Republicans make federal default a possibility
San José, CA – On May 24, Steven Mnuchin, Trump’s Secretary of the Treasury and former Wall Street investment banker for Goldman Sachs, urged Congress to raise the federal debt limit before they go on break July 28. The U.S. Treasury first bumped up against the maximum that the U.S. government can borrow back in March, and has been continuing to borrow by using accounting measures.
These tricks were thought to put off the debt limit crunch until the fall, but a drop in tax payments by the wealthy has brought the deadline forward. Ironically, it is Trump and the Republicans in Congress who are proposing big tax cuts for the rich that are leading the rich to hold off paying their taxes.
While Mnuchin has called for a ‘clean’ increase in the debt limit – that is one without attached conditions such as cutting funding for Planned Parenthood – Trump himself has not taken a clear position. Trump’s head of the Office of Management and Budget, Mick Mulvaney, who is a former member of the right-wing House Freedom Caucus, has refused to commit to a clean increase that could attract Democratic support.
The House Freedom Caucus and other republicans in congress have used the debt limit in the past to try to force spending cuts on social programs. They repeated this position this year, hoping to blackmail the government into spending cuts to avoid a default on debt payments.
As a congressman, Mulvaney even suggested that it would not be that bad if the U.S. did not raise the debt limit and defaulted on some of his debt payments. Trump himself, who has declared bankruptcy for his businesses many times, also suggested during his campaign for president that default would not be that bad and that he could negotiate lower payments from government bond owners.
On June 2, Mulvaney said that the government would faces “difficulties” if the debt limit were not increased but swore that there would be no default on debt payments. Unfortunately, this could only be done if the government put off paying its other obligations, of which Social Security and Medicare are among the biggest.
In response, Democrat and House Minority leader Nancy Pelosi did not commit to a clean increase, pointing out that increasing the debt limit could enable the Republicans to give huge tax cuts for the rich that would increase the deficit. In fact, the federal government debt has historically had three causes: First, shrunken tax revenues and increased safety-net spending because of a financial crisis, for example, after the depressions in 1929-1933 and then again from 2008-2009; second, increases in military spending and expensive wars in the 1980s under Reagan, and then again in the 2000s under President George W. Bush; and third, the big tax cuts for the rich in the 1980s and 2000s.
While many in Congress, including both Republicans and Democrats, have talked about cutting Social Security and Medicare to help reign in the federal debt, in fact Medicare has paid for itself and Social Security has run up almost $3 trillion in surplus over the last 30 years. The biggest danger to working people is not that the federal government would default on its debt and cause financial chaos throughout the capitalist world, but that a ‘bipartisan’ plan would trade off raising the debt limit (which Wall Street wants), with cutting Social Security and/or Medicare (which Wall Street also wants).