Frank Shafroth
The suspension of the federal debt limit expires on March 1. Though the Bipartisan Policy Center estimates the U.S. Treasury Department can most likely juggle accounts through midsummer to avoid a default, a George Mason University faculty member says there is no guarantee Congress will raise the limit, as it has done 10 times since 2008.
“Congress likes to create debt but doesn’t like to vote to say they want to increase it,” said Frank Shafroth, director of Mason’s Center for State and Local Government Leadership in the Schar School of Policy and Government. “If you hit the debt ceiling, given the dysfunction of this administration and Congress, there would be a real chance of a federal default.”
The consequences would include default-fueled increases in borrowing costs for the federal government, which would translate to higher credit costs for cities, counties and states that finance through the issuance of municipal bonds, where interest rates are affected by those of U.S. treasury bills.
For local governments that cannot meet their financial obligations, property taxes might be raised to make up the difference, Shafroth said.
“And with interest rates going up, a greater portion of the federal budget will be used to pay interest on the national debt,” Shafroth said. “If that’s the issue, you’re not going to take money out of the largest spending programs such as Social Security or Medicare. What’s left? Highways, public safety and discretionary programs.”
Left out, so far, has been leadership, Shafroth said.
“Before, at least it was political,” Shafroth said of the debt-ceiling fights. “Now, here we are, and the president is in Florida at a golf course, so it’s not clear we have the same ability to get a focus and a recognition that all these things are tied together.”
Frank Shafroth can be reached at 703-993-8560 or fshafrot@gmu.edu.
For more information, contact Damian Cristodero at 703-993-9118 or dcristod@gmu.edu.
About George Mason
George Mason University is Virginia’s largest public research university. Located near Washington, D.C., Mason enrolls 37,000 students from 130 countries and all 50 states. Mason has grown rapidly over the past half-century and is recognized for its innovation and entrepreneurship, remarkable diversity and commitment to accessibility.