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Evaluating the risk of rising the debt ceiling

Marc Goldwein, the Committee for a Responsible Federal Budget's Senior Director of Policy joins Yahoo Finance to discuss the economic implications of the various votes happening on Capitol Hill.

Video Transcript

SEANA SMITH: Let's get to the latest down in Washington because Congress is expected to avert a government shutdown. We just had the Senate passing a bill to fund the government through September-- through December. So it now goes on to the House. But there's still lots of uncertainty about that bipartisan infrastructure bill because it doesn't look like the Democrats will have the votes to get that passed.

So let's talk about where things stand and what we could expect over the next couple of weeks. We want to bring in Marc Goldwein. He's Senior Director of Policy at the Committee for a Responsible Federal Budget. And Marc, it's down to the wire. The government funding deadline is tonight. It looks like things are going to get passed. Lots of uncertainty about the infrastructure bill, about that $3 plus trillion spending bill, about the debt ceiling limit that will hit in the middle of October. What do you make of where things stand right now?

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MARC GOLDWEIN: It's chaos. That's the only way I can describe it. It looks like we are going to keep the government open. But remember, if we don't pass this infrastructure bill, the highway bill that's been in effect for five years expires. And so our highway funding will lapse. Meanwhile, it seems like Democrats are nowhere on this $3 and 1/2 trillion reconciliation bill. And we've got the debt limit, as you said.

ADAM SHAPIRO: Let's break this apart. So we've got the $1.2 trillion bipartisan infrastructure bill. We've got the potential for a $3.5 trillion reconciliation part two, infrastructure spending bill, social safety net. And then you have the debt ceiling. The argument that the debt ceiling is only going-- it only deals with debt we've already accrued, is that valid? Or by raising the debt ceiling, are we then clearing the path to spend over $4 trillion that we might not have?

MARC GOLDWEIN: Well, the debt ceiling isn't just about debt you've already accrued. But it's mostly about debt that you've already authorized. Even if they were to get sort of the most expensive version of their reconciliation bill with the least paid fors, it wouldn't be that much borrowing taking place, say, over the next year or two. So this debt limit increase really is about decisions we already made in the past, things-- some things signed by President Biden and some by President Trump, some going back much further-- you know, FDR, Lyndon Johnson, et cetera.

SEANA SMITH: Marc, well, the president and other supporters of the Democratic Party have said that $3 plus trillion, $3 and 1/2 trillion spending bill, that it's not going to add to the debt, that there's enough paid fors in that to offset the expenses. What do you think? Are there enough paid fors in there to offset exactly what's going to be spent?

MARC GOLDWEIN: Well, there are certainly enough potential paid fors if they're willing to use them. But the House bill right now has about $3 trillion of tax increases and healthcare cuts. Not all of those are politically going to last. But even if they did, that's still short of the $3 and 1/2 trillion they say they want to spend and the more like $4 and 1/2 trillion that it looks like they're actually spending. So we could get to that zero deficit impact, but we're not there yet.

ADAM SHAPIRO: So what do all of us need to know? I mean, we're going to have a $29 trillion national combined total debt pretty soon because they're going to raise that debt ceiling eventually. So we're going to get there. We're going to be close to $30 trillion within, what, a year or two years. What does that mean for those of us, you know, average Americans?

MARC GOLDWEIN: Yeah, the thing about rising levels of debt is unless there's some kind of financial crisis, you don't feel it moment to moment. And it's this sort of gradual eroding effect. It means that an increasing share of our budget is going to interest instead of into investments or lower taxes. It means that we get less private investment, which means less growth and lower income.

Again, you won't feel this year over year. The Congressional Budget Office basically thinks that our debt is eroding economic growth by about 0.2% per year. That's no big deal over one year or two years or three years. But it starts to become a very large deal over one or two or three decades.

ADAM SHAPIRO: In fact, the committee, I believe, has pointed out that come 2030, the interest on the national debt will be somewhere around $900 billion a year. And if you look at what we spend right now-- and that's just an interest payment-- we spend 700. We're asking to spend $782 billion on total defense spending. So that's what this is really about. The money going to pay interest is money that isn't being used to do anything else. And it's a huge amount of money roughly eight years from now.

MARC GOLDWEIN: That's exactly right. If we do nothing to worsen the debt-- and of course, we're going to worsen the debt-- within a quarter century, interest would actually be the single biggest line item in the entire government, more than Social Security, more than Medicare, more than defense. It's astronomical. And it erodes our ability to do much of anything else.

SEANA SMITH: Marc, the debt ceiling debate, I mean, this is something that happens every couple of years. I feel like we talk about it every two or three years. A party that's the majority, of course, uses its leverage in this type of situation. Why don't you think that this is more of an issue that both Democrats and Republicans want to-- or I guess, show a little bit more willingness to address in a timely manner?

MARC GOLDWEIN: Yeah, we increasingly have been dropping the ball and going further and further past what's supposed to be the last minute in terms of raising the debt limit. And it's starting to get scary because we cannot compromise the full faith and credit of the US government.

Now in the past, the debt limit has been an opportunity to negotiate on fiscal issues to come to some kind of agreement on how to improve our fiscal outlook. I would hope we would get back to that. Right now, it doesn't seem like there's any negotiation. It's just a game of hot potato. Who wants to be the one left, you know, raising the debt limit?

ADAM SHAPIRO: I know from previous experience with the committee that you folk are like, look, if you want to spend money, spend it, but you've got to pay for it. You don't take a position on whether it's right or wrong to spend the money. When you're at a party on a Saturday night with your peers, do the people your age, how do they view this? How do they view this debt picture? Because I hear lots of people, it just really doesn't hit them. For what you just said, we don't feel it in real-time.

MARC GOLDWEIN: Yeah, well, I think maybe I'm not quite as young as I look. But there does seem to have been attention drawn away from the debt in recent years towards other issues, partially out of exhaustion from dealing with it, partially because interest rates have remained low, and partially because we've had other very real needs and crises that I think have taken front stage.

But if inflation remains elevated, if interest rates start to rise, if we do overreach, I think you could start to see a turn back to the debt issues, particularly since we have all these looming trust fund insolvencies, of the highway fund, of Medicare, Social Security, that are in the not too distant horizon.

SEANA SMITH: Marc Goldwein, Senior Director of Policy at the Committee for a Responsible Federal Budget, thanks so much for taking the time to join us today.