In a report published Tuesday, the Bipartisan Policy Center found that unless the debt ceiling is raised, federal spending would be cut by 44 percent in August. Under several scenarios, Treasury Secretary Timothy Geithner could prioritize spending to include reductions in pay for government workers, the group said.
"Our analysis shows that the government will be unable to pay all of its bills on Aug. 3 or sometime soon thereafter," said Jay Powell, visiting scholar at BPC and former undersecretary of the Treasury for finance. "The choices would not be pretty."
According to BPC, Treasury could exhaust its cash flow in August paying only for interest on existing debt, Medicare, Medicaid, Social Security, unemployment insurance and defense contracts. Unless these programs were cut, departments such as the Justice, Labor and Commerce could go unfunded, as could veterans' benefits, military pay and federal civilian compensation, the report found.
The group also said that if a cash shortage began on Aug. 3, the government would be unable to pay out $23 billion in Social Security benefits due that day.
Carl Goldman, executive director of the American Federation of State, County and Municipal Employees Council 26, said the scenarios laid out in the report all threaten federal salaries.
"What the study says is that trying to decide who are the winners and losers is a very, very difficult and very, very unfair process," he said. "If there is a default, there is a very good chance that federal employees won't get paid."
A February report from the Congressional Research Service found that the debt ceiling carries little risk for federal workers, however. "Failing to raise the debt ceiling would not bring the government to a screeching halt the way that not passing appropriations bills would," CRS wrote, quoting a 1995 report from the Congressional Budget Office. "Employees would not be sent home, and checks would continue to be issued."
Correction: The original version had a wrong word in Carl Goldman's organization. He is executive director of the American Federation of State, County and Municipal Employees Council 26.