'Chicken game': The shape of the debt ceiling puts government spending at risk

Experts say that debt default can disrupt state spending and threaten communications programs that affect millions of Americans.

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The state of high debt in Washington could have a negative impact on government spending programs that rely heavily on government assistance to fund many social programs and transportation projects.

Countries across the country are relying on strong revenues from the federal government to supplement their tax revenue, but that pipeline is in jeopardy during the approaching deadline for Congress to avoid national failure for the first time.

Policy experts say the failure to suspend or increase debt limits could hamper spending at the state level, especially in light of the recently proposed $ 1.2 trillion infrastructure law.

"The fact that the areas are in a better financial position than expected made the actual results almost slower, but it will have far-reaching consequences if the sites try to think of using any of that infrastructure" or social grants, "said Kim Rueben, a Washington and local government funding agency. , Urban Institute.

“And in part we play this chicken game with what sounds like a nuclear bomb. We really need to increase the debt limit because of what we will do in the wider economy - [default] may have a negative impact on provincial and local government, but it could affect all forms of financial and banking markets. ”

The federal government provides about $ 750 million annually in the province, funding programs from Medicaid, which includes about 75 million Americans, to food stamps, used by nearly 42 million families. It includes funding for schools, roads, transportation and various housing programs for low-income families.

Many of the provinces that rely heavily on government subsidies - more than 40 percent - are Republican-led states such as Alaska, Louisiana, Mississippi and Montana, largely due to low taxes. Other Democratic-led states also receive large sums of state dollars: About 36 percent of New York's budget comes from government aid, while California sees about 30 percent of its Washington-backed budget.

"All states are relying on government funding for a fair portion of their budgets," said Rebecca Thiess, a state policy specialist for the Pew Charitable Trusts. “Since the Great Recession, government subsidies remain a third of the state budget. So, if you think about where the provinces get their money - from taxes, from payments, from local coffers, from service costs - then the coalition government plays this important role. "

Overall, the provinces are in a strong financial position, according to a report last week from the National Association of State Budget Officials. Expenditure on health care, education and transport has increased by more than 16 percent this year compared to 2020, while state spending on provinces has risen sharply, by about 36 percent, the report said.

Thiess and other experts have warned that it is difficult to predict how things will turn out as the country has never failed to repay its debt, but the reduction of organization-sponsored public safety programs on which millions rely for survival is a major problem.

"We have no experience of organizational failure," said Jared Walczak, vice president of national projects at the Tax Foundation. "We do not want a situation where there is uncertainty as to whether the state dollar will flow."

Senate Republicans in recent months signed Democrats who will need to go it alone to raise the debt bill as the party already struggles to secure President Joe Biden's $ 1.75 trillion Build Back Better bill through Congress.

"We are focused on doing this in a bipartisan way," said Senate Majority Leader Chuck Schumer, D-NY, referring to debt-free negotiations with his GOP counterpart, Senate Minerals Leader Mitch McConnell.

The Kentucky Republican said in October that his party would not work with Democrats to increase debt in December, but recently lowered his voice, saying this month, "We will see how we can avoid mistakes. We do."

Congress came close to a possible failure in October before lawmakers, including a number of Senate Republicans, raised the $ 480 billion debt limit to allow the government to continue paying its debts.

Treasurer Secretary Janet Yellen warned lawmakers earlier this month that the country would not be able to pay its debts soon after December. 15 and urged lawmakers to act promptly to avoid pay.

Yellen said "there are cases where the Treasury Department will be left with insufficient resources to continue funding the U.S. government's operations otherwise" in Dis. 15.

And while state policy experts hope Congress will find a solution in the coming weeks, a

"There has never been a Federal failure and everyone is optimistic and expects that to happen now," Walczak said. "Provincial programs would not have stopped if there had been some degree of delays in accessing government services, but they obviously need to, so that we can fund these programs."