Understanding Debt Crisis by Brit Hume, June 27, 2011.

As President Obama enters the negotiations over extending the government borrowing authority — that is, the debt ceiling — there are some things that need to be understood.

The first is that there is almost no chance the 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 withholding, which will be more than enough to cover the debt payments. So the only way 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 will then get to decide which programs are funded and which are not, and will surely blame Republicans for any fallout. Democrats will also continue to accuse Republicans of wanting to lower taxes for rich people and more breaks for big oil companies.

In fact, Republicans are proposing no such thing. They want to leave the tax code alone. Democrats do not. They want to raise taxes in exchange for spending cuts as part of the debt limit deal. They won’t say that, of course. They will say we need increased revenues. But everybody agrees on that. It’s just that Republicans think increased revenues should come naturally from a growing economy. Democrats would like that, but they want to raise taxes too.

Brett: So as we get closer to this August second deadline, who has the advantage as you get closer to it?

Brit: Well, it’s not entirely clear but I do think when it gets closer to it that the Democrats and the White House has 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 poultry inspections, which would effectively shut down that industry because you have to have inspected meat to sell, that that would be the moment when he would cave and vote to increase the debt limit.

That’s the kind of scenario that could play out. The Republicans would obviously need to inoculate themselves against that somehow if they can.

The Barefoot Accountant

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About Connecticut Politics

William Brighenti is a Certified Public Accountant and Certified QuickBooks ProAdvisor, who operates a public accounting firm, Accountants CPA Hartford, Connecticut, LLC. Bill began his career in public accounting over thirty years ago. He provides a variety of accounting, tax, and QuickBooks consulting services to individuals and business across a wide spectrum of industries. Bill writes an accounting, tax, and QuickBooks blog under the penname, "The Barefoot Accountant". William Brighenti created the blog, Connecticut Politics, because of the need for a voice to cry out loud--Vox Clamantis--explaining the reasons for the terrible state of the economy in the United States as well as urging change and reform before the United States becomes a third world country.
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