As the United States rapidly approaches the date at which the government can no longer pay its bills, the two Democratic U.S. senators from Virginia warn that a default could lead to catastrophic economic impacts that would be felt in every community in the commonwealth.
“I think it’s difficult for folks to truly grasp the enormous ramifications of a debt ceiling default because it’s not something that our nation has ever faced before,” Sen. Mark Warner said in an email Wednesday. “Our nation’s financial well-being is not a bargaining chip. We must raise the debt ceiling before it’s too late.”
A default would mean the U.S. government fails to pay some of its obligations because the Congress failed to raise the debt ceiling — now at $31 trillion — to authorize borrowing more money to fund spending it already passed.
U.S. Treasury Secretary Janet Yellen said Sunday that June 1 remains a “hard deadline” for raising the debt limit with the odds quite low that the government will collect enough revenue to bridge to June 15, when more tax receipts are due.
The impact of defaulting would be felt by anyone expecting funds from the government, whether a Social Security check, federal health benefits, a government bond payout or — in the case of federal employees — a paycheck. Mortgage rates are also beginning to feel the impact of the standoff, jumping higher for the second week in a row.
“For families, homeownership would become virtually unattainable, and young people looking to build their credit or get out of debt would suddenly find that incredibly difficult with soaring mortgage and credit card interest rates,” Warner said in the email.
Warner added that consumer spending would “grind to a halt and usher in millions of layoffs” across industries like hospitality and manufacturing, while older folks nearing retirement would see their savings and retirement plans plummet.
A statement by the White House on the potential impacts of various debt ceiling scenarios released earlier this month said that an actual breach of the U.S. debt ceiling would “likely cause severe damage” to the U.S. economy.
“Analysis by CEA (Council of Economic Advisers) and outside researchers illustrates that if the U.S. government were to default on its obligations — whether to creditors, contractors, or citizens — the economy would quickly shift into reverse, with the depth of the losses a function of how long the breach lasted,” the statement said.
A protracted default would likely lead to “severe damage to the economy,” with job growth swinging from its current pace of robust gains to losses numbering in the millions.
A Joint Economic Committee staff report that Democrats released in March outlines how raising the debt limit is essential for the United States to continue to keep its promise to veterans, military personnel and seniors and how a default would push up costs for families and small businesses and risk millions of jobs.
Democrats passed the Inflation Reduction Act last year to bring down costs for families and reduce the deficit by almost $240 billion, the report states. “Not a single Republican voted in support of the bill. Now Republicans want to use the debt ceiling to force irresponsible cuts to crucial funding and put vital programs at risk, while pushing to let the rich cheat on their taxes. The costs to the American people could not be higher.”
In Virginia specifically, the report estimates that even the threat of a debt default would increase monthly mortgage payments by an average of $151 per month, or approximately $54,000 over the course of a 30-year mortgage.
Additionally, 1,598,000 Social Security recipients — whose monthly payments total over $2.5 billion — 1,608,000 Medicare recipients and 691,000 veterans in Virginia would be at risk of benefit disruption if the federal government does default on its debt.
In Virginia’s 5th Congressional District alone, a default would jeopardize Social Security payments for 116,000 families and put at risk health benefits for 296,000 residents who get their health insurance through Medicare, Medicaid or Veterans Affairs coverage, the report found.
The district — which is represented by Rep. Bob Good, R-Campbell County — includes the majority of Southside, and the cities of Charlottesville, Danville and Lynchburg.
Good said in an email Wednesday that a potential default is on President Joe Biden and Senate Democrats. “The House passed a plan,” he said of the Limit, Save, Grow Act, which limits federal spending by capping it for fiscal year 2024 at 2022 levels.
The legislation also allows for only 1% annual growth over the next 10 years, and it includes a number of measures that Republicans say will save taxpayer money. It further claws back unspent COVID-19 funds, estimated to be about $30 billion, and funding for 87,000 new IRS agents.
The bill also reverses Biden’s efforts to cancel up to $10,000 in student loan debt for some borrowers, which Republicans say would save taxpayers an estimated $460 billion. Lastly, the legislation repeals Democrats’ uncapped green energy tax credits and subsidies, saving an estimated $540 billion.
“It’s a reasonable path to stop Washington’s addiction to borrowing and spending that is jeopardizing the financial future of our kids and grandkids. The Democrats can pass it and sign it into law, and we will not risk default,” Good said.
Further to the west in the 6th District, which covers much of the west-central portion of the state, including Roanoke and most of the Shenandoah Valley, 112,000 families might not receive Social Security benefits if the country defaults, the JEC report found, while health benefits for 289,000 residents could be at risk.
Rep. Ben Cline, R-Botetourt County, who has represented the district since 2019, also said that the ball to avert the looming default crisis was in the Democrats’ court. “As Speaker [Kevin] McCarthy continues to pressure President Biden to do what is right for the American people, House Republicans are unified behind our House-passed bill to responsibly raise the debt ceiling and reduce future spending,” Cline said in an email Thursday.
And in the neighboring 9th District — the second-largest in the area, covering much of the Southwestern part of the commonwealth — 135,000 families are at risk of losing Social Security benefits and 349,000 residents might lose their health benefits, according to the JEC report.
But the district’s Rep. Morgan Griffith, R-Salem, said in a statement last month that he has long believed that Congress has a responsibility to the American people to “rein in” wasteful and excessive spending. “Since joining Congress, I have not voted for a debt ceiling bill that did not include cuts or reforms to our spending practices,” he said.
A high national debt stemming from out-of-control spending means high interest, higher inflation, and lower job opportunities, Griffith said. “Never have we felt the effects of a high debt than this past year.”
But Larry Sabato, the director of the Center for Politics at the University of Virginia, said that the three Republican House members representing Southwest and Southside Virginia are not decision-makers in the debt-ceiling crisis.
“They’re just along for the ride. Biden, McCarthy and a few others will determine the outline of a compromise — if indeed there is a compromise,” he said.
Sabato said that Warner and his Democratic colleague Sen. Tim Kaine are members of the 51-seat Democratic majority that will have to pass the compromise, assuming one comes together.
“Sens. Joe Manchin and Kyrsten Sinema will have to be appeased in some fashion, but probably the Senate is not the hangup. Republicans such as Minority Leader Mitch McConnell understand that default would be a gigantic economic disaster that must be avoided, period,” Sabato said.
“What’s amazing is that a fair number of Republicans in the House don’t understand what McConnell does — or they don’t care,” Sabato added. “Their calculation is that an economic disaster would hurt Biden and his reelection prospects far more than theirs. Maybe. I hope we don’t have to find out.”
Kaine not only told reporters in a video last week that a default must be avoided at all cost, but he also offered a solution for how House Republicans could get the spending cuts they are seeking.
“I’ve long maintained that if the Republicans want cuts, the way to do it isn’t to flirt with default, it’s in the appropriations process to actually make cuts,” Kaine said. “That’s really the right way to do this, if you did it that way you’d accomplish everything that the House GOP wants to accomplish without making everybody afraid about default. I just wish that they would pursue it that way.”
Kaine said that a plan to avert default by June 1 that Senate Democrats could support was still in the realm of possibilities.
“I think you might see a lift of the debt ceiling for a significant period of time [and] some budgetary commitments that would maybe be a little bit conceptual, but that would shape the appropriations discussion that is ongoing and that will continue to play out over the course of the next months into the fall,” he said.
There might also be some appetite for some longer term reforms, a long-term commission of members of Congress and outside stakeholders to look at spending and revenue, deficits and debt, with a report back to Congress and some up or down vote on that report, Kaine said.
“I want to give leaders in the White House the ability to do their best job to reach an agreement that’s good for the American economy but avoids default,” Kaine said. “I’m sure I’m going to have questions obviously about the details, but I don’t want to put a lot of red lines on the table. I want them to do their work, and I’m anxious to see what they come up with.”