Fox News legal analyst Andrew Napolitano falsely claimed that failure to raise the debt ceiling would only affect discretionary spending -- something he said "we don't really need as a country." This ignores the importance of discretionary programs and the far-reaching impact that failure to increase the debt ceiling would have.
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Fox's Napolitano Thinks Education, Justice, And Health Are Federal Programs "We Don't Really Need"
Fox News' Andrew Napolitano Falsely Claims That Government Default "Will Not Affect The Mainstay Staples That Everybody Relies On." On the October 8 edition of Fox & Friends, Fox News legal analyst Andrew Napolitano falsely claimed that, if Congress fails to increase the debt limit, President Obama could simply prioritize the government's payments. Napolitano then suggested that all federal discretionary spending is unnecessary:
ELIZABETH HASSELBECK (co-host): What about the debt ceiling?
NAPOLITANO: Well, that's another issue that's going to be coming up next week. The government collects $2.5 trillion in revenue. It spends $3.7 trillion. Where does the $1.2 trillion come from? They borrow it. If they don't borrow it, then the president will have to figure out how to run the executive branch of the government on less money than he's accustomed to. Do you think he's going to make it easy for us or do you think he will make the rest of us miserable by shutting down the things we want and need and keeping open the things that we don't want and don't need?
BRIAN KILEMADE (co-host): But by taking the daily revenue in, or the weekly revenue in, he can sustain the government, right, and still pay the interest on the debt?
NAPOLITANO: The interest on the debt is automatically being paid. Transfer payments like Medicare, Medicaid, Social Security is automatically being paid. And the Defense Department is automatically being paid. This debate, with the budget and the debate next week with borrowing more money is over discretionary items that we don't really need as a country. Not the mainstay staples that everybody relies upon. [Fox News, Fox & Friends, 10/8/13, emphasis added]
In Fact, Failure To Raise Debt Limit Could Harm Both Mandatory And Discretionary Spending
Bipartisan Policy Center: If Debt Ceiling Is Not Raised, Payments For Both Mandatory And Discretionary Programs "Would Quickly Become Impossible." The Bipartisan Policy Center explained that congressional failure to increase the debt limit, which allows congress to pay past debts, would trigger an "[i]mmediate 32% cut in federal spending" which would "affect broader economy," soon making funding many mandatory and discretionary programs "impossible":
On a day-to-day basis, handling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, Defense, military active duty pay) will quickly become impossible.
- Immediate 32% cut in federal spending would affect broader economy
- Many service providers unpaid
- Individuals not receiving government checks
- Widespread uncertainty as decisions are made day-by-day [Bipartisan Policy Center, September 2013]
CBS News: Failure To Raise The Debt Ceiling Would Require All Discretionary Spending And "Most Of The Outlays For Mandatory Programs" To Stop. CBS News reported:
[P]reventing the government from borrowing to meet its obligations would require all discretionary spending, such as for defense, education, housing and other annual appropriations, to stop, according to the Congressional Research Service. Most of the outlays for mandatory programs, such as Social Security, also would have to be halted, while taxes would need to rise to ensure the government had money to spend. Deep spending cuts and tax hikes would throw the economy into recession. [CBS News, 10/7/13]
Discretionary Spending Includes Key Security And Federal Functions
Congressional Research Service: Discretionary Spending Includes Health Care Benefits For Veterans, Scientific Research, Education, And More. According the the Congressional Research Service, discretionary spending supports "the largest number of federal agencies and programs," including health care benefits for veterans:
In some cases, mandatory and discretionary spending support similar activities. For example, Medicare health care benefits are classified as mandatory spending, while most health care benefits for veterans and military personnel are classified as discretionary spending.
Non-defense spending supports the largest number of federal agencies and programs, including science and technology research, natural resources, energy, education, and numerous others. None of the individual programs within the non-defense discretionary category have approached 1% of GDP since 1962, and funding for most of these programs was less than 0.5% of GDP during that period. [Congressional Research Service, 5/30/13, emphasis added]
WhiteHouse.gov: Discretionary Spending Includes Security Functions Like "Departments of Defense, Homeland Security, and Veterans Affairs." A supplemental document to the administration's Fiscal Year 2014 budget proposal explains that discretionary spending includes both security and nonsecurity spending. The security category includes "the Departments of Defense, Homeland Security, and Veterans Affairs, the National Nuclear Security Administration, the Intelligence Community Management account and all budget accounts in the international affairs budget function":
The security category includes discretionary budget authority for the Departments of Defense, Homeland Security, and Veterans Affairs, the National Nuclear Security Administration, the Intelligence Community Management account and all budget accounts in the international affairs budget function (budget function 150). The nonsecurity category includes all discretionary budget authority not included in the security category. [WhiteHouse.gov, accessed 10/8/13, emphasis added]
Office Of Management And Budget: Agencies Funded Through Discretionary Appropriations Include Homeland Security, Health & Human Services. The Office of Management and Budget's (OMB) Fiscal Year 2014 budget proposal includes a list of the agencies that are considered discretionary spending and are subject to the annual appropriations process, including Education, Health & Human Services, Veterans Affairs, and the Justice Department:
[Office Of Management and Budget, accessed 10/8/13]
Discretionary Spending Has Already Declined And Continues To Fall
CBPP: Non-Defense Discretionary Spending Continues To Decline As A Percent Of GDP. In June, the Center on Budget and Policy Priorities reported that non-defense discretionary spending (NDD) will continue to decline over the next decade:
NDD funding is set to decline over the next decade as a share of the economy. The 2011 Budget Control Act (BCA) set limits or "caps" on annual discretionary funding through 2021, imposing separate caps for defense and non-defense funding. Under the caps, NDD spending will fall to its lowest level as a share of gross domestic product (GDP) on record by 2017, with data going back to 1962, and will continue to fall thereafter.
These projections do not include the effects of "sequestration" -- the automatic cuts mandated by the BCA after Congress failed to adopt a more comprehensive deficit-reduction plan. Sequestration applies in 2013 through 2021 and would cut programs by nearly $1 trillion over those years. More than 80 percent of these cuts would be in defense discretionary and NDD programs; most entitlements (including Social Security and Medicaid) are exempt. [The Center on Budget and Policy Priorities, 6/14/13]
Congressional Budget Office: Discretionary Spending Has Fallen As A Percentage Of GDP. The Congressional Budget Office noted that discretionary spending has fallen dramatically since 1973:
A distinct pattern in the federal budget since the 1970s has been the diminishing share of spending that occurs through the annual appropriation process. Between 1973 and 2012, discretionary spending fell from 53 percent of total federal spending to 36 percent. Relative to the size of the economy, discretionary spending declined from 9.6 percent of GDP to 8.0 percent. [Congressional Budget Office, 9/19/13]
Economists Say Default Would Have Disastrous Consequences On The Economy
Treasury Department: Default Would Be "Unprecedented," Could Echo 2008 Economic Crisis. An October Treasury Department report outlined the effects of a debt default if Congress fails to increase the borrowing limit on or before October 17. From the report:
A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse. [Department of the Treasury, "The Potential Macroeconomic Effect Of Debt Ceiling Brinkmanship," October 2013]
Paul Krugman: Default Likely "Would Create A Huge Financial Crisis." Nobel Prize-winning economist Paul Krugman argued in his New York Times column that undermining the fundamental role of U.S. Treasury bonds in the American and global financial system by defaulting on the debt could create an economic crisis far exceeding the financial crash of 2008. From the Times:
First of all, hitting the ceiling would force a huge, immediate spending cut, almost surely pushing America back into recession. Beyond that, failure to raise the ceiling would mean missed payments on existing U.S. government debt. And that might have terrifying consequences.
Why? Financial markets have long treated U.S. bonds as the ultimate safe asset; the assumption that America will always honor its debts is the bedrock on which the world financial system rests. In particular, Treasury bills -- short-term U.S. bonds -- are what investors demand when they want absolutely solid collateral against loans.
Now suppose it became clear that U.S. bonds weren't safe, that America couldn't be counted on to honor its debts after all. Suddenly, the whole system would be disrupted. Maybe, if we were lucky, financial institutions would quickly cobble together alternative arrangements. But it looks quite possible that default would create a huge financial crisis, dwarfing the crisis set off by the failure of Lehman Brothers five years ago. [The New York Times, 9/29/13]