WASHINGTON — As Congress lurches toward a last-minute vote to raise the debt limit next month, its procrastination is already costing taxpayers billions.
The U.S. government in March hit its debt ceiling — the amount of money it can legally borrow to pay existing bills. To avoid defaulting on the nation’s debt, Treasury Secretary Steven Mnuchin has had to take short-term measures to pay the country’s debts at an extra cost to taxpayers of at least $2.5 billion.
That money could have been used for programs that benefit Americans if Congress had acted quickly to raise the limit. Lawmakers are expected to act by the end of September, just before the government runs out of money to pay its bills. But that will be too late to recoup the taxpayer funds that have already been lost.
“I think people should be angry,” said Maya MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget. “Our political system is breaking down in ways that are having real economic costs, and most people don’t realize what’s happening.”
To save money, Mnuchin has been withholding payments from the federal employees’ Civil Service Retirement and Disability Fund, but that money will have to be paid back at a higher-than-normal interest rate.
“That’s a significant cost and a loss to the taxpayer,” said Sen. James Lankford, R-Okla.
Instead of being able to borrow money in the market at lower rates, “we’re borrowing and making our trust funds whole at slightly higher rates, so there is a real cost to doing that,” Mnuchin told the Senate Appropriations Committee in late July.
Mnuchin said Congress’s inaction on the debt limit also is causing uncertainty in the market among people who invest in U.S. Treasury bonds. Investors are getting nervous about whether they will be able to cash in bonds that mature this fall, when the government will run out of money to pay its bills unless Congress acts. As a result, investors are demanding a higher rate of return from the government because of the greater risk.
“Uncertainly increases the cost for the government to borrow money,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. “That’s money that’s not available for the government to spend on something else we need. It’s basically an unforced error, a penalty that is imposed on us because the White House and Congress are so dysfunctional.”
Congressional action has been complicated by threats by the conservative House Freedom Caucus to oppose any increase in the debt limit that is not tied to cuts in spending.
Democrats said they will only support a “clean” increase with no strings attached, and GOP leaders need their votes to raise the debt ceiling since conservatives are balking.
Mnuchin also has called on Congress to pass a clean increase by Sept. 29, but his message was muddied by White House budget director Mick Mulvaney, who argued that any increase in the debt limit should be tied to spending reforms. Mulvaney later backed off that stance after President Trump came out in favor of Mnuchin’s position.
Steve Bell, a fellow at the Bipartisan Policy Center and former staff director of the Senate Budget Committee, said there may be hidden costs to American consumers from the debt crisis beyond the waste of $2 billion to $3 billion of their tax dollars.
He said big banks often spend money creating emergency teams to prepare for the worst-case scenario of a government debt default, which has never happened before. Banks created such teams when the government faced previous debt crises in 2011 and 2013, Bell said.
“No doubt that has had at least a small impact on increasing the interest rates that the banks charge the public,” Bell said.
He also worries that Moody’s Investors Service, one of the top three credit rating companies in the U.S., may be poised to downgrade the government’s credit rating from AAA to AA+ as a result of the current debt crisis. Standard & Poor’s did just that during the debt showdown of 2011. A slip in the government’s credit rating means that it has to pay higher interest rates — and spend more taxpayer dollars — to borrow money.
“It’s gotten to the point where Congress simply cannot be trusted to handle something so important,” Bell said. “They’re costing taxpayers a lot of money.”