There’s a common claim made by leaders and politicians trying to reassure a restless public that nothing really horrendous could happen from a breach of the U.S. debt ceiling.
It typically goes something like this: Our government takes in far too much money each month to fail to pay our creditors.
Even if we don’t raise our debt ceiling (the permission to borrow more to pay our expenses), the U.S. won’t default because we can always “prioritize” our debt payments.
Kentucky Senator Rand Paul was the latest high-profile member of Congress to promulgate this line of thinking.
On NBC’s Meet the Press, host Savannah Guthrie questioned Paul about whether Republicans would allow the country to fall into default.
“I think it’s irresponsible of the president and his men to even talk about default,” Paul responded.
“There’s no reason for us to default. We bring in $250 billion in taxes every month, and our interest payment is $20 billion. Tell me why we would ever default? We have legislation called the ‘Full Faith and Credit Act,’ and it tells the president you must pay the interest on the debt. So this is a game.”
Let’s address these statements one by one.
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The notion that the ‘Full Faith and Credit Act’ directs the president to prioritize the debt is missing one crucial component: It’s not law.
The Full Faith and Credit Act was passed by the House of Representatives in May, but it never even made it to the Senate floor for a vote. The legislation was sent to committee, where it currently resides.
Thus, there is no law on the books directing the president or Congress to prioritize U.S. debt payments.
Even if there were, however, would such a strategy even work?
We interviewed David Gamage, an assistant professor of law at Berkeley Law School, who worked for the U.S. Treasury’s Office of Tax Policy from 2010 to 2012.
“Right now, Treasury’s computer systems are designed to pay bills in the order they come in,” Gamage said. “There is no programming in order to prioritize payments. That’s largely because it’s illegal to prioritize payments.”
To take it a step further, even if Treasury tried to manipulate its computer systems, Gamage said there could still be disastrous consequences.
“It’s not clear the systems could be reprogrammed in time to prioritize debt payments without glitches,” he explained. “And a glitch here means a default, a default on government debts.”
What about Paul’s other claim that the U.S. hauls in $250 billion a month in revenue and only needs to spend $20 billion on interest payments?
According to the Congressional Budget Office, the U.S. has interest payments of $6 billion and $30 billion due in the next month, putting Paul’s estimate of $20 billion in the right ballpark.
As for how much the government takes in on a monthly basis, that’s a little less clear. The CBO outlines the potential for several hundred billion dollars of cash flow a month, but as Gamage points out, that number can fluctuate and be quite “lumpy,” depending on the time of year.
He says the underlying point, however, is still the same.
“There’s no question that it’s the case that tax revenues exceed obligations for making payments on the debt [per month],” Gamage said. “It’s just a question of whether we’re going to fund anything else that the government does- defense, Social Security, Medicare. If we just want to fund interest payments on the debt, we can.”
But even here the Treasury would run into trouble, as there isn’t a set hierarchy for which government services would be paid, and in what order, after the debt has been addressed.
“There’s *absolutely no authority* for the notion that the administration could then pick and choose amongst the variety of other payments the federal government makes,” Gamage said. “And on top of that, the systems aren’t set up for that.”
Senator Paul’s statement is not only inaccurate with respect to the law, but logistically problematic as well.
