Jan. 22, 2013, Fairfax, VA—Americans for Limited Government President Bill Wilson today called a “good faith effort” a proposal by Sen. Pat Toomey (R-PA) and more than 30 Senate Republicans to avert default even if the $16.394 trillion debt ceiling is not increased.
The “Ensuring the Full Faith and Credit of the United States and Protecting America’s Soldiers and Seniors Act,” would prioritize payments on interest, Social Security, Medicare, defense, and veterans should the debt ceiling be reached.
“This is a good faith effort by Sen. Toomey that at least would take the threat of default off the table,” Wilson said, calling it a “necessary precursor to real reform.”
He added, “It would stop the fear mongering aimed at seniors who are being scared that their Social Security and Medicare benefits are in jeopardy if the debt ceiling is not raised. It would stop making our brave soldiers on the front lines human shields for the big spending brigades in Washington, D.C.”
“It’s impossible for lawmakers to have an honest discussion with the White House about future spending priorities when there’s still a loaded gun on the table,” Wilson noted. “Default, if it comes to that, will be a choice by Obama, because there’s actually enough revenue to pay interest on the debt.”
Out of the $2.8 trillion of annual revenue the White House expects in 2013, only about $360 billion, or $30 billion monthly, will go to paying gross interest on the debt.
In addition, there would also be enough revenue to pay out Social Security ($820 billion), Medicare ($564 billion), defense ($700 billion), and veterans’ benefits ($79.5 billion), with as much as $600 billion left over to pay for other essential items.
But even if there were a temporary cash shortfall at the Treasury in lieu of revenue coming in, the legislation “would also give limited authority to Treasury to raise the debt ceiling just enough to borrow the difference between revenue on hand and what’s owed on the priority payments,” according to CNNMoney.com.
Wilson called Sen. Toomey’s proposal “an important building block to a more comprehensive solution, which must also include spending cuts,” noting that the U.S. is currently at risk for another credit downgrade of its AAA rating, this time by crediting ratings agency Fitch.
“Credit rating agencies are looking for major deficit reduction in the midterm. If they are honest to their clients, seeking to provide credible investment advice, which I believe they are, if the U.S. cannot significantly reduce the deficit then we should be downgraded,” Wilson explained.
In its statement, Fitch wrote, “In the absence of an agreed and credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances, the current negative outlook on the ‘AAA’ rating is likely to be resolved with a downgrade later this year even if another debt ceiling crisis is averted.”
Fitch added that even under a payment prioritization plan, such as Toomey’s, it would “prompt a downgrade even as debt obligations continued to be met.”
“That is because a payment prioritization plan on its own does not include a spending-reduction package,” Wilson said. “If the best we can do is pay interest on the debt, and we provide no means of reducing our principal owed, our credit-worthiness will continue to deteriorate.”
Americans for Limited Government has previously advocated for a statutory, ten-year path to a balanced budget without any tax increases in exchange for any debt ceiling increase, coupled with a proposal similar to Toomey’s, which Wilson said together could avert a downgrade if enacted.
He concluded, “The fact is, we’ll be downgraded with or without a payment prioritization plan if there are not sufficient spending cuts. Those cuts become that much more difficult necessary so long as Obama can wield the threat of default against lawmakers. That makes passage of Sen. Toomey’s proposal a first, essential component to real reform.”
Attachments:
Memo for the Movement, “Congress must pass a 10-year pathway to balance to raise debt limit,” Jan. 17, 2013 at http://netrightdaily.com/2013/01/memo-for-the-movement-congress-must-pass-a-10-year-pathway-to-balance-to-raise-debt-limit/
“Obama’s default threat bluff,” by ALG President Bill Wilson, Jan.15, 2013 at http://netrightdaily.com/2013/01/obamas-default-threat-bluff/
“Why the debt ceiling is the only way,” by ALG Senior Editor Robert Romano, Jan. 17, 2013 at http://netrightdaily.com/2013/01/why-the-debt-ceiling-is-the-only-way/
Interview Availability: Please contact Robert Romano at (703) 383-0880 ext. 106 or at robert@getliberty.org to arrange an interview with ALG President Bill Wilson.
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