Here & Now

Peter Barca on the US Debt Ceiling and Impacts on Wisconsin

Frederica Freyberg:

In Washington, fears over a national financial default have lawmakers scrambling to make a down-to-the-wire deal once again to raise the debt limit. But what exactly would a federal default or even a near default mean for Wisconsin’s economy? We turn to the Wisconsin Department of Revenue Secretary Peter Barca.

When we come so close like this to the U.S. government going into default, does reaching the edge do its own kind of damage?

Peter Barca:

It certainly does. You know, in 2011, the last time they came up to edge of default, under the Obama administration, our credit rating for the nation went from AAA to AA+ and it’s never been elevated again. So if they do this again, we very well could see another downgrade, which is catastrophic in many ways because first of all, it costs more then for the federal government to borrow. Secondly, the markets always tip which means for seniors, who are depending on their 401ks, they get extremely worried and usually they take a dip. So just even being close is bad enough. But if they default, then we are talking about significant problems. 16,400 jobs lost in Wisconsin according to Moody’s Analytics. A .55% decline in payroll. That means our withholding taxes go down. Corporate taxes go down. It would have a very deleterious effect on Wisconsin as well.

Frederica Freyberg:

Where and why are those jobs lost?

Peter Barca:

Well because what ends up happening when the markets suffer, so that’s the first stage. Then investment dollars also start to dry up. So businesses that maybe were going to expand or were dependent on having extra capital in order to meet payroll, all of a sudden have to lay people off. That is the other devastating thing is the effect is uneven. It affects senior citizens on fixed incomes who are depending on investment income. It affects young people who are usually the first ones to be laid off. It is not an even effect and those people who are middle income, lower middle income, you know, edge of society, they always get hurt the worst.

Frederica Freyberg:

Then there is the specific, very instant effect, right, of people potentially not getting social security checks?

Peter Barca:

Of course. That is not even looking at that because if in fact, they do default, then the treasure secretary has to start triaging and making very difficult decisions about whether or not you’re going to get social security checks out on time. Whether or not people who are let’s say just about to qualify for Medicaid or Medicare. Maybe they have to do something in that regard. Of course, there has been a lot stated about veterans and their benefits and how they are in jeopardy as well. It is an incredible ripple effect and the part that is so sad is it’s so unnecessary. Three times in the Trump administration, they did this. I think of it as a family. When our credit card bill is due, I don’t say, well, unless my family agrees to make changes to our family budget, I’m not going to pay. So then I have to pay interest and penalties. You pay your bills when they are due and then you make decisions as part of the budget process of what’s the appropriate level of spending or tax relief or whatever the case may be. There’s absolutely no reason why they need to do this at this juncture. It is at a very perilous time because of the feds increasing interest rates. We saw even for the Fiscal Bureau. We’ve seen a slight dip in terms of our projections of the surplus. We’re still in very strong shape but you worry about trajectory and if we’re going to stay in that type of shape.

Frederica Freyberg:

So Moody’s says it is really not likely that this is going to happen and yet Treasury Secretary Janet Yellen says, “Hold on people, June 1 is the day.” She seems to really be sounding the alarm on this.

Peter Barca:

Right.

Frederica Freyberg:

What do you think?

Peter Barca:

Knowing that, we don’t want to get up against that last day or two in case it takes longer to get the votes or in case something goes sour at the last minute. We are playing with fire here. We’re playing with people’s lives. We’re playing with the economy, and effect on so many families. I just hope to goodness they are able to do something in the next week.

Frederica Freyberg:

Speaking of McCarthy and his caucus and his members, is it worse now, this kind of up to the brink?

Peter Barca:

I think it is because you know, in the past, whether Democrat or Republican speaker or Democrat or Republican majority leader in the Senate, generally speaking, the members trusted their leaders and they were going to vote accordingly to whatever deal was reached. But when McCarthy, who agreed as part of the deal to become speaker, that any one member could bring up a vote to remove him, he’s got to be all the more careful about what deal he strikes. I am sure he must have to be on the phone continually because he has such a narrow margin on votes to begin with.

Frederica Freyberg:

Have we seen any indication yet because we are so close to that June 1 date in markets or anything like that?

Peter Barca:

Our economists are watching this very closely. We’re very nervous ourselves. We do not want to see at a time when Wisconsin has never been stronger economically, where we do have AAA bond rating for the first time in four years. We do have the lowest number of people on unemployment ever. We’ve got one of the greatest growths in manufacturing jobs. This is the last thing we want to see right now.