According to the Treasury Department, on August 2, 2011, the United States Federal Government will officially hit the nation’s debt ceiling. While much has been discussed about the impact of a potential agreement to raise the debt ceiling, very little has been said about what would happen to children and families specifically if Congress and President Obama fail to raise the debt ceiling. To put it in a word, the effect would be catastrophic.

If we hit our debt ceiling, the government would owe more per month than it brings in. Naturally, choices have to be made since there isn’t enough for everything. Unfortunately, there is no good choice. The Bipartisan Policy Center estimates that the government will owe approximately $306 billion for the month of August while only collecting $172 billion in revenue. What’s a broke country to do?

In one scenario, the treasury decides to protect selected big government programs. This includes paying the interest to our creditors on our debt. The interest payments are $29 billion. In this scenario the government would also pay Social Security benefits ($49.2 billion), Medicare & Medicaid Benefits ($50 billion), Defense Vendor Payments (31.7 billion), and unemployment insurance benefits ($12.8 billion). However, this means leaving out food stamp and nutrition programs ($9.3 billion), military pay ($2.9 billion), veterans programs ($2.0 billion), federal government salaries & benefits ($14.2 billion), and education programs ($20.2 billion), among others. In another scenario where the federal government chooses to protect safety net programs, it would still be unable to pay for things like military salaries, federal salaries, and education programs.

In both these scenarios, there is no clear answer as to who in the government makes the decisions about who gets their money. How do you decide whether Social Security Beneficiaries are more deserving than those on Medicaid? Leaving out Social Security payments alone would jeopardize the nearly 1.3 million minors (18 and under) that receive Supplemental Security Income (SSI) as well as the millions of grandparents and retirees that help support their grandchildren. Anyone who receives any federal assistance or payment would be in jeopardy of not receiving those checks or receiving a reduced amount. A reduction of even a few hundred dollars a month could mean the difference between putting food on the table or going hungry.

Come August 2, if the federal government defaults on its obligations, we can expect some if not all of the following negative outcomes for families:

• In the necessary prioritization of funds, it’s inevitable that millions of families and children will see their benefits eliminated or dramatically reduced. This includes military families, the disabled and infirm, and those in most need of food assistance.

• After defaulting on the debt and a down-grade in the US Bond Rating, in all likelihood, interest rates will rise as borrowing becomes more and more risky. This means it will be harder and more expensive for states and local municipalities to raise bonds for new schools and hospitals. Every American will feel the pinch as it becomes more difficult to get a mortgage for a new home or a student loan for college.

• Increased interest rates make it more costly for businesses to borrow capital for new and existing projects. This means higher unemployment as businesses lay-off more and have fewer available jobs. Unemployment has a tremendous negative impact on families and children of the unemployed.

• With shaky credit, the value of the US dollar around the world will drop, which means products that are imported into our country will become more expensive. Things like clothing, food, gas, or anything produced outside the United States will cost more. Families already struggling will be least able to absorb any increase in costs.

Since this is uncharted territory, there could be countless other unintended negative consequences resulting from default. For the fiscal security of our nation and our nation’s families we must raise the debt ceiling. First Focus will closely monitor any proposed agreement, but clearly doing nothing is not an option for America’s children and families.

For Further Reading:
“Debt Limit Analysis” – Bipartisan Policy Center
“Just what is the federal debt ceiling?” – LA Times
“What Happens if Lawmakers Don’t Reach Debt-Ceiling Deal by Deadline?” – PBS Newshour

Also posted at the First Focus blog