Media coverage of the current debt ceiling debate in Washington is not entirely false, but it is often not entirely accurate, either. While lamentations such as “Social Security payments won’t go out!” may have a shred of technical truth to them, all that wailing and gnashing of teeth is probably a waste of time.
The truth is not nearly as cut-and-dry as some would have us think. Whether the sort-of-correct factual allegations are the result of political scaremongering, poor journalism, or a combination of the two probably varies from outlet to outlet.
Take, for example, the current trope that the debt-ceiling is all about “paying our bills,” or that it concerns “money we’ve already spent.”
That’s only “sort of” accurate.
Knowing how the government spends money would shed some light on the subject. First things first: the federal government has “paid” for everything it has already spent. It always does. As bills have come in to the Treasury over the past years, weeks and months, the Treasury has “paid” those bills.
“Paid,” however, doesn’t necessarily mean paid with money from taxes. After all, tax revenues only cover about 70% of what we spend. So, some of the things the government pays for every year are paid for with borrowed money.
In this respect, it is very similar to paying for something with a credit card. Yes, you “paid” for that tank of gas with your card, but you still owe money to the credit card company.
This is where what I mentioned above, about “sort of” accurate, comes in. In fact, government borrowing is not quite like your credit card use, chiefly because the federal government never, ever pays off that credit card debt. That’s right — we haven’t paid off a single dime of the national debt since 2001, and we haven’t paid off the whole balance since 1835.
This is generally how it works:
- The federal government borrows money and uses it to pay for things;
- That money is borrowed for a period of time (the average right now is about 5 years);
- When each debt comes due, we pay the interest and we borrow new money to repay the old debt.
If you were doing this with your credit card, you would be paying only the interest out of pocket, but then paying off the principal on that first card by borrowing money on another, new credit card. In other words, we simply refinance the debt every time it comes due.
Raising the debt ceiling is the government equivalent of getting a new credit card with a higher spending limit, so that we can pay off the old credit card and then buy more stuff moving forward.
This is what the Democrats and many in the media don’t want people to grasp: if the debt ceiling were increased tomorrow, almost none of the money that the government could then spend has anything to do with prior spending. For the most part, this is not about paying bills we have already incurred.
The exception, of course, is the interest on the national debt, which must be paid. Failure to pay that would be correctly called a default. The failure to pay other bills — say, the payroll at the Department of Education — might not be a good thing, but it would not be a default. Many politicians know this, and so in an attempt to massage the truth, they misleadingly refer to such potential non-payment as a default “on our obligations” as opposed to a default “on our debt.”
So ask yourself this: If you open a new credit card to pay off what you owe on an old credit card, are you really “paying” for that old spending, or are you avoiding repayment?
And if that new credit card has an even higher spending limit than your old one, so that you have even more freedom to spend money going forward that you don’t ever intend to repay, does your behavior have anything to do with meeting your obligations and paying for you bought yesterday?
Yes, a very small part of the debt ceiling discussion concerns money we spent yesterday. But the much bigger piece deals with money the government wants to spend tomorrow.
That’s why limitations on future spending have become part of the debt ceiling conversation.
Mick Mulvaney, a former congressman from South Carolina, is a contributor to NewsNation. He served as director of the Office of Management and Budget, director of the Consumer Financial Protection Bureau and acting White House chief of staff under President Donald Trump.