Congress must rethink the debt limit

Congress must rethink the debt limit
© Stefani Reynolds

These days, the only time Congress engages in anything resembling a much needed conversation around the unsustainable fiscal policy of our federal government is when the debt limit approaches and the nation is on the verge of defaulting on its obligations. Trying to determine long term budget policy amidst last minute brinkmanship is foolish in the same way that only showing up at the emergency room is a poor approach to maintaining good health. There is a better way to solve this issue.

The federal government just completed its latest exercise of negotiating a deadline driven deal to overcome the threat of defaulting on our national obligations. The good news is that we made it through. The bad news is that we are already scheduled to be back at it again in two years. If past is precedent, this latest episode will quickly fade in the rearview mirror, and policymakers will go back to ignoring the debt limit until weeks before the next potential calamity in 2021. That would be a grave mistake. Instead, while this issue is fresh, Congress should take the opportunity this fall to take action on a bipartisan basis and chart a more sensible path.

Historically, nearing the debt limit has spurred a discussion about the sustainability of the federal budget. In recent years, however, heightened political polarization has changed the name of the game, with eleventh hour drama as the new normal. This is a horrible way to determine fiscal policy. In fact, rather than tackling the actual problem, the latest budget deal that was negotiated around the debt limit has done just the opposite and resulted in bipartisan agreement to increase the federal deficit.

ADVERTISEMENT

Even more concerning is that the entire debt limit charade is costly and dangerous. Markets get jittery and demand higher interest rates on federal borrowing each time the issue comes up. While policymakers to date have always averted the crisis, sometimes in the nick of time, the government is routinely one miscalculation away from fiscal disaster.

Some would say the solution is simply to get rid of the debt limit. But since during that charade is the only time we seem to grapple with the $22 trillion national debt, a wholesale repeal of the debt limit statute seems unlikely to be in the political cards. Meanwhile, because the debt limit does not actually provoke a legitimate or productive discussion, debt continues to balloon from unpaid for tax cuts and spending increases. The current road unfortunately has no signs of fiscal responsibility in sight.

The problem is that the debt limit process creates a perverse choice for lawmakers on the one hand to play chicken with the full faith and credit of the United States in hopes of extracting a policy concession, or on the other to blindly disregard the urgent problem of mounting debt. A novel approach could help us to make progress on both of these fronts at the same time, taking the risk out of our debt limit exercise while establishing a dedicated process that forces Congress to debate deficit reduction.

If Congress fails to do its job to extend the debt limit well in advance of the deadline, then the president would be given the authority to request such an extension. The action could be disapproved of and thus rejected by Congress, but this would make sure that the important debt limit extension is not reliant on the collective action of 535 individuals.

Along with that debt limit request, the president would be required to submit a package of debt reduction policies meeting a certain threshold. Those could be tax increases, spending cuts, or some combination of the two. Unlike the White House budget proposal, which Congress has the right to and traditionally does ignore, this package would automatically initiate a process whereby each chamber of Congress ultimately brings to the floor for a vote the White House plan or alternatives worked through the committees. No outcome would be guaranteed, but with issues like taxes, Social Security, or Medicare getting debate and votes, public attention on the issue would certainly and rightly be heightened.

This solution by itself will not solve the skyrocketing debt problem. But it would force a critical debate on debt directed toward a place where we can actually address it, with the determination of how much we spend and how much we raise in revenue, instead of empty threats to walk out when the bill comes due. There is no good reason to continue flirting with disaster on the debt limit and punting our fiscal obligations onto the next generation. This plan is a realistic and constructive solution. Let us not allow partisanship to get in the way of what is right for our economy.

Shai Akabas is director of economic policy at the Bipartisan Policy Center.