen to $2.65 trillion. That leaves only about $300 billion for defense spending. However, employee contributions to the retirement plan and some miscellaneous offsets that the government does not count as part of the $3 trillion in revenue expected next fiscal year bring in $90 billion per year. That means we can spend about $400 billion on defense and still have a balanced budget. This would reduce military spending back to 2003 levels, before we were fighting wars in the Middle East. Not a small cut, but probably feasible. Most people will probably complain about one or more of the cuts proposed here. That is to be expected. If you didn’t notice, NASA and the Departments of Commerce and Energy were completely eliminated. Deep cuts were made to some other departments (Education, EPA, Agriculture, and HUD). Welfare spending was reduced. However, the point was not to propose a budget that people loved, but to show that a balanced budget was not completely beyond reason. After all, the above spending paid all interest on the debt, left social security, veterans benefits, justice and law enforcement agencies, federal employee pensions, food stamps, and general government functions untouched, continued Medicare and Medicaid with some small cuts, and still spent non-trivial sums of money on education, transportation, and defense programs.;