News Will a failure to raise the US debt ceiling force a default?

[mheslep]

As it happens the legislative branches of the US government have long established a periodic legal limit on the Treasury's ability to raise revenue by issuing debt. I'm told such a limit is somewhat unusual as nations go, but there we are. This year the US Treasury predicts that the current legal ceiling could be reached as early as March 31, forcing a vote on the matter soon. Recently, Secretary of the Treasury Geithner http://www.treasury.gov/connect/blog/Pages/letter.aspx" to impress upon that body his opinion of the consequences of a failure to raise the debt limit yet again. The letter was no doubt prompted by the greater than usual clamoring from Senators and Congress persons who have voiced serious reservations about raising the debt limit this time, especially from Tea Party connected freshmen[1]; their reservations in turn prompted by the debt increase over the last decade, and now dramatic increase debt and spending in the last two years. The fact that formerly Senator Obama voted in 2006 against raising the debt limit (then $9 trillion, now asking for $14.3 trillion) and losing only 48-52, gives today's Senators more political maneuvering room.[2][3]

Any number of threads could be opened on the various consequences of this issue, many already have been. I'd like to confine this one to a particular one of Geithner's predictions that the Treasury would be forced to default on legal obligations of the United States . After a quick look at the budget numbers it is not clear to me that this must be so:

Revenue: $2.2T
Spending: $3.5T
Deficit: $1.3T​

That is, federal government takes in less than $200B per month via taxes. However, the interest on the debt is less than http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2007.png" per month. So while the Treasury and the US Government would have to immediately find some ~$100B/month in cuts given a freeze in the debt ceiling, the Treasury need only default on debt if it chooses to do so: continue to eat out and blow off the last notice from the creditor, or stay in and eat mac and cheese.

[1] Senator Rand Paul (Ky) today. http://thehill.com/blogs/blog-brief...-ceiling-vote-tied-to-ironclad-rule-on-budget

"I can't imagine voting to raise the debt ceiling unless we're going to change our ways in Washington," Paul said during an appearance on Fox News Sunday. "I am proposing that we link to raising the debt ceiling -- that we link a balanced budget rule, an ironclad rule that they can't evade."

Paul said attaching "token spending cuts" to the debt ceiling measure wouldn't be enough to win his vote.

[2] http://blogs.abcnews.com/politicalpunch/2011/01/senator-obamas-vote-against-raising-the-debt-ceiling-and-the-assassination-of-salman-taseer-todays-q.html
[3] From Senator Obama's floor 2006 speech. http://rpc.senate.gov/public/_files/alternativestothedebtlimitincreasev20.pdf

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

 

[WhoWee]

I think the Republican should negotiate a short term extension of 2 to 3 months. The initial agreement could structure an outline of spending cuts and monitoring by the CBO. At each 60 - 90 day renewal meeting, progress can be verified and additional cuts enacted. It's the only way to force responsible behavior and get everyone onto the same page.

 

[mheslep]

I think the Republican should negotiate a short term extension of 2 to 3 months. The initial agreement could structure an outline of spending cuts and monitoring by the CBO. At each 60 - 90 day renewal meeting, progress can be verified and additional cuts enacted. It's the only way to force responsible behavior and get everyone onto the same page.

Before we get into what might be done, I'd like to establish what will happen regards existing debt payments, i.e. everybody's T-Bills, should nothing be done.

 

[WhoWee]

Before we get into what might be done, I'd like to establish what will happen regards existing debt payments, i.e. everybody's T-Bills, should nothing be done.

Maybe they can start handing out shares of GM and land titles - lot's of Government owned real estate - but mineral rights might be a little tricky.

I'm glad you posted about Obama's record on this issue. It's time to force him to the table and get serious - ask him who should not be paid?

To directly answer your question, my guess is those are annualized numbers? Increased (not sure this year will be ?) January - April collections MIGHT buy them a few weeks time? As far as I know, cuts or default would be the ONLY options. Accruals, renegotiation of the timing of payment, printing money, holding back tax refunds and EITC payments, and any other clever cash management tricks would still realize an increase in debt.

 

[Vanadium 50]

Fundamentally, the problem is that Congress has passed mutually contradictory laws. Taxes are this much, spending is that much, and the debt ceiling is a third number: and it doesn't add up.

Traditionally, the solution is for it to go to the courts. There are two possibilities I consider likely. One is that the courts decide that the last bill passed supersedes the previous ones, which effectively removes the debt ceiling. The other is to order the executive branch to follow some court-mandated budget.

 

[Al68]

Of course failure to raise the debt ceiling doesn't automatically cause default. It causes government to choose between honoring its debt and spending on other things.

Personally, I think it's disgusting to talk about this as if it were a mere formality, and there is no option but to raise the debt ceiling. It's not like limiting government spending to the obscenely high amount it takes in is not an option.

 

[Vanadium 50]

It's not like limiting government spending to the obscenely high amount it takes in is not an option.

Yes, but that was an option considered and rejected by the 111th Congress. And now that they have rejected it, a very good question is "What will happen".

 

[mheslep]

Refusal to raise the debt ceiling would cut spending but it would be a disastrous way to do so, a complete (long term) failure of the legislative branch. This would not be same as as the controlled government shutdown in the 1990's, where some parks closed and some government employees remained home. Without some kind of minimal legal fiat as to what to spend on, anything can happen: no military paychecks, no FBI paychecks, no Social Security paychecks, and yes the Treasury might choose to default on debt payments. All that could happen, absent Congress legally choosing some percentage, and where, to cut.

Still I'm not so sure we can waive away Sec. Geithner's assertion that a default would be forced, perhaps we're missing something.

 

[WhoWee]

Refusal to raise the debt ceiling would cut spending but it would be a disastrous way to do so, a complete (long term) failure of the legislative branch. This would not be same as as the controlled government shutdown in the 1990's, where some parks closed and some government employees remained home. Without some kind of minimal legal fiat as to what to spend on, anything can happen: no military paychecks, no FBI paychecks, no Social Security paychecks, and yes the Treasury might choose to default on debt payments. All that could happen, absent Congress legally choosing some percentage, and where, to cut.

Still I'm not so sure we can waive away Sec. Geithner's assertion that a default would be forced, perhaps we're missing something.

Has anyone found a legally mandated priority of payments list?

 

[Al68]

Refusal to raise the debt ceiling would cut spending but it would be a disastrous way to do so, a complete (long term) failure of the legislative branch. This would not be same as as the controlled government shutdown in the 1990's, where some parks closed and some government employees remained home. Without some kind of minimal legal fiat as to what to spend on, anything can happen: no military paychecks, no FBI paychecks, no Social Security paychecks, and yes the Treasury might choose to default on debt payments. All that could happen, absent Congress legally choosing some percentage, and where, to cut.

That's a good point, failure to raise the debt ceiling would force spending cuts, but the President would have complete power over the details, since congress has effectively authorized all the individual spending items, and the debt ceiling only applies to the total.

And he could choose to spend revenues on other things, if he decides they are more important than honoring legal debts of the U.S.

 

[mheslep]

Has anyone found a legally mandated priority of payments list?

There you go, if such a thing already existed it could force debt defaults.

 

[WhoWee]

There you go, if such a thing already existed it could force debt defaults.

I would assume national defense spending would be the primary category protected - followed by (low risk) secured Government obligations.

 

[mheslep]

Essay http://online.wsj.com/article/SB100...089963912388314.html?mod=WSJ_Opinion_LEADTop"by Senator Pat Toomey. Doing the math shows that a debt default is not inevitable from a debt ceiling cap.

In fact, if Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt. Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?

But theoretically with no legal direction as to where to spend revenue a default is possible, therefore:

To make absolutely sure, I intend to introduce legislation that would require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised. This would not only ensure the continued confidence of investors at home and abroad, but would enable us to have an honest debate about the consequences of our eventual decision about the debt ceiling.

Just as discussed up thread. Clearly the Senator reads PF.

 

[WhoWee]

Just as discussed up thread. Clearly the Senator reads PF.

well done

 

[talk2glenn]

Has anyone found a legally mandated priority of payments list?

By definition, the entitlements are legally required (mandatory) expenditures, and would have to be paid first. Interest payments and discretionary spending follows.

The problem is, entitlement spending makes up the lions share of government outlays. You could say that virtually the entire Federal Government (its employees, agencies, departments, etc), including defense and law enforcements, are paid for by borrowing, with all of its tax revenues going to pay for the mandatory programs (handouts and entitlements).

So, if the Treasury couldn't borrow, you'd effectively have to shut the Federal government down - there wouldn't be enough money left over to fund discretionary programs after the entitlements and interest was paid for.

This is the problem Republicans face. There are short-term mechanisms to avert a crisis. You could avoid a government shutdown by funding its operations today, and deferring mandatory payments until the absolute deadline (sort of like putting off paying a credit card until the due date), but this doesn't change the calculus, it only makes the game of chicken last longer.

 

[mheslep]

From everything I've read regarding the term mandatory in reference to budgetary spending, it refers only to political priorities and the long length of time surrounding the entitlements. But of course everything the congress appropriates and the President signs becomes a matter of law. That is, paying an FBI agent or buying a Destroyer is every bit as legally required as is mailing out a social security check. The question then is does Congress have any specific priority list in place should funding, taxes or borrowed, be inadequate? The answer seems to be no, given Senator Toomey's explanation for his pending legislation doing exactly that for debt interest payments.

 

[CAC1001]

I think the Republicans will raise the debt ceiling at the end. Some commentators have suggested what WhoWee said, that the Republicans ask for sizeable, but reasonable, spending cuts, and if only small cuts are offered, only raise the debt ceiling for a few months, so then we have the discussion all over again. If reasonable cuts are given, extend it out longer.

 

[Al68]

By definition, the entitlements are legally required (mandatory) expenditures, and would have to be paid first. Interest payments and discretionary spending follows.

Entitlements are only "required" in the sense that they have been appropriated by congress, and failure to pay entitlements isn't a default on any legal contract.

Entitlements are not legal debts of government.

Interest payments are contractually owed, obligations of government as an entity, not just an internal agreement within government (like entitlements).

 

[Al68]

I think the Republicans will raise the debt ceiling at the end. Some commentators have suggested what WhoWee said, that the Republicans ask for sizeable, but reasonable, spending cuts, and if only small cuts are offered, only raise the debt ceiling for a few months, so then we have the discussion all over again. If reasonable cuts are given, extend it out longer.

The problem there is that one person's "reasonable" is another person's "draconian". Even increases in spending in excess of inflation have been referred to as "draconian cuts", because the increases were not large enough for some.

That's exactly why Republicans should fix this completely in the next two years. Meaning reducing spending to below the grotesque amount of revenues received as a decent start.

Democrats are at a huge disadvantage: Nothing they might say could possibly be any worse than what they will say regardless. That's the price they pay for their habit of extreme hyperbole.

No matter what they do, Republicans will have to try to get re-elected in 2012 with Democrats bashing them. They have nothing to lose by doing the right thing.

 

[talk2glenn]

Entitlements are only "required" in the sense that they have been appropriated by congress, and failure to pay entitlements isn't a default on any legal contract.

Entitlements are not legal debts of government.

Interest payments are contractually owed, obligations of government as an entity, not just an internal agreement within government (like entitlements).

This is not accurate.

Mandatory spending is so called because it is required by law. No matter what, the government must spend this money, unless the law is changed.

There is no such requirement for interest payments, and discretionary spending may be changed at will and spent at the discretion of the government.

The budgetary process is far more flexible than the legislative process, and the courts can't intervene absent a legal requirement.

 

[PhilKravitz]

back to the OP
if the debt limit is not raised then the government would have to, over the course of a year, spend something like $1.1T less. What would it cut? The only three big items are military, health care, social security.

 

[WhoWee]

back to the OP
if the debt limit is not raised then the government would have to, over the course of a year, spend something like $1.1T less. What would it cut? The only three big items are military, health care, social security.

There are other items to cut.
http://www.govexec.com/pay/

 

[PhilKravitz]

There are other items to cut.
http://www.govexec.com/pay/

From
http://www.census.gov/govs/apes/historical_data_2008.html
2008 is the most recent year the government is able to report on
There are 2.8 million employees at a rate of 186 billion dollars per year.
If we cut their pay by 25% we would only save 46.5 billion per year. Yes a start but not within an order of magnitude of the needed 1.1T.

 

[WhoWee]

From
http://www.census.gov/govs/apes/historical_data_2008.html
2008 is the most recent year the government is able to report on
There are 2.8 million employees at a rate of 186 billion dollars per year.
If we cut their pay by 25% we would only save 46.5 billion per year. Yes a start but not within an order of magnitude of the needed 1.1T.

How many Government employees are projected by 2015?

 

[mheslep]

back to the OP
if the debt limit is not raised then the government would have to, over the course of a year, spend something like $1.1T less. What would it cut? The only three big items are military, health care, social security.

Restore federal government spending, across the board, to FY 2007-2008 levels. Several of the states, at least the sanes ones, already have done similarly.

 

[PhilKravitz]

Restore federal government spending, across the board, to FY 2007-2008 levels. That will more than do it. Several of the states, at least the sanes ones, already have done similarly.

What was the federal budget in 2007? It is now 3.0T (2010).

 

[mheslep]

What was the federal budget in 2007? It is now 3.0T (2010).

2007: $2.7 trillion. 2010 spending is $3.7 trillion.

Data tables at the bottom:
http://www.usgovernmentspending.com...tack=1&size=m&title=&state=US&color=c&local=s

 

[PhilKravitz]

2007: $2.7 trillion. 2010 spending is $3.7 trillion.

Data tables at the bottom:
http://www.usgovernmentspending.com...tack=1&size=m&title=&state=US&color=c&local=s

I see what you mean. How the **** did that happen?

 

[WhoWee]

I see what you mean. How the **** did that happen?

That's what happens when legislators decide not to read the Bills before they vote. Congress seems to operate in a world where everybody gets the spending for projects they want. It's easy - they just need to agree to what someone else wants.

 

[Mech_Engineer]

It's also easy because there is no expectation of a balanced budget from the federal gov't. We've been operating under a deficit for so long no one believes it's possible to operate under a balanced budget. Now that we're hitting our self-imposed "credit limit" of $14T (an unimaginable number IMO) they just want to raise it rather than ask what got us here and how can we avoid getting deeper in debt...

It seems to me that no one has a real plan for doing anything with our current debt except increasing it. We can't just let debt pile up forever, we have to pay it back eventually...

 

[PhilKravitz]

We can't just let debt pile up forever, we have to pay it back eventually...

When you owe the bank $100 the bank owns you. When you owe the bank $10000000000000 you own the bank.

I do not expect the Federal government ever to pay off the debt in an honest way. They may create hyper-inflation and then pay off the worthless dollars.

 

[WhoWee]

It's also easy because there is no expectation of a balanced budget from the federal gov't. We've been operating under a deficit for so long no one believes it's possible to operate under a balanced budget. Now that we're hitting our self-imposed "credit limit" of $14T (an unimaginable number IMO) they just want to raise it rather than ask what got us here and how can we avoid getting deeper in debt...

It seems to me that no one has a real plan for doing anything with our current debt except increasing it. We can't just let debt pile up forever, we have to pay it back eventually...

I've posted similar thoughts in other threads. I'm in favor of this Congress doing nothing else but hone in on waste. I don't know any other way - except to dig into the details - instead of rounding to the nearest $1 Trillion.

I want to hold President Obama to his own standard.
http://www.nationalreview.com/corner/256199/obama-not-always-fan-upping-debt-ceiling-katrina-trinko

"Here are Obama’s thoughts on the debt limit in 2006, when he voted against increasing the ceiling:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

In 2007 and in 2008, when the Senate voted to increase the limit by $850 billion and $800 billion respectively, Obama did not bother to vote. (He did vote for TARP, which increased the debt limit by $700 billion.)"

 

[WhoWee]

When you owe the bank $100 the bank owns you. When you owe the bank $10000000000000 you own the bank.

I do not expect the Federal government ever to pay off the debt in an honest way. They may create hyper-inflation and then pay off the worthless dollars.

On the other hand, we could always pay off in nukes.

 

[mheslep]

The Republican first cut at spending reduction came out today. There are serious big number cuts here. Not enough, but its a start.
http://rsc.jordan.house.gov/UploadedFiles/Spending_Reduction_Act--TWOPAGER.pdf

The Spending Reduction Act of 2011 reduces federal spending by $2.5 trillion over ten years. The bill will specifically hold FY 2011 non-security discretionary spending to FY 08 levels, hold non-defense discretionary spending to FY 06 levels thereafter for the rest of the ten-year budget window...

Some specifics. I agree with all of them.

• “Stimulus” Repeal: Eliminate all remaining “stimulus” funding. $45 billion total savings.
• Eliminate federal control of Fannie Mae and Freddie Mac. $30 billion total savings.
• Repeal the Medicaid FMAP increase in the “State Bailout” (Senate amendments to S. 1586). $16.1 billion total savings.
• Amtrak Subsidies. $1.565 billion annual savings
• Corporation for Public Broadcasting Subsidy. $445 million annual savings. (Good riddance)
• Legal Services Corporation. $420 million annual savings.

My objections include the fact that they mostly left defense untouched. They do included defense in the 15% cut via attrition of all federal workers but aside from that nothing specific. One could argue that Obama/Gates have already proposed some hundred billion in defense cuts, but they should have signed on as cosponsors to those Obama/Gates cuts.

 

[mheslep]

Here Ryan's rules committee went ahead and voted to cut spending back to 2008 at least. The Democrats opposed, every one of them. That's just politically stupid at this point. Sign on at least for big picture and work later to save what you want. Both Republicans and Democrats come into this Congress with little fiscal responsibility credibility. But if the R's go ahead and cut spending as planned, the "kick me I'm stupid" t-shirt will hang solely on the D's.

The House Rules Committee on Wednesday approved by a party-line vote of 8-4 a resolution calling on House Budget Committee Chairman Paul Ryan (R-Wis.) to limit non-security discretionary spending in the second half of 2011 to 2008 levels “or less.”

http://thehill.com/homenews/house/138975-republicans-to-hold-spending-vote

 

[Vanadium 50]

I just made a very interesting plot - it's Federal revenues and expenditures (on-budget), vs. time, scaled by population and inflation. There are several periods.

From 1900-WW1, both are flat at about $160 (2009 dollars) per person. At WW1, there's a slight bump in revenues and a bigger jump in expenditures, and it settles down to slight surplus at twice the pre-WW1 spending. During the New Deal, spending doubles and revenues go up by perhaps 35 or 40%.

WW2 is a huge bump in revenue ($4000 per person) and an even larger one in expenditures $8000). After that, things return briefly to the $2000 range, and then increase linearly to $5000 by 1975.

In 1975, revenues and spending take two different paths. Spending grows to about $8000 by 1985 or so, and holds steady for 15 years. It then grows linearly to about $11,000 by last year. Revenues take a more chaotic path, basically tracking the stock market - the booms and busts are clearly visible.

The lesson I take from this is that it's an unintended consequence of having most of the income taxes paid by the wealthiest Americans. They get a relatively large fraction of their income from stocks, either through dividends or capital gains. When the market performs well, the government gets more money. The downside of this is when the market crashes and the government wants to spend more, that's precisely when they are broke(est).

 

[talk2glenn]

The Republican first cut at spending reduction came out today. There are serious big number cuts here. Not enough, but its a start.
http://rsc.jordan.house.gov/UploadedFiles/Spending_Reduction_Act--TWOPAGER.pdf

What's amusing is that it doesn't go nearly far enough, and still doesn't have a snowballs chance in hell of passing the Senate.

The Republicans probably intend to condition lifting the debt ceiling on acceptance of these terms. Curious to see if that's enough to get it through.

My objections include the fact that they mostly left defense untouched.

Defense is a pittance and frankly doesn't need to be cut; it exists as an issue only for the left to attack Republican fiscal bona fides. The Democrats largess over the past 4 years was focused almost in whole on non-defense discretionary, and this is where most of the cuts should come from.

I agree with Gates that the size of the armed forces needs to be scaled back as we wind down our ongoing commitments in Iraq and Afghanistan, but programs should be protected. It's purely a function of prestige: the threat of the American military is sufficient to keep the world stable. A rising China threatens that stability. Cutting defense spending now would aggravate the problem.

What they really need to address are the entitlements. No Democrat that I can name at this point, will back this. Heck, even when Republicans held every chamber, they couldn't get Social Security reform out the gates, let alone to a vote, and only 2 Democrats voted to repeal an unpopular entitlement in the House (healthcare reform). Definitely will take another election cycle, at the least, before we see real progress, and when it happens it will probably cost the Republicans quite a bit politically.

 

[mheslep]

What's amusing is that it doesn't go nearly far enough, and still doesn't have a snowballs chance in hell of passing the Senate.

Maybe not. Many Senate Democrats are up for election in '12, and even now the Senate only needs four Democratic votes. As we were all educated in the health care debate, only 51 votes are needed for 'reconciliation' of budget matters.

Defense is a pittance and frankly doesn't need to be cut;

$782B (2009), more than the rest of the entire world combined, seven times China, and the largest item in the budget is a pittance?

it exists as an issue only for the left to attack Republican fiscal bona fides. The Democrats largess over the past 4 years was focused almost in whole on non-defense discretionary, and this is where most of the cuts should come from.

Er, partially agree. The increase in civilian salaries and numbers also applied to the Defense Department. Also, Democratic congress persons suddenly become defense hawks when it comes to keeping defense programs in their districts. The Boeing tanker program is a good example. Washington state's senators Cantwell and Murray would vote to invade Vancouver if they thought they it would guarantee some more Boeing military sales.

I agree with Gates that the size of the armed forces needs to be scaled back as we wind down our ongoing commitments in Iraq and Afghanistan, but programs should be protected. It's purely a function of prestige: the threat of the American military is sufficient to keep the world stable. A rising China threatens that stability. Cutting defense spending now would aggravate the problem.

I don't care to pay the federal government for prestige. Let the Europeans pay for some. One lesson from 911 is that spending a lot money on defense doesn't guarantee security. For that matter spending a lot of money on anything doesn't guarantee it's success. See public education.

What they really need to address are the entitlements.

Agreed

 

[WhoWee]

$782B (2009), more than the rest of the entire world combined, seven times China, and the largest item in the budget is a pittance?

Er, partially agree. The increase in civilian salaries and numbers also applied to the Defense Department. Also, Democratic congress persons suddenly become defense hawks when it comes to keeping defense programs in their districts. The Boeing tanker program is a good example. Washington state's senators Cantwell and Murray would vote to invade Vancouver if they thought they it would guarantee some more Boeing military sales.

There are savings to be had in defense and every other "sacred cow".

 

[mheslep]

The lesson I take from this is that it's an unintended consequence of having most of the income taxes paid by the wealthiest Americans. They get a relatively large fraction of their income from stocks, either through dividends or capital gains. When the market performs well, the government gets more money. The downside of this is when the market crashes and the government wants to spend more, that's precisely when they are broke(est).

Sounds right.

 

[Al68]

This is not accurate.

Mandatory spending is so called because it is required by law. No matter what, the government must spend this money, unless the law is changed.

There is no such requirement for interest payments...

You say my post is not accurate, yet say nothing that explains how so. And you even say "unless the law is changed", which means "not mandatory" by a reasonable definition.

The obligation to pay interest on the debt can't be avoided with a change in law, because they are not owed simply because some law says so. That's a reasonable definition of mandatory.

Using the word "mandatory" to refer to entitlements but not debt obligations is absurd.

 

[mheslep]

What they really need to address are the entitlements.

Agreed

Here's an opportunity. The current ACA health care law has large Medicare cuts that just went into effect - means testing premiums, cuts to hospitals, and the like. The Republicans should include the same ones, at a minimum, in their separate cuts package. Ex:

Freeze the threshold for income-related Medicare Part B premiums for 2011 through 2019, and reduce the Medicare Part D premium subsidy for those with incomes above $85,000/individual and $170,000/couple. (Effective January 1, 2011)

http://www.kff.org/healthreform/upload/8061.pdf

I don't know the savings figures for these actions, but anything that touches Medicare is worth billions. Political cost should be low too.

 

[WhoWee]

How will freezing the threshold for income-related Medicare Part B premiums for people above $85,000 help with the deficit? The percentage of people paying extra premiums MIGHT be fewer than the number of people receiving Part B subsidies. I'll try to find some stats.

 

[mheslep]

How will freezing the threshold for income-related Medicare Part B premiums for people above $85,000 help with the deficit? The percentage of people paying extra premiums MIGHT be fewer than the number of people receiving Part B subsidies. I'll try to find some stats.

I'm focused on this phrase: "reduce the Medicare Part D premium subsidy". That is cut in spending, though I don't know how much.

 

[WhoWee]

I'm focused on this phrase: "reduce the Medicare Part D premium subsidy". That is cut in spending, though I don't know how much.

I'll try to find a breakdown. The last I looked, the average cost of an MAPD was $849.50 per month - about $10,000 per year. My guess is the PDP component is $50 to $100 per month of the total.

 

[Vanadium 50]

Here's an opportunity. The current ACA health care law has large Medicare cuts that just went into effect - means testing premiums, cuts to hospitals, and the like. The Republicans should include the same ones, at a minimum, in their separate cuts package.

If only it were so easy.

According to the http://articles.chicagotribune.com/...icare-formula-medicare-and-medicaid-services", Medicare pays $56 for a basic office visit that may last up to 15 minutes. Blue Cross pays $65 for the same visit, Cigna pays $75 and the sticker price is $95 for uninsured patients.

Without the "doc fix", that $56 becomes 23% smaller, or $43. The cost-cutting plan essentially says that the government will only pay less than half-price. A predictable consequence of this is that some doctors will stop taking Medicare/Medicaid patients. If the only negotiation allowed is "take it or leave it", some doctors will choose "leave it".

Or have the choice forced upon them. http://www.cms.gov/ActuarialStudies/Downloads/S_PPACA_2010-01-08.pdf", "roughly 20 percent of Part A providers would become unprofitable within the 10-year projection period".

Congress needs to understand that if they pay less, they will get less.

 

[talk2glenn]

You say my post is not accurate, yet say nothing that explains how so. And you even say "unless the law is changed", which means "not mandatory" by a reasonable definition.

I won't address this sillyness further, except to say that in the real world (outside of an undergraduate philosophy classroom) there are rules, and those rules must be followed. Amongst those rules is that the United States Government must obey the law. It is not reasonable for you or it to say, "well, the law might change, therefore its not mandatory".

Would you argue that paying taxes and not murdering your neighbor are not "mandatory" behaviors because, gosh, the law might change? Of course not. It is no more reasonable in this case.

Mandatory expenses, by definition, refer to expenses which are required by law and not discretionary. This is not something I made up - it is accepted prose in every discussion about differentiable categories of government spending by reasonable people. Further, the original question was what categories of expenses would have to come first, under the law. The answer is mandatory programs, like entitlements, with the leftover funds going to discretionary programs, like interest payments (whether you agree with this order or not is irrelevant to the point).

$782B (2009), more than the rest of the entire world combined, seven times China, and the largest item in the budget is a pittance?

Keep in mind that the DOD regards China's actual defense expenditures to be about double the published figures, and that China (unlike the United States) has relatively tiny operational and maintenance costs. A large chunk of American payments go to personnel costs, followed by procurement and maintenance costs on existing equipment. The leftover goes to development and procurement of new weapons systems, and isn't all that much. From Wikipedia:

Components Funding Change, 2009 to 2010
Operations and maintenance $283.3 billion +4.2%
Military Personnel $154.2 billion +5.0%
Procurement $140.1 billion −1.8%
Research, Development, Testing & Evaluation $79.1 billion +1.3%
Military Construction $23.9 billion +19.0%
Family Housing $3.1 billion −20.2%
Total Spending $685.1 billion +3.0%

Put that into perspective vis a vis China's true budgetary outlays of approximately $160B, a significantly larger chunk of which goes to developing and procuring new weapons systems relative to the United States, and you're suddenly looking at a better relative picture. Again according to the DOD, China is spending about 50% of its budget on procurement, and 15% on R&D - much higher ratios than in the United States.

Cut some of those operational and personnel costs, I agree, but these are much harder to go after politically than, say, a new fighter plane. We are in real danger of losing our generational lead on the Chinese. We may outnumber them in number of units and quality of operators, but as a matter of international prestige, the damage is in Chinese technical parity regardless of practical parity. The loss in clout to the Chinese will damage our ability to get what we want on the international stage (Iran, N. Korea, and Taiwan, for starters); this is the nature of real politik.

I don't know the savings figures for these actions, but anything that touches Medicare is worth billions. Political cost should be low too.

http://crfb.org/blogs/updated-health-care-charts

See there for the numbers. Specifically, the new Medicare taxes are projected to raise $54B in revenue, while the cuts to Medicare are projected to save $544B. The trouble is, outside the new payroll tax and the cuts to Medicare Advantage (which is an example of a program within Medicare we should be putting greater emphasis on, not cutting), they are all hypothetical and promised cost reductions based on promises of Congressional and bureaucratic action that may or may not arise but are independent of the Affordable Care Act. The doc fix, which Vanadium talks about, is a great example of this.

The point being, the Act itself doesn't cut much of anything. Congress just instructed CBO to consider separate government cutting action when scoring the budgetary impacts of ACA. Repeal the Act, and implement the cuts anyway (where reasonable and prudent), and we've got the savings minus the cost of this massive new entitlement.

 

[Al68]

I won't address this sillyness further, except to say that in the real world (outside of an undergraduate philosophy classroom) there are rules, and those rules must be followed. Amongst those rules is that the United States Government must obey the law.

You're aware that the situation we're specifically referring to is one in which paying entitlements would violate, not uphold, the (debt ceiling) law? The law as a whole requires that entitlements be paid only up to the debt ceiling limit.

Paying the interest first only results in reducing the amount that can be legally spent on entitlements without violating the debt ceiling law. Paying the interest first doesn't itself violate any law. In fact, paying interest on the debt when due without assurance of the future ability to pay entitlements (because of debt limit) is routine.

 

[Vanadium 50]

Amongst those rules is that the United States Government must obey the law.

Yes, but Congress makes the law.

The legal theory is that a new law that is inconsistent with an old law supersedes it.

 

[mheslep]

If only it were so easy.

According to the http://articles.chicagotribune.com/...icare-formula-medicare-and-medicaid-services", Medicare pays $56 for a basic office visit that may last up to 15 minutes. Blue Cross pays $65 for the same visit, Cigna pays $75 and the sticker price is $95 for uninsured patients.

Without the "doc fix", that $56 becomes 23% smaller, or $43. The cost-cutting plan essentially says that the government will only pay less than half-price. A predictable consequence of this is that some doctors will stop taking Medicare/Medicaid patients. If the only negotiation allowed is "take it or leave it", some doctors will choose "leave it".

Or have the choice forced upon them. http://www.cms.gov/ActuarialStudies/Downloads/S_PPACA_2010-01-08.pdf", "roughly 20 percent of Part A providers would become unprofitable within the 10-year projection period".

Congress needs to understand that if they pay less, they will get less.

The means test I referred to is not the doc fix; they're two different things and possible sources of cuts. Now that the ACA has already said that it will at some point do means testing, the Republicans have the political cover to go ahead and do it on their own.