Column: Raze the Debt Ceiling
The announcement that House Speaker John Boehner has offered to take the debt ceiling off the table in the current “fiscal cliff” negotiations is, in one sense, a welcome development. If the Senate agrees, we will temporarily be spared the sort of embarrassing brinkmanship that accompanied the last increase, in August 2011. But a year from now, we will likely be back in the same place, where the debt ceiling is being held hostage by people who have no qualms about using the good credit of the United States as a negotiating ploy. We would suggest that, rather than just waiting a year to have this fight, the best approach is simply to abolish the debt ceiling. It is an anachronism that causes more harm than good.
Ironically, the debt ceiling concept was created during World War I to smooth the process of borrowing. But the debt ceiling has evolved during the recent years of partisan polarization into a barrier to sensible financial management. Now that the current debt limit of $16.4 trillion is about to be met, the Treasury will use costly “extraordinary measures” to pay its bills. The Government Accountability Office has documented that the 2011 delay in raising the debt ceiling increased borrowing costs in that year by $1.3 billion.
Under current law, after those means are exhausted, and without a specific congressional authorization to incur more debt, the government would default on some of its obligations. That would have devastating consequences for our economy; no longer would Treasury securities be viewed as the safest in the world. Choosing to default would be the height of irresponsibility and far from the ideals of fiscal conservatism.
The federal budget has been in deficit for 45 of the past 50 years. Some of these deficits have been worthwhile, as means to stimulate the economy during recessions and to finance investments. But deficits also result from demanding more government benefits and services than we are willing to pay for with taxes. The debt ceiling is a useless tool for controlling those demands, because its “limit” comes into effect far too late. Worse is the fact that the debt ceiling enables hypocrisy — for many legislators who oppose raising it previously approved spending in excess of revenues they were willing to raise. They claim that the debt limit is necessary to force themselves to reduce the debt when they had already had the power to do so in the regular legislative process.
If Congress truly wants to cut the debt, there’s a better way of doing it than again threatening to put the nation’s credit at risk. The debt ceiling is not central to this task. It is, instead, a distraction from any reasonable debate on taxes and spending.
In other work with colleagues, we have proposed that the first step of a more sensible process would be — to borrow a phrase — to “repeal and replace” the debt ceiling. The replacement would first ask Congress and the president to set reasonable targets for debt reduction over a multiyear period so that the debt would reach a sustainable level.
Then our elected officials would have to do the hard work of budgeting: deciding what specific spending is unaffordable and what taxes must be borne by the American people. For those conservatives who believe spending is “out of control,” they would be more likely to rein it in by conducting strategic reviews of what the government does. They could use performance data to identify government programs that don’t work, and refuse to vote for bills that fund low-priority programs.
Liberals should join them in adopting this smarter approach. If they believe that programs work well enough to justify higher taxes, then strategic reviews and performance data may help them make their case.
With this more sensible process, conservatives and liberals could together engage on the real issues, rather than yet again playing games with the nation’s finances. Repealing and replacing the debt ceiling is the first step toward fiscal responsibility. Therefore, it would be a reassuring gesture to financial markets if Congress, as part of next year’s debt control package, took one more vote on the debt ceiling — a vote to abolish it.
Philip G. Joyce is professor of public policy at the University of Maryland, College Park. Roy T. Meyers is professor of political science at the University of Maryland, Baltimore County.