Congress has no choice but to raise the debt ceiling

When precisely the X date would occur is still a guess. But we're talking days around Feb. 15. At the very least there would be annoyance. Here's what we mean: The Internal Revenue Service said Tuesday that the drawn-out talks to get a tax deal done is forcing the IRS to delay processing of tax returns until Jan. 31.

The reason, according to USA Today's John Waggoner: "Programming IRS computers and printing forms and instructions were delayed by congressional wrangling over the fiscal cliff -- a combination of tax hikes and spending cuts that briefly became law on Jan. 1."

At worst, once the X date is reached, pandemonium would reign.

It's likely the financial markets would tumble badly. (Right now, however, the markets are assuming stress but not disaster.)

In a working paper, the policy center posits that the government could opt to pay some bills but not others. Or it could wait until it has enough cash to pay a day's bills.

The Bipartisan Policy Center is a think tank founded by former Senators Bob Dole, George Mitchell, Howard Baker and Tom Daschle.

So, let's say the government runs into a cash crisis on or about Feb. 15. Over the next month, it will probably take in roughly $270 billion and spend about $450 billion, the policy center says. If the debt ceiling is not raised and the government can't borrow the cash, the Treasury has to decide how bills will get paid. 

If the government decided to pay some bills and not others, the policy center offers this scenario.

If you pay a month's worth of:

• Interest on Treasury securities -- $38.1 billion
• Income tax refunds to individuals -- $85.5 billion
• Medicare/Medicaid -- $72.5 billion
• Social Security benefits -- $61.1 billion
• Military pay and retirement -- $13.2 billion
• Unemployment insurance benefits -- $6.1 billion

• Defense vendors -- $28.8 billion
• Veterans benefits -- $4.2 billion
• Federal salaries and benefits $19.9 billion
• Department of Education costs (Pell grants, special education payments and the like) -- $16.8 billion
• Food/nutrition and temporary assistance to needy families -- $10.1 billion
• Civil Service retirement -- $5 billion
• Health and human services grants -- $8 billion
• Supplemental Security Income -- $3.4 billion
• Other spending -- $79 billion. This would include expenses incurred by the Department of Justice and the FBI; the Department of Energy; the Federal Highway Administration; the Federal Aviation Administration; the Environment Protection Agency and FEMA and the national flood insurance program.

There's another scenario the policy center offered. The government doesn't pay out income tax refunds.

The government pays:

• Interest on Treasury securities -- $38.1 billion
• Medicare/Medicaid -- $72.5 billion
• Social Security benefits -- $61.1 billion
• Military pay and retirement -- $13.2 billion
• Veterans benefits -- $4.2 billion
• Defense vendor payments -- $28.8 billion
• Federal salaries and benefits -- $19.9 billion
• Unemployment insurance benefits -- $6.2 billion
• Civil servce retirement -- $5.0 billion
• Food and nutrition and temporary assistance to needy families -- $10.1 billion
• Department of Education (Pell grants, Special Education) -- $16.8 billion

The government forgoes payments on:

• Income tax refunds to individuals -- $85.5 billion
• Health and human services grants -- $8 billion
• Supplemental Security Income -- $3.4 billion
• Other spending -- $79 billion. Again, these would include expenses incurred by the Department of Justice and the FBI; the Department of Energy; the Federal Highway Administration; the Federal Aviation Administration; the Environment Protection Agency and FEMA and the national flood insurance program.

And that's potentially just the first month of the crisis. No matter how you look at it, it's not a pretty picture.

The consequences, the policy center says, effectively mean an immediate 39% cut in federal spending. It means handling all payments for important and popular programs, including national defense, Medicare, Medicaid and Social Security, becomes impossible.

The economic disruption is huge and accompanied by wild uncertainty.

"Everything else is informed speculation," as Derek Thompson wrote on the Atlantic.com on Tuesday, "but you don't need a creative mind to guess that a stock market that loathes surprises would positively freak at the first-ever default of the United States government."

In an earlier version of the post, the scenarios above were described as occuring in the course of a day's government spending. The post should have said the scenarios were set up using a month's spending. The post now includes what the government would expect to receive and spend if the debt ceiling were simply lifted.

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