Week 2 of federal shutdown: debate widens to include debt ceiling, one-sided deficit reduction

It’s week two of the federal government shutdown, and the consequences for people who use services such as Head Start and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) have come into clearer view. (See last week’s post on the shutdown and our Facebook and Twitter feeds for more information on the shutdown.)

The shutdown is hitting many services that have already lost funding as a result of the Budget Control Act of 2011, which cut $1.0 trillion in federal discretionary spending over 10 years; and the sequester, which cuts another $1.2 trillion in discretionary spending, including defense, and a limited number of entitlements.

The focus in Washington has shifted from ending the shutdown to include raising the debt ceiling. Failing to take timely action on the debt ceiling would do substantially more harm in people’s lives and to the economy, on top of the consequences of the shutdown.

Current estimates are that Congress will need to raise the debt ceiling before October 17, or the U.S. will default. Raising the debt ceiling is largely a technical issue that allows the federal government to pay for spending it has already approved. It’s just the last step in paying the nation’s bills – like putting the stamp on the envelope and dropping your mortgage payment into the mailbox.

Failing to raise the debt ceiling is an extremely serious matter. The U.S. Treasury Department warns,

A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse.

 

Federal policymakers must be careful not to slam on the brakes of our economic recovery. The nation’s fragile economic recovery is not creating enough good jobs, and too many Americans are struggling to find work that supports their families. The sequester and other deficit-reduction measures are already creating a drag on the economy – by some estimates, they have slowed economic growth by 1 percent or more. Even the act of waiting until the last minute to raise the debt ceiling can be a big drag on the economy due to the uncertainty it creates.

This debate is not about funding the federal government in the short term. President Obama and the Senate have agreed with the House position that a short-term continuing resolution to keep the government running would maintain 2013 funding levels, which have already been cut by the Budget Control Act and the sequester.

There is not agreement on appropriations for the rest of the 2014 federal fiscal year or when budget negotiations will occur. The Senate and President Obama have argued for passing a “clean” continuing resolution and raising the debt ceiling, with no additional policy provisions attached. The House has sought to add other policy items to these debates. Last week, the House’s continuing resolutions included provisions to defund or delay key parts of the Affordable Care Act.

House leadership has argued for a broader discussion to end the shutdown and raise the debt ceiling, and yesterday called for a working group to reduce the deficit through cuts to services only. In other words, the working group would look at cuts to services including Social Security, Medicaid, and basic food assistance through SNAP, but not at any deficit reduction through closing tax loopholes or otherwise raising revenues.

Continuing the government shutdown, going to the brink of default, and taking a one-sided approach to deficit reduction will not get the economy back on track. Federal policymakers should end the shutdown and raise the debt ceiling, then work to pass a budget that meets four crucial priorities:

  • Strengthening the economic recovery;
  • Avoiding increasing poverty and hardship;
  • Investing in the building blocks of economic growth including infrastructure, education, research and expanded economic opportunity;
  • Taking a balanced approach that includes budget cuts and revenue increases.

If you want to express your support for that approach, the Coalition on Human Needs has a call to action to end the shutdown.

-Nan Madden

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One Response to Week 2 of federal shutdown: debate widens to include debt ceiling, one-sided deficit reduction

  1. Pingback: October Economic Update shows revenues on track, but unsettling news for economy | Minnesota Budget Bites

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