On the Debt Ceiling, Congress Should Keep It Simple

 

shutterstock_161578643In the coming days, the federal government will once again run up against the debt ceiling. In recent years, Congress has addressed the need to increase the debt ceiling by resorting to convoluted procedures to make it appear that it opposes increasing the ceiling, while actually enacting laws to do just that. Under the Budget Control Act of 2011, the Congress adopted a procedure of increasing the debt ceiling, while making the increase subject to a later resolution of disapproval. The resolution of disapproval was not adopted. Subsequent to 2011, Congress has suspended the debt ceiling for set periods of time. The argument here is that suspending the debt ceiling does not mean increasing it. The numbers say otherwise, with the federal “debt subject to limit” now exceeding $18 trillion.

This time around, Congress should get back to basics and vote to enact a clean bill to increase the debt ceiling. It should do so by a reasonable amount in exchange for separate legislative actions, both substantive and procedural, that serve to rein in spending and achieve a balanced budget. The main reason for returning to a simple approach is that the debt ceiling is important tool for advancing the cause of federal fiscal responsibility, and the convoluted procedures incrementally weaken that tool. More specifically, the circumstances are now different and the convoluted procedures are no longer appropriate for four reasons.

The first reason is that Congress adopted a budget resolution earlier this year. During the years of the Budget Control Act debate and the suspension of the debt ceiling, Congress was failing to adopt budgets. Fiscal conservatives had little recourse but to use the debt ceiling to try to force the adoption of a responsible fiscal policy. The resulting budget negotiations over these policies imposed some fiscal discipline by imposing ceilings on most appropriated spending, backed by a tool of automatic across-the-board spending restraint on the applicable accounts called sequestration. The convoluted procedures for increasing the debt ceiling followed from complex negotiations stemming from the lack of formal budgets. With adoption of a budget blueprint for fiscal years 2016 through 2025, in the form of Senate Concurrent Resolution 11, Congress can now undertake simpler negotiations on matters of fiscal policy.

The second reason is that the budget resolution serves to balance the budget in fewer than 10 years. One of the things that made the aspect of the confrontational fiscal policy negotiations related to the debt ceiling so complicated in recent years was the absence of a plan to balance the budget and obviate the need to increase the debt ceiling in the years following balance. As a result, the debt ceiling assumed the entire burden of serving as the mechanism for imposing fiscal discipline—because there was no light at the end of the tunnel of constant deficits and increasing debt. With a balanced budget now the official policy of Congress, members no longer need to address the proposition of increasing the debt ceiling on a continuing basis. It can decide to increase the debt ceiling in strict compliance with the budget blueprint.

The third reason is that fiscal conservatives in Congress have supported the budget blueprint, which already acknowledges the need to increase the debt ceiling. In 2011 and the years thereafter, many fiscal conservatives took the position that they would not vote to increase the debt ceiling. This forced congressional leaders to pursue the complicated procedures relative to the debt ceiling described earlier. They had to balance the practical requirement to increase the debt ceiling, while providing fiscal conservatives the opportunity to express their dissent to the increase. The adoption of the budget resolution earlier this year makes the situation regarding the debt ceiling different. A strong majority of fiscal conservatives in Congress voted for this resolution. Under the resolution, the debt subject to limit is projected to increase to roughly $20.2 trillion at the end of fiscal year 2020. Accordingly, most fiscal conservatives should feel comfortable increasing the debt ceiling to a level consistent with the budget resolution because it is consistent with a balanced budget before the end of 10 years.

Finally, the states are now pursuing a constitutional amendment that takes away Congress’ unlimited credit card. This is the most important reason for Congress to increase the debt ceiling in a simple and straightforward fashion. The states are taking this step in a way that is designed to produce a balanced budget. Further, this strong step is being pursued through a specific interstate agreement, called a compact, solely for this purpose. The history of federal fiscal policy — since the establishment of the large entitlement programs of Social Security, Medicare and Medicaid in the last century, and in this century with the adoption of Obamacare — demonstrates that a new procedure in the Constitution for adopting and following budgets must be established.

With this initiative, the four states that have already joined the compact (Georgia, Alaska, Mississippi, and North Dakota) have recognized the need for fundamental procedural change. Others states are moving to join, as well. Under the amendment, which has been drafted Congress will have to get the approval of a majority of the states to increase the debt above a level established by the amendment itself. In the context of the adoption of this amendment, fiscal conservatives will no longer be isolated in Congress because of demands to increase the debt in order to allow their colleagues to claim to constituents that they will uphold their commitments to provide higher entitlement benefits that in reality cannot be honored. State officials, who did not make these commitments in the first place, will serve to balance the demands for entitlement spending with fiscal responsibility under this amendment.

The reality is that today’s circumstances relative to the matter of increasing the debt ceiling are different from what they were from 2011 to the end of last year. Congress, under present circumstances, should feel comfortable voting to increase the debt ceiling to a level consistent with the adopted budget resolution and as a basis to pursuing the other steps to restore a responsible fiscal policy. These other steps are advancing the interstate compact on adding a debt-limiting balanced budget amendment to the Constitution, reining in the growth in entitlement spending, and continuing to impose necessary limits on discretionary spending.

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  1. iWe Coolidge
    iWe
    @iWe

    Here is a quick question: when interest rates return to historic averages, what percentage of the Federal Budget will be eaten up in debt payments on $20 trillion owed?

    By all means, let’s rearrange the deck chairs some more, in return for empty promises that the Titanic is unsinkable.

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  2. Z in MT Member
    Z in MT
    @ZinMT

    You make a good argument that the Republican’s have very little to stand on to not raise the Debt Ceiling.  The state compact thing is silly, will never happen.

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  3. Baker Spring Contributor
    Baker Spring
    @BakerSpring

    iWe:Here is a quick question: when interest rates return to historic averages, what percentage of the Federal Budget will be eaten up in debt payments on $20 trillion owed?

    By all means, let’s rearrange the deck chairs some more, in return for empty promises that the Titanic is unsinkable.

    Good question.  The Congressional Budget Office (CBO) has done this analysis in its budget update.  See this analysis at https://www.cbo.gov/publication/50724.  This analysis incorporates higher interest rates than today’s from the companion economic forecasts, but it also assumes higher deficits and debt than what is forecast under the congressional budget resolution.  On this basis, CBO reports that net interest payments will absorb a bit more than 12 percent (more than $700 billion) of federal  outlays in the final year of the ten-year budget period.  This is why the states need to take away the federal government’s credit card where the cardholder sets the credit limit.

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  4. Baker Spring Contributor
    Baker Spring
    @BakerSpring

    Z in MT:You make a good argument that the Republican’s have very little to stand on to not raise the Debt Ceiling. The state compact thing is silly, will never happen.

    I believe the compact will happen.  It is only a matter of when.  We can start now and take away the federal government’s unlimited credit before the its fiscal position becomes completely untenable or we can wait until after the fiscal collapse.  It will certainly happen then.  I am working to make it happen earlier rather than later.

    • #4

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