GAO suggests Congress abolish the debt ceiling

GAO suggests Congress abolish the debt ceiling

A government watchdog on Thursday suggested in a new report that the debt ceiling should be killed.

It’s one of the three alternative approaches to the debt limit the Government Accountability Office (GAO) outlined in the 80-page report.

The agency’s recommendations stem from interviews with both Treasury Department officials and investors.

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Under the option that would abolish the debt limit, the administration would be given broad borrowing authority to pay for enacted laws. The United Kingdom and New Zealand operate under a similar policy, the GAO noted.

This option would alleviate the dangers associated with defaulting on the nation’s debt and would allow for a more flexible borrowing process based on changes in the economy and laws, the report said.

Congress could also link the debt limit to passage of an annual budget resolution, the GAO recommended as another option.

Lawmakers would be able to better consider fiscal policy decisions with decisions about debt, the report said. This scenario would also reduce the potential for disruptions to financial markets well before a deadline that approaches for defaulting on the debt.

The GAO said Congress has approved debt ceiling hikes through rules associated with budget resolutions seven times, most recently in 2010. Both chambers, however, don't always pass budget resolutions.

A third option would allow the administration to propose a debt limit increase, subject to a congressional motion of disapproval in the House and Senate. If no such motion is adopted, the proposed increase would take effect.

This option, the GAO explained, would preserve Congress’s ability to debate federal debt and reduces the likelihood that the market would be disrupted.

Investors told the GAO that during the 2013 debt limit standoff, investors took unprecedented steps to avoid certain Treasury securities, which resulted in a dramatic increase in rates and a decline in liquidity in the market where securities are traded. These disruptions, they said, spilled over into other markets, including short-term financing.

The report comes just months before Congress will face another debt ceiling deadline.

The Treasury Department’s debt limit suspension expired in mid-March, but the government is drawing on extraordinary measures for the time being to avoid a default.

Earlier this year, the Congressional Budget Office predicted the deadline for a debt-ceiling increase would come this fall, sometime around October.

A recent analysis by a Washington think tank predicted November or December is more likely to be the deadline.