(OSV News) – "Blessed are the young," said Herbert Hoover, 31st president of the United States, "for they shall inherit the national debt." Hoover's witty mangling of Matthew 5:5 still gets a laugh today, just as it surely did when he made the wisecrack in 1936.
With an "in principle" debt ceiling agreement reached on May 27 after a late evening telephone conference between President Joe Biden and House Speaker Kevin McCarthy, R-Calif., the mood on Capitol Hill may have lifted just enough to laugh at Hoover's jest.
Details are still forthcoming and must be formalized into legislation for a Congressional vote – however, the prospect of a national default on the debts the nation has already incurred is potentially averted for the moment.
U.S. Treasury Secretary Janet Yellen had warned of an early June deadline for the federal government to either raise the debt ceiling or default on its obligations.
Early reports of the agreement indicate the debt ceiling will be extended to 2025 until after the 2024 elections. Domestic spending will be capped, but not at the level Republicans had wanted. Defense, Social Security, Medicare, and veterans' programs will be spared any cuts. Some people receiving government assistance would now face new work requirements, including how long childless individuals under age 54 could receive food stamps; however, food stamp access would be expanded for the homeless and veterans.
To understand the implications of the debt limit debate – and its related budget decisions – OSV News spoke with economists, agencies and educators.
As The Washington Post reported late May 25, "the deal taking shape would allow Republicans to say that they were reducing some federal spending – even as spending on the military and veterans' programs would continue to grow – and allow Democrats to say they had spared most domestic programs from significant cuts."
On May 17, three Catholic organizations – the U.S. Conference of Catholic Bishops (USCCB), Catholic Charities USA (CCUSA) and Catholic Relief Services (CRS) – sent a letter to Congress concerning the debt limit. While acknowledging "the difficult challenges that the Congress, Administration, and government at all levels face to get our financial house in order," the signers declared the choices to be made "are economic, political, and moral."
"A just framework for future budgets cannot rely on disproportionate cuts in essential services to poor and other vulnerable persons," the letter states. "It requires shared sacrifice by all, including raising adequate revenues, eliminating unnecessary spending, and addressing the long-term costs of health insurance and retirement programs fairly."
The current national debt is $31.4 trillion, while U.S. gross domestic product (GDP) – the value of the final goods and services America produces – was $25.46 trillion in 2022.
The U.S. Treasury Department website explains, "the national debt is the amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time." When government spending exceeds revenue (taxes), a budget deficit results, which is covered by selling marketable securities such as Treasury bonds. The Treasury website also notes that "as the federal government experiences reoccurring deficits, which is common, the national debt grows."
The Treasury Department describes the debt ceiling as "a restriction imposed by Congress on the amount of outstanding national debt that the federal government can have." The Treasury borrows both to pay bills and invest, and the debt ceiling has been raised more than 70 times since 1960 – 49 times under Republican presidents and 29 times under Democratic presidents.
If the proposed legislation doesn't pass a congressional vote and the U.S. defaults on its debt by June 1, the 27 million Americans who rely on Social Security for most of their income – retirees older than 88, the disabled and seniors eligible for Supplemental Security Income (SSI) – will be among the first economic casualties, since their payments are sent at the beginning of each month.
And while in the new agreement, programs such as rental aid and nutritional assistance for mothers were spared cuts by redirecting funds from other areas, these programs will apparently not receive increased funding – at a time when pandemic assistance is expiring, and the economy is viewed as difficult at best.
"Why is it people who are in poverty are asked to be impacted by disproportionate cuts to their programs? Why is it they are asked to make these sacrifices, when they are the ones least able to do so?" asked Anthony Granado, CCUSA's vice president of government relations, in an interview with OSV News prior to the agreement being reached. "Are there no other places in the federal budget we can look at?"
Granado emphasized that "we're still coming out of a pandemic, and we still have historic high inflation. So working families, poor families, families in poverty are still struggling. Now is not the time to cut programs that help these people."
Historically, CCUSA has, in part acted as "attorneys for the poor," Granado said.
"As the church teaches us, we have to advocate for a preferential option for people who are in poverty. That is what the Lord calls us to do … that is what the Gospel compels us to do," stressed Granado. "So that is our message to the White House. That is our message to Congress. Don't forget poor and vulnerable people. Don't make them bear the brunt of cuts."
In March, an AP-NORC Center for Public Affairs Research poll asked U.S. adults their opinion of government spending. Overall, 60% responded that the government spends too much. But when queried about specifics, 65% said too little was spent on education; 63% believed not enough was spent on health care; and 62% replied Social Security did not get enough funding, while 58% thought the same about Medicare.
A government debt default would undoubtedly impact the Catholic Church, said Matt Manion, faculty director at Villanova University's Center for Church Management. "It would put a significant strain on the church's ability to fulfill her mission," he explained, "because there would be fewer resources coming in, and much greater demand" for social services such as food, clothing and shelter.
The church doesn't have "an official magisterial position on something as specific as the debt ceiling," said Joseph Kaboski, professor of economics at the University of Notre Dame and president of the Catholic Research Economists Discussion Organization (CREDO). "The closest thing to a Catholic position is last week's letter to Congress," Kaboski observed, referencing the May 17 USCCB, CRS and CCUSA letter.
Those successfully managing a household budget may wonder why the federal government can't do the same. "The federal government is like a very rich person," Kaboski suggested, "much richer than any individual. It has the ability to pay back its debt, so people are willing to lend to the U.S. government at favorable rates. Because of that, the U.S. is able to borrow much more than any individual or any other country. That's why you can get debt six times government revenue and more than GDP."
The struggle on Capitol Hill reflects "increased signs of polarization and brinkmanship in society," Kaboski said, noting that while he maintains neutrality, "it appears to be a global trend. Pope Francis wrote (the encyclical) ‘Fratelli Tutti' in part to remind us that we are all brothers, called toward communion and friendship with others – which involves working together even if we disagree."
Sung Won Sohn, a professor of finance and economics at Loyola Marymount University in Los Angeles, and a former Wells Fargo executive vice president and senior economist on the White House Council of Economic Advisors, noted in an interview with OSV News before Biden and McCarthy reached an agreement, that the last federal debt crisis, in 2011, did not result in default.
"If we compare the situation back then and today, number one, we have a lot more government debt outstanding, in dollars and cents -- trillions of dollars more. So that's one problem," Sohn explained. "The other problem is that Washington is so polarized, so divided. Essentially, they have to shout at each other to be heard, they are so far apart." Even with an agreement, Sohn believes "a crisis like this is more likely to come again. So it could be an ongoing saga."
Among the many potential impacts, Sohn foresees are increased borrowing costs -- interest rates -- for the U.S. government, an outcome that can impact everyday consumers as well. "So all of us will end up paying more," Sohn observed.
While the pandemic has been declared over, Sohn said "The Congressional Budget Office estimates that we will be adding to our national debt at the rate of $1.3 to $1.5 trillion dollars per year – and that has become a new normal. So the magnitude that we are talking about is astronomical. And it's going to get larger and larger."
Sohn likens failure to reach an agreement to "throwing sand into the financial engine of the U.S. economy" – an intentionally destructive act that has far-reaching financial consequences.
"Washington is most productive when they are in crisis mode," Sohn reflected. "We might be able to get through this time. But what about the next time?"
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