Failing to Raise the Debt Limit Would Harm the Poor and People of Color

Programs They Rely on Would Face Cuts

If Congress fails to raise the debt limit before August 2 the United States’s credit rating will almost certainly be downgraded and interest rates will jump. Without the ability to borrow, the federal government will have no choice but to immediately cut the payments it is obligated to make by 40 percent. This will threaten Social Security benefits, active-duty military pay, Medicare and Medicaid payments, and all other federal activities, from law enforcement to education to health care. The American economy will quickly be plunged back into recession if the federal government is unable to meet a significant portion of these obligations.

That nightmarish scenario will affect all Americans from coast to coast. But the Tri Caucus pointed out last week—the Congressional Black Caucus, Congressional Hispanic Caucus, and the Congressional Asian Pacific Caucus—that the aftershocks from Congress’s failure to raise the debt ceiling will be particularly painful for people of color. The federal government would be forced to immediately discontinue vital services relied upon disproportionately by lower-income and minority households under any likely scenario of what might happen if the debt limit isn’t increased.

No one knows for sure which payments could be made. Still, a Bipartisan Policy Center analysis shows that if the Treasury Department were to put incoming revenues toward defense spending, Social Security, Medicare and Medicaid, and unemployment insurance the federal government would be forced to make substantial cuts to programs that help the disadvantaged (not to mention canceling many other payments, including tax refunds, federal worker paychecks, and many other obligations of the government). Cuts to these programs will be felt more by persons of color since a greater percentage of African-American and Hispanic households live in poverty.

Just consider a sampling of some of the programs and services the federal government will be unable to pay for (and the amount that won’t be paid) if the debt limit remains frozen through August and September:[1]

  • Food stamps and other nutritional programs for low-income pregnant women and children: estimated cuts in August and September: $14.7 billion

As of 2009, 37.3 percent of recipients of these programs were persons of color.

  • Pell grants that cover higher education expenses for low-income students: estimated cuts in August and September: $8.8 billion

CAP Senior Fellow Sam Fulwood III wrote recently that cuts to Pell grants “disproportionately affects recipients of color, who are most dependent on the grants, including African Americans (11.8 percent), Latinos (13.2 percent), and Asians (6.8 percent).”

  • Affordable housing and low-income rental assistance programs: estimated cuts in August and September: $7.4 billion

Data from 2008 show that 44 percent and 23 percent of public housing recipients are African American and Hispanic, respectively.

  • Educational programs designed to improve academic achievement for disadvantaged children: estimated cuts in August and September: $2.5 billion

African American and Hispanic students make up 27 percent and 31 percent of students in these programs, respectively, according to most recently available data from the Department of Education.

  • Early child development services for low-income children: estimated cuts in August and September: $1.3 billion

Data from a 2008 Health and Human Services report show that approximately two-thirds of the students that participate in these programs are African American or Hispanic.

  • Job-training programs for dislocated workers and youth employment services: estimated cuts in August and September: $800 million

Thirty-eight percent of all participants in these programs are African American or Hispanic.[2]

All individuals and businesses rely on services the federal government provides and will be negatively affected if the debt ceiling isn’t raised and these services get cut. Yet for our neediest citizens the sudden unavailability of certain government programs could mean the difference between affording college tuition, necessary prenatal treatment, and this month’s rent payment.

Jordan Eizenga is a Policy Analyst at American Progress.


[1]. Author’s calculations for all non-Pell grant cuts are based on a Bipartisan Policy Center analysis on the debt limit and 2010 August and September monthly Treasury statements of federal government receipts and outlays. The analysis assumes that Treasury monthly spending in August and September of 2011 would resemble that of 2010.

[2]. Author’s calculations based on 2009 Workforce Investment Act Standardized Record Data, the most recently available.

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