If the White House and lawmakers cannot reach an agreement to raise the country’s debt ceiling by the Aug. 2 deadline, it will fall to President Obama and Treasury Secretary Timothy Geithner to determine how Uncle Sam pays his bills -- indeed, which bills the federal government will pay, and which it will set aside -- once the country has no more borrowing power.
Analysts have likened the exercise that the chief executive would be forced to undertake to triage: the frantic, on-the-fly process by which physicians and nurses decide which patients arriving at a hospital's emergency room most urgently require medical attention, and which patients, however great their suffering, must be ignored for the moment.
"Not everything is going to be paid, and someone has to decide what's not going to be paid," said Ron Haskins, a senior fellow at the Brookings Institution. "The bills are higher than the income."
An analysis by the Bipartisan Policy Center, using previous budget figures to project federal revenues and outlays for the month of August, found that the shortfall would be approximately $160 billion. That figure declines a bit -- to approximately $135 billion -- if one starts one's calculations for the month on Aug. 3, the day after the Treasury exhausts its reserve funds.
On that date, a large set of Social Security and disability checks is set to go out, worth a total estimated value of $23 billion. Obama has suggested he is uncertain whether those checks would in fact be sent out on that date, in the absence of a deal on the $14.2 trillion debt ceiling. Others suggested the president's statement was either designed to influence Republican lawmakers in the ongoing negotiations or one that might only be true for a limited period of time. In the latter scenario, the Social Security checks would go out on Aug. 4 or 5.
The very first bills the federal government would pay, according to Jay Powell, a former undersecretary of the Treasury under President George H.W. Bush who is now a visiting scholar at the Bipartisan Policy Center, would be interest on outstanding debt -- even if that debt is held by foreign creditors.
"We really have no choice; you need to pay the interest," Powell told Fox News. "If we default on a bond, no one knows what would happen, but it could actually collapse the world's financial system, as almost happened in 2008. It would make the Lehman Brothers event potentially look like a tempest in a teapot. I honestly tell you it's not a risk that anybody in the Treasury Department would ever take -- and they shouldn't."
Although it remains a possibility that the Obama administration could seek to shunt to Congress the responsibility for deciding what gets paid, Powell thought the greater likelihood was that Treasury would pay outstanding bills in the order in which they are coming due -- an "impossibly difficult" task, as he put it.
"Excluding interest, you'd have to default on 50 percent of the non-interest payments that the government makes every month," he said. "And while we're all in favor of substantial spending cuts, 50 percent cuts to the bone. It cuts programs that people like and that are very important."
Using Daily Treasury Statements from August 2009 and August 2010, the center projected that Uncle Sam will see roughly $203.33 billion flow into federal coffers in August, from tax revenues and returns on investments. For the same period, the center estimated federal outlays would approximate $362.67 billion, meaning Uncle Sam will face an instant shortfall for the month of $159.35 billion.
If calculations begin with Aug. 3 as the starting date, revenues are estimated at $172.4 billion, outlays at $306.71 billion, and the shortfall at $134.31 billion.
Among the major outlays facing the president and the treasury secretary on that date would be Medicare and Medicaid (a combined $50 billion); Social Security (approximately $50 billion, including the $23 billion set to be disbursed on Aug. 3); payments to vendors retained by Department of Defense ($31.7 billion); and interest on Treasury securities ($29 billion).
Still other outlays -- not as large, but still vital and difficult, politically, for policymakers and elected officials to contemplate withholding -- include federal salaries and benefits ($14.2 billion); unemployment insurance benefits ($12.8 billion); tuition aid ($10.4 billion); the Temporary Assistance for Needy Families program (the Clinton-era welfare office, estimated to cost $9.3 billion for the month); military active-duty pay and veterans programs ($5.8 billion); and IRS refund checks ($3.9 billion).
"So if they don't reach an agreement, we can't borrow and we can't make all our payments," said Haskins, a trained psychologist and economist. "It's the public's fault," he added. "They elected their own policymakers. ... They deserve each other."