As federal agencies and millions of Americans struggle to recover from Washington’s partial shutdown over this year’s budget, we are now facing a potential crisis over the federal debt limit that could have an even greater negative impact.
The debt limit, which was suspended a little over a year ago, is scheduled to make its return at the end of this week. So ideally, Congress and President Trump in the next few days ought to approve an increase in the limit, or at least another suspension.
Unfortunately, there is little chance that will happen this week. Elected officials frequently procrastinate on raising the debt limit because of embarrassment or — far worse — because they seek to use their votes on the issue as a political bargaining chip.
They also know that the Treasury Department, as in the past, can rely for a few months on what it calls “extraordinary measures” — essentially shuffling the federal books around — to avoid a federal default.
The Bipartisan Policy Center, which tracks how long such measures will last, says its “preliminary estimate” now is that the government could get by on such measures until at least mid-summer.
There are, however, no good reasons for elected officials to procrastinate. Waiting to take action on the debt limit will not restrain the growth of the national debt, which recently reached the alarming total of $22 trillion.
Raising the limit will simply enable to the government to borrow money to pay bills it has already incurred. So failing to raise the debt limit is like pouting over a personal credit card bill for purchases that have already been made.
If the government were to default on even some of its obligations, it would dramatically worsen the nation’s fiscal challenges.
Federal securities are widely considered the safest investments in the world. If that view changed as the result of a U.S. government default on its obligations, interest rates on the national debt would rise, and Americans could expect to see even more of their tax dollars spent just to service that debt.
Financial markets around the world could suffer as well from a U.S. defaut, and our country’s position of global leadership would be badly undermined by its deadbeat status. Other nations might well argue that if the United States can default, they can do so as well.
Beyond such practical considerations, meeting the financial obligations that our government has incurred is simply the right thing to do. There is nothing “fiscally responsible” about refusing to pay for things you’ve already purchased.
Aside from the more immediate need to raise the debt limit, Washington should try to reform the debt limit mechanism, perhaps as part of a much-needed overhaul of the entire budget process.
The Concord Coalition has previously called the debt limit in its current form “more trouble than it’s worth.” It creates opportunities for political mischief while obviously failing to impose fiscal discipline.
In addition, debt limit amounts are pulled out of thin air; they lack any direct ties to the state of the economy or to federal spending and tax decisions.
There is a good case to be made for some mechanism to set, monitor and enforce a targeted level of debt. Any such mechanism, however, should account for economic circumstances and be linked in a meaningful way to the fiscal policy decisions that create the need for additional government borrowing.
Raising the debt limit is an embarrassing chore for elected officials because it calls attention to the fiscal irresponsibility that has put the federal budget on an unsustainable path.
But there should be no doubts about whether the U.S. government will meet its financial obligations. Congress and the president should get this chore over with and then find more effective ways to restrain the growth of the debt.