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

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

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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 BennetLicense to discriminate: Religious exemption laws are trampling rights in rural America Only four Dem senators have endorsed 2020 candidates Several 2020 Dems say they're ready to face Fox News town hall 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 CoonsMenendez, Rubio lead Senate effort to regulate Venezuelan sanctions Dem report questions State Dept. decision to revoke award to Trump critic Senate Dem calls on Trump to apologize for attacks on McCain 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 MnuchinOn The Money: Cain 'very committed' to Fed bid despite opposition | Pelosi warns no US-UK trade deal if Brexit harms Irish peace | Ivanka Trump says she turned down World Bank job Treasury targets Venezuelan central bank with sanctions Mnuchin plans to hire ex-Fox News contributor Monica Crowley: report 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 LewOvernight Finance: US reaches deal with ZTE | Lawmakers look to block it | Trump blasts Macron, Trudeau ahead of G-7 | Mexico files WTO complaint Obama-era Treasury secretary: Tax law will make bipartisan deficit-reduction talks harder GOP Senate report says Obama officials gave Iran access to US financial system 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 SchatzHillicon Valley: Washington preps for Mueller report | Barr to hold Thursday presser | Lawmakers dive into AI ethics | FCC chair moves to block China Mobile | Dem bill targets 'digital divide' | Microsoft denies request for facial recognition tech Lawmakers, tech set for clash over AI Lawmakers weigh challenges in fighting robocalls 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.