The Treasury Building in Washington, D.C. (Getty Images)
I didn’t have to hear it from Moody’s Analytics last week to know that Virginia could be hit hard if Congress fails to raise the federal government’s borrowing limit and the United States defaults on its debts for the first time. I met with my financial planner over that very concern last week.
Economists from Federal Reserve Chair Janet Yellin on down have warned for months that if the government of the planet’s largest economy becomes history’s largest deadbeat by early June, an economic tsunami that begins here could soon plunge other nations into a recession, or perhaps worse.
Moody’s — among the world’s best-known and most trusted credit-rating institutions with its top-of-the-game tools and global reach and perspective — put real research and data behind a list of the states that would suffer without a deal.
States closest to Washington and the federal government, logically, have much skin in the game. Virginia and Maryland fit that profile financially, geographically and socially.
According to research by the Rockefeller Institute of Government, Virginia receives more federal money than any state by a long shot ($32.5 billion in 2021, counting COVID relief benefits, compared to second place Alaska at $29 billion and Maryland in third place at $27.6 billion).
What separates the commonwealth from the pack is federal contracts ($13.6 billion, dwarfing runner-up Kentucky at $7.6 billion and third-place Maryland’s $7.3 billion). The rest of Virginia’s federal windfall includes nearly $9.5 billion in direct payments, $2.1 billion in grants, $3 billion in wages and $4.2 billion in COVID relief payments in 2021, the latest year for which Rockefeller Institute data are available.
Put another way, compared to the $12.4 billion in total taxes Uncle Sam collected from Virginia businesses and residents two years ago, the state got back $20 billion more than it paid, or $2.62 for every dollar Virginia sent across the Potomac, the Rockefeller Institute analysis shows.
You can see the adversity ahead for Virginia if Democratic President Joe Biden can’t reach an agreement with the Republican House of Representatives and Speaker Kevin McCarthy in the next couple of weeks.
That’s especially true north of the Occoquan River, an area which teems with federally supported employees and government and defense contractors. The same is true forHampton Roads, home to the world’s largest U.S. Navy base and active duty and retired military.
The House has adopted a bill that slashes federal programs as a prerequisite for increasing the government’s maxed-out $31.4 trillion borrowing limit; it only kicks the can down the road another 10 months, or $1.5 trillion, meaning we will repeat this soap opera next March. The House’s cuts include: repealing incentives for renewable, clean energy projects and electric vehicles; easing regulations on carbon energy sources such as oil and gas; revoking funding to update antiquated IRS technology and hire more agents to track down tax cheats; increasing work requirements for Medicaid and SNAP benefit recipients; and giving Congress unprecedented authority to review new executive branch rules and regulations.
Those are nonstarters for Biden and the Democratic Senate. They note that the debt limit increase is necessary to cover past bills the government already owes and that the House-controlled appropriations process is where future cuts must be addressed. For you or me, it’s like refusing to pay last month’s credit card bill because you want to replace your dishwasher next month.
Twice during Donald Trump’s presidency, congressional Republicans raised no objection to boosting the line of credit twice over four years when the federal debt ballooned from $14.4 trillion to $21.6 trillion, a 50% increase.
Now, there are hardline GOP voices in the House willing to cede no ground in talks with Biden even if the process collapses, possibly draining your 401(k) plans, veterans benefits, Social Security checks and Medicaid coverage, to name a few.
Among the loudest voices exhorting McCarthy to stonewall against compromise and insist on the House cuts is Rep. Bob Good, R-Va.. In a recent Financial Times interview, Good said, “The Senate needs to pass it and the president needs to sign it, because if they don’t, they are risking whatever consequence that comes from not doing so.”
He was also quoted as saying, “There’s really not the catastrophic consequence that many … would have us believe.”
Good’s sophistry shows why this avoidable debacle becomes more likely by the day. In the most callous, cynical political environment in modern history where parties slavishly heed their hardliners, there is a belief that the coming derecho can be spun to one party’s advantage at the other’s expense, no matter how many get hurt.
To be sure, future spending is not sustainable at current growth rates relative to revenue and it has to be addressed. But a contrived debt default would be destructive malfeasance.
With so much at stake, it’s time for Virginia voters to start working their phones and email their social and professional networks to demand that leaders lead. It’s time for the silent majority at last to make signs, to peacefully demonstrate, to pen op-eds, to raise hell — to make their elected representatives grasp that failure is not an option.
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