But in 2011, the president and Congress were unable to reach an agreement on spending and the debt limit until the last minute. The government came within an eyelash of defaulting, prompting a couple of major bond rating agencies to lower the credit rating of the United States – the first time that ever happened.
According to the Bipartisan Policy Center, that cost American taxpayers an extra $18.9 billion in higher interest payments.
U.S. Rep. John Yarmuth, D-Louisville, says failing to raise the ceiling would have dramatic impact on the lives of ordinary people but many of them don’t understand the risk.
“What people don’t understand is that if you don’t raise the debt ceiling, government spending on day one is cut automatically by 28 percent,” he explained.
“That means if you continue to send out Social Security checks and pay doctors who provide care for Medicare and pay veterans’ benefits, then you have to cut the rest of government spending by about 70 percent,” Yarmuth said. That’s defense, education and all other discretionary spending.
He said such a spending cutback would dwarf the consequences of cutbacks in the fiscal cliff which even Republicans feared would push a fragile economic recovery back into serious recession.
“You’d return the economy almost immediately to 2009 conditions when we were losing 700,000 jobs a month,” Yarmuth warned.
David Adkisson, president of the Kentucky Chamber of Commerce, said the business community generally sides with those who want to cut spending, especially on entitlement programs like Medicare, Social Security and Medicaid which are “unsustainable.”
Business wants “a grand bargain” but Adkisson expects Republicans will use the debt ceiling debate as “leverage for cutting spending, specifically entitlement programs,” Adkisson said.
But he said business people are worried about the uncertainty created by another standoff like 2011, something which could damage the economy, increase “business uncertainty and anxiety” and adversely affect investment and hiring.