Without an increase in the debt ceiling, could Washington avoid default simply by cutting spending? That's what two leading Republicans, Rep. Michele Bachmann and Sen. Jim DeMint, urged over the weekend. What they didn't say is that this would require instant cuts of at least 34 percent in everything but interest payments. And the cuts would be far deeper if Congress exempted popular programs for the elderly, or for defense.
Minnesota Rep. Bachmann, appearing on CBS' "Face the Nation," denied that failing to raise the debt limit would cause the U.S. to default (meaning not pay its lenders):
Bachmann: Well, first of all it isn't true that the government would default on its debt because very simply the Treasury secretary can pay the interest on the debt first and then from there we have to just prioritize our spending.
And on CNN's "State of the Union," South Carolina Sen. DeMint agreed that it would be "catastrophic" if the U.S. defaulted, but he also said avoiding default would not require an increase in borrowing authority:
DeMint: Well, I do care if it defaults, but the fact is, Candy, we won't. If we never raise the debt ceiling again, we're going to pay our bills; we're going to pay Social Security.
CNN's Candy Crowly: Why does everybody say differently? Why does the Treasury secretary say this is going to be catastrophic? Why do economists say it will shape the market? Why don't you believe that?
DeMint: Well, default will do it. But we won't default. We'll be going back to budget levels of about eight years ago. I mean, we're not talking about draconian types of situations.
Bachmann didn't say exactly what spending she would cut, and DeMint didn't say how deep a cut he would consider "draconian." But public spending figures and some simple arithmetic show that they both are talking about very deep cuts that would have to be made instantly. The Treasury Department has said it will run out of legal borrowing authority around Aug. 2, so those cuts could not be phased in or spread over months or years.
How deep would they need to be? To be charitable, we used figures for next fiscal year, which doesn't begin until Oct. 1. The current fiscal year will be nearly over by Aug. 2, when Treasury says it will no longer be able to borrow. This year the government is borrowing about 39 cents of every dollar it spends, but next year that would decline to about 31 cents of every dollar, according to the most recent projection by the nonpartisan Congressional Budget Office (see Table 1-2).
But the cuts would have to be deeper than 31 percent, if interest payments are exempted, as Bachmann and DeMint proposed. CBO projects that interest payments will total $260 billion next year. Paying that first would mean everything else would need to be cut by 34 percent to bring spending in line with revenues and eliminate borrowing.
In theory, anything is possible, even Congress and the president agreeing to cut Social Security benefits and Medicare payments by more than a third, along with everything else that government does. But if those two popular programs for the elderly were exempted from cuts (and DeMint's remark suggests that he would exempt Social Security, at least), then everything else would have to be cut by a lot more. That's because Social Security and Medicare now consume more than one-third of all government spending, and will amount to 36 percent of non-interest spending next year. Eliminating the need to borrow without touching Social Security or Medicare outlays would require cutting everything else — the active military, military pensions, veterans benefits, judges, prosecutors, highway construction, food stamps, Medicaid services for low- and middle-income workers and all the rest of it — by 53 percent. Some things could be cut by less, but then others would have to be cut by more.
The path urged by Bachmann and DeMint has little support among budget experts and economists. "The notion of paying interest first is dumb," said Rudolph Penner, a Republican former CBO director who is now with the liberal-leaning Urban Institute. "Substantively, the revenues left over would not be sufficient to honor all our obligations and we would have to choose between paying beneficiaries of Social Security, Medicare and other entitlement programs, devastating discretionary spending for defense, highways, public safety and other vital programs, or not paying bills for goods and services already delivered to the government."
That's one expert opinion. We'll leave it to readers to judge for themselves whether it's desirable or even politically possible to do what Bachmann and DeMint suggest. Just keep in mind that the cuts would most likely have to be deeper than we've suggested here, at least to start. Deficits are currently running higher than projected for next year.