The Deal and the Debt

by Demian Brady / /

According to the latest estimate, the Treasury will have less than $30 billion in cash on hand no later than November 3rd. Which means that it will have run out of options to avoid the statutory debt ceiling. Since earlier this year, the bean counters at Treasury have used all sorts of accounting tricks and gimmicks to shuffle funds around in order to pay for the government's deficit spending.

So the ceiling will be raised, there has been no doubt about that. The question was whether the deal to increase it by additional $900 billion or so would be accompanied by any sort of spending reforms.

It looks like it will be, but the offsets would used to make room for additional spending, not to pay down the immediate deficit. The increase in the debt ceiling is tied to a two-year budget deal that would increase spending by $50 billion in 2016 and $30 billion in 2017. From the New York Times:

Those increases would be offset by cuts in spending on Medicare and Social Security disability benefits, as well as savings or revenue from an array of other programs, including selling oil from the nation’s strategic petroleum reserves. The Medicare savings would come from cuts in payments to doctors and other health care providers.

CNN has some additional information on other offsets as well some early reactions from Members of Congress.

This appears to be akin to the Murray-Ryan deal, with budget reforms that are expected to produce savings over the long run in exchange for an immediate boost in spending. This is type of budgeting is why deficits will persist

And it should be noted that, while increasing the debt ceiling fulfills the Treasury's plea to protect the full faith and credit of the federal government over the short-term, doing so without significant reforms to address the chronic deficits merely punts the problem to the next generation by adding to the debt burden. CBO projects that the debt subject to the statutory limit will rise to $27 trillion by 2025, and as the debt grows, so will interest payments on the debt. 



Without real reform, net interest payments are on track to rise from around $220 billion to $755 billion in 10 years. Debt payments comprise 6 percent of all spending now, but will more than double to 13 percent in 2025. CBO cites two main causal factors: an expected eventual rise in interest rates, and, to reiterate, the continuing expansion of the federal debt.