FEATURED:

The debt limit is the nation's appendix — get rid of it

The debt limit is the nation's appendix — get rid of it
© YouTube/The Wall Street Journal

"Crazy People," the 88th-best grossing movie of 1990, features Dudley Moore as, in the words of Roger Ebert, “a demented and crazed advertising genius who gets fed up with the hypocrisy of routine advertising and creates his own campaigns — campaigns that tell the literal, brutal, sacrilegious truth.”  

Case in point: “Metamucil…if you don't use it, you'll get cancer and die.”  Taking a page from Moore’s playbook, President Trump and congressional Democrats now use similarly blunt language as they speak of abolishing the federal debt limit.  It’s far from a crazy idea.

ADVERTISEMENT
The original purpose of creating a statutory debt limit in 1917 was not to prevent the government from running up too much debt, but to remove the requirement that Congress authorize individual issuances of debt. The intent was to help ensure that sufficient and timely credit would be available to finance World War I. 

 

One hundred years later, things are very different. The main use of the debt limit now is to prevent the government from paying its bills on time, putting the nation’s creditworthiness at risk and threatening a global financial crisis. 

As Sen. Michael BennetMichael Farrand BennetColorado senators pitch immigration compromise Colorado senators mark Olympics with Senate hallway curling GOP Senate candidate fundraising lags behind Dems in key races MORE (D-Colo.) explains, “In 2011, when we avoided default but were too close for comfort, consumer confidence also plunged to recession-like levels, the stock market plummeted and did not recover for months, and growth slowed significantly. If merely being close to the deadline has substantial costs, the consequences of default would surely be catastrophic.”

Metamucil anyone?

The country was on the precipice of yet another debt crisis earlier this year when President Trump and congressional Democrats unexpectedly agreed to extend the debt limit for an additional three months.  Now, for the first time, policymakers are talking seriously about abolishing the debt limit altogether. 

It’s about time. The federal debt limit is the public policy equivalent of an appendix; it serves no practical purpose and, if ruptured, it represents a grave threat to the country’s economic and fiscal health.

Some argue the debt limit provides useful leverage to extract fiscal reforms that would be hard to enact otherwise. However, this is ultimately a “trigger” that must never be pulled, so it’s of limited value. Furthermore, there’s the risk it might go off accidentally. 

“Debt-limit showdowns have become far too routine, and it’s now considered almost normal to threaten default,” says Senator Chris CoonsChristopher (Chris) Andrew CoonsAfter Florida school shooting, vows for change but no clear path forward Democrats put Dreamers and their party in danger by playing hardball Sunday shows preview: Russian charges, Florida shooting dominate coverage MORE (D-Del.). He’s right. 

Economists generally agree we should abolish the debt limit. Once government spending and tax decisions are made, the only question remaining is whether to honor our obligations. As Treasury Secretary Steven MnuchinSteven Terner MnuchinOvernight Tech: Judge blocks AT&T request for DOJ communications | Facebook VP apologizes for tweets about Mueller probe | Tech wants Treasury to fight EU tax proposal Overnight Regulation: Trump to take steps to ban bump stocks | Trump eases rules on insurance sold outside of ObamaCare | FCC to officially rescind net neutrality Thursday | Obama EPA chief: Reg rollback won't stand Big tech lobbying groups push Treasury to speak out on EU tax proposal MORE said last March, “We've spent the money. So the concept of the debt limit...is somewhat of a ridiculous concept.” 

The renewed threat of debt limit brinkmanship led then-Treasury Secretary Jack LewJacob (Jack) Joseph LewBig tech lobbying groups push Treasury to speak out on EU tax proposal Overnight Finance: Hatch announces retirement from Senate | What you can expect from new tax code | Five ways finance laws could change in 2018 | Peter Thiel bets big on bitcoin Ex-Obama Treasury secretary: Tax cuts 'leaving us broke' MORE to publish a nearly 6,000-word essay earlier this year highlighting the problem and urging reform. He concluded:

“The debt limit can no longer be a topic for negotiation, and Congress should take action to eliminate this risk of periodic crisis. No longer a tool for simplifying the borrowing process, the debt limit has morphed into a weapon that irresponsible actors in Congress can wield against our economic well-being.  

However Congress chooses to exercise its constitutional role with regard to our nation’s debts, whether to abandon the debt limit entirely or to adopt a new course that addresses the current risks, one thing is clear: The current debt limit regime has outlived its usefulness.”

In other words, it's time to take off the fiscal suicide vest. 

With President Trump publicly questioning the utility of the debt limit and calling for change, Democrats in both the House and the Senate have introduced legislation to repeal the debt limit.  Senator Brian SchatzBrian Emanuel SchatzSchatz's ignorance of our Anglo-American legal heritage illustrates problem with government Dem senator trolls Trump over Mueller indictments: 'This is a VERY well done hoax' Trashing our Anglo-American legal tradition does no one any favors MORE’s (D-Hawaii) legislation, introduced with Senators Bennet and Coons, is appropriately named the “End the Threat of Default Act.”

“Paying our debts,” says Senator Schatz, “should be an automatic act, not a politicized weapon used for leverage. It’s clear that the debt ceiling is not about fiscal responsibility, but about unnecessary brinksmanship.

Congress has the chance to debate federal spending, and it’s well before the bill comes due. It’s time to stop these attempts to govern through threats and defuse the bomb by eliminating the debt ceiling altogether.” 

It’s possible that some better-designed mechanism can be found to impose an element of fiscal restraint and, of course, the best remedy of all would be for political leaders of both parties to change the spending and tax policies that have produced our unsustainable debt.

In the meantime, President Trump and congressional Democrats should be commended for starting this debate, but little may come of it if congressional Republicans are unwilling to see the debt limit for what it is: a relic of the past that has long outlived its usefulness.

You’d have to be crazy not to see it. 

Robert Bixby is executive director of The Concord Coalition, an organization that encourages fiscal responsibility in Washington. James Carter served as the head of tax policy implementation on President Trump’s transition team. Previously, he was a deputy assistant secretary of the Treasury and deputy undersecretary of labor under President George W. Bush.