On Tuesday July 5th, NBC Nightly News did a segment on the debate over the debt ceiling. Brian Williams said that if the debt ceiling isn’t raised, “in less than a month the United States will not be able to pay its debts.”
The best explanation of why this isn’t true was stated by Brit Hume on Fox News’ Special Report,
As President Obama enters the negotiations over extending the borrowing authority that is the debt ceiling there’s some things that need to be understood. The first is that there is almost no chance that government will default on its debt payments even if the debt ceiling is never raised. That’s because revenues will continue to flow into the treasury from income tax withholdings, which will be more than enough to cover the debt payments. So the only way that a default could occur would be if the treasury department inexplicably chose not to make the payments; but there will come a time when there won’t be enough money to fund all government departments and agencies, which would mean real disruptions. The administration would then get to decide which programs are funded and which are not.
Debt payments would almost certainly be the first bills to be paid because, just like a credit card, if you do not pay the interest on your debt, creditors will jack up the rate next time you need to borrow money. It is a possibility that this will happen simply due to creditors’ fear that the government may not pay the interest on its debt. But that is irrelevant to Williams’ claim that the government won’t be able to pay its debts.
The structure of the federal budget is very similar from year to year. So one could easily compare the effect that not raising the debt ceiling would have on government agencies this year based on its spending last year. Here is the breakdown of the federal budget for Fiscal Year 2011, which is the period from October 1st 2010 through September 31st 2011.
Billions Percent of Budget
Receipts (Tax Revenue) 2174 56.9%
Outlays (Spending) 3819 100%
Deficit 1645 43.1%
Interest on the debt 207 5.4%
Social Security 742 19.4%
Medicaid 276 7.2%
Medicare 488 12.8%
Other mandatory programs 716 18.7%
Non-Security discretionary spending 507 13.3%
Security discretionary spending 908 23.4%
These categories are explained very well by the Politifact article that lead me to these numbers.
Not raising the debt ceiling would mean that the government couldn’t spend any more than it collects in tax revenue. It would leave the government enough money to pay its debts, but not nearly enough to pay for all the services provided by government agencies. That means that the treasury department (which is part of the Obama Administration) would have to cut 43.1 percent of the budget, the proportion of federal government spending which is financed through borrowing.
Brit Hume also explained the practical effect of cutting even the small portion of budget represented by the Agriculture Department (which is part of Non-Security discretionary spending)
I do think that when it gets closer to it the democrats and the white house have a certain advantage in that they get to decide when the money runs short which agencies and departments get funded and which do not. And they will be able to pick and choose in such a way as to put maximum pressure on republican lawmakers on the hill. One senator I know of has told his leader that if for example the agriculture department were not able to fund the meat and paltry inspections which would effectively shut down that industry because you have to have inspected meat to sell that that would be the moment that he caved and voted to raise the debt limit.
Not raising the debt ceiling would be disastrous, not because America wouldn’t be able to pay its debts, but because it would require the suspension of large numbers of critical government services. So politicians who tell you they don’t support raising the debt ceiling are really advocating for a drastic restructuring of the federal government or they’re being dishonest.
But even if the debt ceiling is never raised, the government will be able to pay its debts and will likely do so. Therefore Brian Williams is wrong. It is a rare thing indeed to find a factual error in an NBC report, but today the peacock hangs its head in shame.
Originally posted July 6th, 2011
UPDATE (July 7, 2011): ABC and CBS News (both usually reliable sources) made the same mistake that NBC News did. The website for ABC World News with Diane Sawyer features a countdown clock titled, "Countdown to US Debt Default". CBS Evening news introduced a segment on the debt ceiling by saying, "With the D-day for default less than 4 weeks away...," implying that the US will be required to default on its debt if the debt ceiling isn't raised.
P.S. I would like to thank Fox News, The Young Turks, Politifact, and whitehouse.gov for assisting in this factcheck.