Shoring up the Debt Ceiling Agreement: Terms of Credit Act Can Help


shutterstock_208794031There are two significant weaknesses in the recent debt ceiling agreement: 1) It departs from the balanced budget plan adopted earlier this year; and 2) it skirts the requirements of the budget process. The Terms of Credit Act drafted by the House Republican Study Committee can be used to address these weaknesses.

Congress and the Administration have reached an agreement that suspends the debt ceiling until March 2017, while increasing appropriated spending, restraining entitlement spending and taking steps to increase revenues. This agreement, within its confines, is an acceptable outcome for three reasons. First, it sets aside the risk of a breach of the debt ceiling or default by the federal government on its debt obligations. Either of these outcomes would have very likely shaken the confidence of markets in the “full faith and credit” of the federal government in a way that would have imposed serious damage on the economy. Second, it does not raise tax rates. Third, it sets a precedent for future steps to rein in out-of-control entitlement spending, thereby addressing the real cause of the fiscal crisis the federal government faces.

Outside the confines of the agreement, however, Congress must turn its attention to returning to the path to a balanced budget set by the budget resolution it approved earlier this year and restore the integrity of the budget process. The reason is that the debt ceiling agreement departs from the budget resolution. In fact, the Senate had to vote to waive the application of the Congressional Budget Act in order to permit the adoption of the bill to codify the agreement. Accordingly, it is essential that this departure from the budget resolution approved earlier this year and the budget process is only momentary.

Fortunately, Congress has been provided a roadmap for quickly returning to the path to a balanced budget and restoring the budget process. It stems from legislation drafted by the members of the House Republican Study Committee under Chairman Bill Flores (R-TX) called the Terms of Credit Act (H.R. 3771). In general terms, this legislation seeks to build on the budget resolution Congress, adopted earlier this year in accordance with existing budget law, which balances the budget in less than 10 years. It does so by both advancing the specific legislation required to implement the budget resolution and strengthen the budget process in ways that will make it much less difficult to enact into law a responsible fiscal policy. It was Chairman Flores’ intention to make this bill the core of the budget agreement between the Administration and Congress, but time did not permit its consideration because the date for the federal government to hit the debt ceiling was advanced to November 3 in recent weeks. This objective for H.R. 3771 is made evident by the fact that it includes a provision for increasing the debt ceiling to $19.6 trillion.

While the adoption of the budget agreement in one sense obviates the need for enacting H.R. 3771, in another sense it does not. What can be pursued is the adoption of three elements of this legislation individually as a freestanding concurrent resolution and two freestanding bills. These elements take the following steps.

Element #1 advances a balanced budget constitutional amendment to the U.S. Constitution. This is the most profound and lasting step that could follow from H.R. 3771. The mere fact that Congress has yet again had to vote to increase the debt ceiling shows that there is a need for a constitutional amendment to require a balanced budget. Otherwise, this cycle of constant deficits that force future increases in the debt ceiling will continue indefinitely. There are several balanced budget constitutional amendment proposals that have been introduced in this Congress. Another proposal has been introduced that effectuates the effort among the states to propose and ratify their own proposed amendment. The latter proposal, House Concurrent Resolution 26, was introduced by Representative Paul Gosar (R-AZ). It presents the best opportunity for advancing a balanced budget constitutional amendment in Congress because it requires only a majority vote by both houses for its adoption. The other proposals, by contrast, require a two-thirds approval by both houses in order to advance to the ratification step.

There is no reason why these proposals could not be advanced together. This element of H.R. 3771 could be drafted as a concurrent resolution that both incorporates the text of House Concurrent Resolution 26 and establishes expedited procedures for bringing up the other balanced budget constitutional amendment proposals for debate and votes in both houses of Congress. This concurrent resolution should be brought up and passed by Congress in short order.

Element #2 compels Congress’ authorizing committees to produce the legislation required to meet their budget targets established by the budget resolution. Many components of the federal budget, both in terms of spending and revenue, follow from permanent law under the jurisdiction of these authorizing committees. As permanent law, they are on autopilot unless these committees act to change them in order to meet the requirements of the budget resolution. This element could be introduced as a freestanding bill. Its enactment would force the authorizing committees to take action or otherwise risk losing control over the legislation that is under their jurisdictions.

Element #3 bars Congress from adjourning until the appropriations committees do their work. The remaining portions of the federal budget are spending programs that require annual appropriations. It has become a routine event in Congress that the appropriations committees have failed to enact their bills in a timely fashion, leading to the risk of a partial government shutdown. This element of H.R. 3771 provides requirements for these committees to change their behavior and enact their bills in timely fashion each year. This too could be proposed as a freestanding bill and enacted.

Finally, there are other elements of H.R. 3771 that are not covered here. A key one would impose a moratorium on most kinds of new federal regulation. This element is not included here as potential freestanding legislation only because it falls outside the area of fiscal policy. For those interested in the debate over federal regulatory overreach, this element of H.R. 3771 could be considered on its merits in the context of the ongoing debate on that issue.

The House Republican Study Committee has done a great service to the cause of federal fiscal responsibility by drafting and introducing this bill. Just because the short timeline for the agreeing on a debt ceiling increase prevented the immediate consideration of this legislation, it does not follow that the entire content of the legislation no longer merits consideration in the coming days and weeks. Much of it remains timely and Congress should look to consider individual elements as freestanding legislation.

Published in Economics
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  1. Chris Johnson Inactive
    Chris Johnson

    An alternative perspective: the debt ceiling agreement just passed, as clandestinely negotiated by McConnell, Boehner, Paul Ryan’s staff (reportedly), and the Obama team had some illusory impacts.  It pretended to avoid the devastation of a default that was never necessary, or likely.  It pretended to find increased revenues.  It pretended that anything was accomplished with respect to entitlements, perhaps setting a meaningless precedent.  It also had a tangible impact: it funded the Obama agenda with additional money by placing liens against the futures’ of our children.

    After that hard day’s work, the debt ceiling increase had a second, tangible impact: it took away any and all leverage that may have been applied to the Democrats and liberal Republicans to responsibly legislate, or the Obama administration to execute, any worthwhile agreements.

    My perspective may be discussed as cynical, but that hardly matters, as we will all get to see what, if anything gets proposed, debated, legislated, and executed.  Beyond proposals, I predict bupkis.  I hope my prediction is in error.

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  2. Baker Spring Contributor
    Baker Spring


    I share your concern about leverage, or the lack thereof.  This is why I think those in Congress supporting a responsible fiscal policy should look to several provisions in the Terms of Credit Act.  Ultimately, the leverage will come from a constitutional amendment that changes fundamentally the way Congress goes about crafting federal budgets.  The Compact for America is pursuing such an amendment through an initiative by the states under Article V of the Constitution.  This approach will avoid the current impasse at the federal level because Congress’ role is very limited here and President Obama has no direct say whatsoever.


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