Roll Call: Default Could Blunt GOP Deficit Goals

Fiscal Responsibility

Republicans concerned about reducing the deficit should take note of this article in Roll Call today that explains how failure to pay our nation’s bills would actually increase the deficit and “push the economy back into recession.” Though Republicans claim that deficit reduction is one of their top priorities and argue that it is critical to boosting the economy and creating jobs, they are bringing a bill to the Floor this week that increases the risk of the U.S. defaulting, therefore increasing the risk of adding to the deficit.

Democrats continue to advocate for a big compromise to reduce the deficit and ensure we pay America’s bills. We hope Republicans won’t walk away from this opportunity and work with us to pay our nation’s bills so that we can give businesses and the markets certainty they need and ensure we do not increase the deficit by defaulting.

Key Excerpts:

“Republicans have made reducing the deficit their cause célèbre, but a failure to boost the debt ceiling could make the GOP’s policy goals that much harder to accomplish.”

“Without a debt limit increase by the Treasury’s Aug. 2 deadline, budget experts say the country’s budget woes could actually get worse by raising borrowing costs.”

“‘Paradoxically, not raising the debt limit could make the deficit worse,’ said Jerome Powell, a former Treasury official in the George H.W. Bush administration and now a visiting scholar at the Bipartisan Policy Center.”

“Republicans, in particular, could suffer in two ways: They could lose their leverage to force spending cuts that might reduce the deficit, and they are likely to take the political hit for the higher interest rates that would follow an unwillingness or inability to raise the debt ceiling.”

“The results of failing to raise the debt limit would be almost immediate. In August, the Treasury Department is scheduled to borrow $500 billion and pay off $500 billion in expiring debts.”

“‘We have to sell $500 billion of new debt in August to pay off old debt,’ Powell said. ‘In the ordinary course of events, that’s not a problem. But in the middle of all the chaos and bad press that the United States is unable to pay its obligations during that environment, investors are probably going to require higher rates.’”

“Powell, who spoke to House Republicans on Friday, said that if no deal is reached by the time the Treasury needs to pay interest and principal on its outstanding debt, the government would struggle to pay for much else — a spectacle that is ‘completely unprecedented’ and could spook investors.”

“‘So we service the debt and then we don’t service 50 percent of our remaining obligations, [such as education, social safety net and other programs] and that 50 percent is what the public sees,’ Powell said. ‘This gigantic cut in government spending is going to be a major negative shock to the economy, and it could push the economy back into recession.’”

“That economic shock also would likely add to the deficit with lower tax revenue coming in and higher costs to the government, such as increased unemployment insurance expenses due to higher unemployment resulting from a bad econ