Congress last month gave President Obama precisely what he wanted: a “clean” bill to raise the U.S. debt limit unencumbered by any other GOP demands.
It was a cease fire of sorts that will guarantee that the Treasury will have added borrowing authority, at least for the next 12 months, and neither party will have the opportunity to blame the other for a gross national debt that is fast approaching $18 trillion.
The debt ceiling – a relic of the World War I era– has been used as a cudgel by the party out of power to score political points or extract demands from the president and the majority party.
In 2011, Congress and President Obama literally came within a day of triggering the first default on U.S. debt in history before working out a budget deal that raised the debt ceiling above $17 trillion. Even then, Standard & Poor’s was so put off by Congress’s brinksmanship that it downgraded the government’s sterling credit rating from Triple-A to AA-plus on August 5.
Rather than tempting fate again, some budget experts say this would be the perfect time to scrap the debt ceiling and replace it with a more sensible and meaningful measurement of the nation’s indebtedness.
“The federal debt limit is ripe for reform,” Robert Bixby, executive director of the Concord Coalition, a non-partisan fiscal watchdog group, declared during a budget reform hearing on Capitol Hill last week.
Steve Bell, a senior official at the Bipartisan Policy Center and a former Senate Republican budget expert, argued that the inevitable gamesmanship around the debt ceiling is among the most irresponsible acts of lawmakers and the White House.
“When you start messing with the fundamental reliability of the most indebted country in the world that has the reserve currency in which all transactions of any significance are conducted… then you have moved from what I call acceptable irresponsibility into unacceptable irresponsibility,” he said.
Jim Kessler, Senior Vice President for Policy and a co-founder of Third Way, a centrist think tank, said that both parties have used the debt ceiling as leverage in hammering out important budget compromises, and he would hate to see that disappear.
Overall, he added, “I hate our debt ceiling situation,” and “we can’t let the full faith and credit of the United States” be threatened by periodic crises.
Scrapping the debt ceiling is an interesting concept but it isn’t necessarily the majority view in Washington. Many conservatives view the debt ceiling as a symbolic -- if not real -- bulwark against runaway spending and they would fight hard to prevent Congress from replacing it.
“The debt limit serves as an important congressional check on federal spending and borrowing,” wrote Romina Boccia, a federal budgetary affairs fellow at the influential Heritage Foundation. “Without a debt limit, all control over borrowing decisions shifts to the Treasury secretary, who is appointed by the president. Effectively, this concentrates borrowing authority in the executive branch, and hands the president a blank check to borrow against the U.S. taxpayer.”
Moreover, it seems unlikely that a gridlocked Congress that can’t agree on immigration or tax reform and struggles to pass an aid package for the beleaguered Ukraine would be willing or able to negotiate a replacement for the debt limit.
The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, and other payments.
Since 1960, Congress has acted 79 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 30 times under Democratic presidents, according to the Treasury.
While many mistake the debt ceiling for a break on runaway deficit spending, in fact it merely authorizes the Treasury to borrow money to finance spending already authorized by Congress. A survey last October by the United Technologies/National Journal Congressional Connection Poll found that 62 percent of Americans incorrectly believe that raising the debt ceiling means authorizing more borrowing for future expenditures.
“The basic problem is that the debt limit does not actually exert control over the nation’s fiscal policies,” said Bixby of the Concord Coalition. “The key question with the federal debt is how it compares to the size of the American economy.”
“If the debt grows faster than the economy, it is unsustainable,” he added. “If it grows more slowly than the economy, over time the debt – regardless of its nominal size – will become less and less of a problem.”
So what would make a suitable replacement for the debt ceiling? Here are three ideas that have been kicked around by the experts:
Link the debt to GDP growth. This idea, promoted by Bixby and other deficit hawks as well as some liberals, involves setting a long-term target for reducing the ratio of the national debt to the size of the economy, and backing it up with an enforcement mechanism.
For example, Congress and the President might commit to slashing the ratio of debt to GDP from 74 percent to 70 percent over the coming decade. If it looked as if the government was falling far short of its goal, then automatic spending cuts and revenue increases would kick in to help assure success. This idea, of course, sounds strangely like another sequester – those automatic across the board spending cuts that proved highly unpopular with Democrats and many Republicans last year.
Resurrect the old “Gephardt Rule” – Back in the late 1970s, then-Democratic Rep. Dick Gephardt of Missouri came up with a brilliant idea for his party to avoid having to cast tough votes to raise the debt ceiling. As Robert Schlesinger of U.S. News and World Report pointed out last year, Gephardt argued that a better approach was to raise the debt ceiling as part of the annual budget process.
By handling it that way, the debt limit would be increased by however much debt was necessary to pay for the budget. “This fixed the basic problem with the debt ceiling, which is that it separates the spending from the borrowing, setting up the confusing situation of having to raise a limit to finance old spending,” Schlesinger wrote.
The Republicans scrapped that approach after taking back control of the House in 1994 because they wanted to use the debt ceiling to extract concessions from Democratic President Bill Clinton.
Embrace the “McConnell Rule” –Senate Minority Leader Mitch McConnell (R-KY) dreamed up a short-term solution to a debt ceiling impasse back in July 2011 that might ultimately be a model for a new long-term approach.
The plan works like this: Congress cedes to the president power to increase the Treasury’s borrowing authority in increments without congressional approval – although the president would be obliged to specify offsetting spending cuts. When the time comes for raising borrowing authority, the president must certify that an increase is necessary and the ceiling would go up. If it were displeased with the president’s decision, Congress could pass a resolution of disapproval. Even then, the president could veto it.
It would be a great way to get the pesky debt ceiling off the backs of lawmakers. Whether future presidents would welcome that authority is an open question.