Why Federal Spending Cuts Come After Raising the Debt Ceiling

Democrats were worried about excessive Republican spending on a national highway system when they resisted raising the debt ceiling in 1953. Since then, the conditions for raising the debt ceiling have ranged from the size of the federal government to the Iraq War. Always though, whether the condition was met or not, the ceiling went up. Now Speaker Kevin McCarthy has said that Republicans want spending cuts before they will agree to a debt ceiling increase.

Spending cuts can be tough.

Federal Spending

The Federal Budget:

What We Spend

We could say that federal spending involves blueberries and watermelons. The blueberries, like foreign affairs, education, agriculture and justice are tiny. Much larger, the watermelons are Social Security, Medicare, Medicaid (Health), Income Security, and Defense:

Or, seen a bit differently, we have Mandatory and Discretionary spending. Below, the outer circle of expenditures is mandatory as is interest. Much smaller, the turquoise inner circle items are discretionary:

What Can We Cut?

Because law locks in mandatory spending like Social Security and Medicare, and they are political hot potatoes, politicians look elsewhere. But elsewhere takes them to defense and then discretionary spending, a much smaller slice of the budget pie.

As a result, meaningful spending cuts are gargantuan when they exclude Social Security, Medicare. and defense, 85 percent of all other spending needs to be cut if we sidestep the watermelons:

You can see the discretionary spending items we would have to select:

Our Bottom Line: Tradeoffs

At this point, we can return to the tradeoffs that are the bedrock of economics. Always, a decision requires a sacrifice. Because choosing is refusing, every budget decision means we don’t do something else.

Right now we have two sets of tradeoffs. Consequently, I suggest choosing between spending cuts and raising the ceiling is an easy decision. We have to raise the ceiling. Then we can debate the budget cut tradeoffs.

My sources and more: I just needed to combine a recent Washington Post article with a past post and I had almost all for today. Then, I just added the CBO graphics and was done.