What’s at stake for children and families on the debt ceiling debate?

The clock is ticking for President Obama and Congress to strike a deal on the federal budget and/or raise the debt ceiling. The debt limit, which currently stands at $14.3 trillion dollars, has been raised and lowered since Congress first gave Treasury the authority to issue long-term bonds back in 1917. The debt hit a low point during the Carter administration but has risen steadily since then. The growing gap between spending and taxes has lead to the budget deficit spurred on by several factors including the costs of the Iraq and Afghanistan wars, the aging population, the rising cost of healthcare, and the recent downturn in the economy.

But what would the impact be to children and families around the country if we do not raise the debt ceiling? To be frank, the effect would be disastrous. If the US Federal Government hits its debt ceiling on August 2, 2011, as the Treasury Department is estimating, the government would be unable to pay its bills. According to a recent report from the Bipartisan Policy Center, the government would owe approximately $306 billion for the month of August alone while only receiving $172 billion in revenues. This leaves a growing gap of $134 billion in unpaid bills, which translates to about 44 percent of total funding obligations.

Due to this dilemma, the government may have to prioritize funding; however, which funding obligations are the highest-priority? The report from the Bipartisan Policy Center suggests a few options. The first protects big ticket programs, which include the interest we owe to our creditors ($29 billion), Social Security Benefits ($49 billion), Medicare/Medicaid ($50 billion), Defense Vendor payments ($32 billion), and unemployment insurance ($13 billion). This scenario leaves out other big ticket programs such as education programs like Pell grants and special education, food and nutrition assistance, government salaries and benefits, and military pay, which all directly affect children and their families. The trade-offs will likely hurt families across the country as government decides if it should pay benefits to the disabled and elderly through Social Security, cover public health care benefits through Medicare and Medicaid or feed the hungry. Either way, the most vulnerable will be impacted greatly if a deal is not struck.

This doesn’t mean, however, that all Americans won’t feel the hit if government defaults on its debt. According to an article by First Focus, if the government’s credibility is called into question, investors from around the world could demand higher interest rates. The higher rates will make borrowing money for a new home or college education more difficult for all Americans. Also with shaky credit the value of the dollar could drop increasing prices for goods from around the world. Families already struggling could end up paying more for food, clothing, gas, and anything else produced somewhere else.

Because the government has never hit the debt ceiling, it is unknown to what extent this will affect the economy and America’s families and children. But common sense would say, a 44 percent gap in revenue and spending will certainly take its toll if the issue is not resolved.

For Further Reading:

 “Debt Limit Analysis” – Bipartisan Policy Center

“Just what is the federal debt ceiling?” – Los Angeles Times

“What will be the impact to children and families if we do not raise the debt ceiling?” – First Focus