With Democrats and Republicans squaring off over upcoming budget decisions, The Concord Coalition is urging elected officials to promptly raise the federal debt limit and then reform the debt limit process. Such a reform could be part of a comprehensive plan to put the federal budget on a more responsible and sustainable course.
“There should be no delay in voting to increase the debt limit,” Concord says in a new issue brief. “Despite its name, the debt limit has never proven to be an effective means of controlling debt. And yet, failure to raise the debt limit risks serious long-term harm to the nation’s creditworthiness.”
If the debt limit is not raised, the issue brief points out, “All of the same obligations would still accrue. The only change would be to compel a default on commitments that result from past policy decisions.” No one has presented a plausible set of policy options that could prevent the debt from exceeding the current limit.
“With an unnecessary crisis over the debt limit averted, Congress and the President should promptly develop a comprehensive, specific and credible plan to place our nation on a sustainable fiscal path,” Concord says. “Lawmakers should consider the entire federal budget to be on the table – including entitlement programs, domestic discretionary spending, defense spending, and revenues.”
Fitch Ratings today offered a reminder of the need to raise the debt limit and produce a solid fiscal plan, warning of a possible downgrade in the country’s AAA rating later this year if Washington fails to come up with “a credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances.”
The recent “fiscal cliff” legislation shows how Washington makes policy decisions without regard to their effects on the debt limit. The new law will increase deficits by an estimated $4.6 trillion over 10 years, relative to what had been current law, according to the Congressional Budget Office. Yet that legislation made no provision for increasing the debt limit.
Citing a 2011 report by the Government Accountability Office (GAO), Concord says that Congress “should more closely align debt limit increases with the fiscal policy decisions that create a need for more borrowing.” Any legislation that would require borrowing beyond the limit, for example, could be required to include an increase in the limit.
At a press conference Monday, President Obama emphasized the importance of raising the debt limit soon to avoid “disastrous” economic consequences. In addition, Treasury Secretary Tim Geithner sent a letter to Congress yesterday saying the Treasury’s “extraordinary measures” to postpone a U.S. default could be exhausted between mid-February and early March.
In response to Obama’s comments, House Speaker John Boehner issued a statement saying the American people “do not support raising the debt ceiling without reducing government spending at the same time.” He said the House would pass “responsible legislation that controls spending, meets our nation’s obligations and keeps the government running.”
Last week Democratic leaders in the Senate told Obama he should be prepared to take “any lawful steps to ensure that America does not break its promises and trigger a global economic crisis – without Congressional approval, if necessary.” Senate Republican Leader Mitch McConnell criticized that message as “the height of irresponsibility.”