Monday, July 18, 2011

Would a debt default mainly punish seniors? No, it would "punish the country". Just do the math, look at the numbers

OK, here we go again, on whether seniors are really at risk if the debt ceiling is not extended by Aug. 2.

It sounds disloyal to even look at the question to some people, but let’s look at the numbers.  Also, look at the link I gave to a Washington Post default cheat sheet on my Thursday July 14 on my Major Issues Blog.

You can pay the following items: Interest on bonds (29.0). Social Security checks (49.2, the largest item), Medicare (28.6), federal salaries (14.2), unemployment benefits (12.8), IRS refunds (3.9), Military salaries (2.9), Veterans (2.9), Medicaid (21.4), and TANF (9.3).   That totals to 174.2 billion, with income of 172 billion. But Congress could simply restore the full FICA collection and raise a little more.  The most critical item you can’t pay is Defense Vendors (31.7).  That’s pretty serious. That’s like having a mechanic’s lean on the US.   That could jeopardize national security, homeland security, and maybe the power grid and Internet.  But you could pay vendors if you ditch Medicaid and TANF.

The biggest non-specific item in the Post cheat-sheet is “Other Spending”, over $52 billion. A lot of that may be contractor overruns or various questionable foreign aid. So the Tea Party Patriots could have a point. You can whack a lot out of the budget right now by ending contractor abuse and foreign problems.    You can raise tolls, user fees, and transit,  rail and air fares even more to pay for some transportation services (that’s not the same as raising taxes, but it might have an effect). But you can’t whack enough.

Still, seniors will be mostly concerned with Social Security (big), Medicare, and the value of their retirement nest eggs, particularly stocks and bond funds.  But it does look like the federal government could make all the interest payments and SSA-related payments.  It could up FICA tax and whack benefits slightly to the extent that they aren’t covered by a bene’s own FICA history.  The value of Social Security benefits is probably somewhat sheltered by the Trust Fund, even if the money was spent, because it was collected for beneficiaries’ use; seniors could probably take the government to court (through the AARP) and get a judge to back them up if they don’t get their Social Security checks.

But the problem is, you’re putting the rest of the country in danger.  There’s a shortfall in August of about $134 billion, and from looking at the Post, it looks like about half of this is really essential. True, a lot of it isn’t.  It doesn’t help seniors or retired or disabled people to gut national security and invite terror attacks, or gut public transportation.  (Or you have to have an economy that can support a sustainable transportation infrastructure just with private profits and fares.)

And it doesn’t help seniors to have the country’s credit rating gutted (it will be), and have investors panic, which would happen even if seniors and bond holders get every penny at first.

Ultimately, in a world of deep budget cuts, we’re headed for means testing and a lot of actuarial recalculations – but maybe not as quickly as the Democrats predict (or as I have warned in previous posts).   Is (as ultra-conservatives say) the president using seniors as a “shield” to defend himself from the Tea Party?  Well, a little, but really all Americans – including those who can lose their jobs and draw unemployment – are part of Pickett’s Charge, too.

Remember something else about the T.P. cuts:  the August deficit would refer to obligations that the government has already incurred. Cutting future spending is not the same thing as not paying your current debts.  If I cut out my own luxuries in the future, I still have to pay for what I have already bought on credit. 

I love Barney Frank’s phrase from TARP days: “why punish the country?” 

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