The upcoming debt-ceiling battle creates the risk that policymakers will march us to the brink of a credit-market disaster, or possibly even walk us over the cliff. While failing to lift the debt ceiling runs a heavy risk of setting off a world-wide economic crisis, lifting the ceiling and returning to business as usual would merely postpone the day of reckoning and keep us on the road toward a fiscal crisis as well.
Having served in Congress for a combined 46 years, and encountering a total of 55 debt-ceiling votes, we know this is a vote no member of Congress relishes. But failing to increase it at this late moment merely jeopardizes confidence in the United States.
But realistically, that is a lot to get done in the next month or so. Treasury Secretary Timothy Geithner says we will hit the ceiling by mid-May, and while there are a few slights of hand he can use to delay a bit, we shouldn’t.
So, we need a Plan B to buy some time.
Over the past two years, we have worked on the Peterson-Pew Commission on Budget Reform with a team of colleagues who have headed the Office of Management and Budget, the Congressional Budget Committee and the Fed, developing a plan for statutory debt and savings targets. These targets would commit policymakers to bringing down our deficits and debt as a precursor to agreeing on the specifics of a deal. Attaching these enforceable targets to the debt ceiling would allow us to take the first step to moving the budget in the right direction immediately.
The president alluded to a similar idea in his recent budget speech, outlining a target that in 2014 would kick in to evaluate if the debt would be declining by the end of the decade.
We don’t have that much time. Congress should instead adopt debt targets that mirror the Fiscal Commission’s plan of bringing the debt to 65 percent of gross domestic product by 2020 and saving $4 trillion over 10 years along with the debt-ceiling increase next month. This would commit Congress to a framework of developing a comprehensive budget fix while allowing the needed time to hammer out the details.
It would also create a pay-as-you-go rule for the Fiscal Commission’s plan — if you don’t like all the specific details of the plan, you’d still have to find a different way to achieve the same level of savings.
In order to ensure that this would not just be another kick-the-can-down-the-road empty promise —we have seen plenty of those in the past — Congress should enforce the savings requirement through automatic budget triggers. If by the end of the year Congress and the president had not passed a comprehensive budget plan, automatic spending cuts and revenue increases would go into effect. No parts of the budget would be exempt. This would allow the triggers to work as a hammer pushing Congress to act, rather than allowing such a blunt tool to do their work for them.
As another layer of insurance, Congress should also only extend the debt ceiling to get us through the period by which they agree a plan would be adopted. So a 6- to 9-month increase would be appropriate, with a longer-term increase only coming once the full plan was in place.
Finally, we should pass this along with the needed debt-ceiling increase now, rather than waiting for some 11th hour, nail-biting negotiation. Let’s send a signal to the world that we have this under control.
As the folks at S&P recently reminded us, there is no greater threat to our economic future than our current national debt overload. Credit markets don’t need an excuse to run, so we can’t mess around and play brinkmanship politics with the debt ceiling. But if we don’t use it to help us move towards adopting a fix, we’ll probably have a debt crisis anyway.
Frenzel (R-Minn.) and Stenholm (D-Texas), both former members of the House of Representatives, are co-chairmen of the Committee for a Responsible Federal Budget and the Peterson-Pew Commission on Budget Reform.