January 20, 2023

Debt Ceiling

The U.S. government hit its $31.4 trillion borrowing limit on Thursday, amid a standoff between the Republican-controlled House of Representatives and President Joe Biden's Democrats on lifting the ceiling, which could lead to a fiscal crisis in a few months… Republicans, with a newly won House majority, aim to use the time until the Treasury's emergency maneuvers are exhausted to exact spending cuts from Biden and the Democratic-led Senate.” Reuters

Here’s some background on the debt ceiling. CRFB

See past issues

From the Left

The left argues that using the debt ceiling to push for spending cuts is dangerous and irresponsible.

“Raising the debt limit doesn’t give the president free rein to spend whatever he wants. It simply allows the government to honor its promises, which include everything from paying interest on its debt to sending checks to Social Security recipients. These promises, duly authorized by Congress, exceed the expected amount of taxes and other revenue, so they must be met in part through borrowing; but that’s normal operating procedure…

“Unfortunately, a quirk in the U.S. budget process requires Congress, having enacted budget legislation, to vote again to authorize the Treasury to raise the funds needed to follow the law. And Republicans — who had no problem with large-scale borrowing when Donald Trump was in the White House — are now getting ready to weaponize that quirk… A party that barely controls one house of Congress shouldn’t get to impose deeply unpopular policies on the nation as a whole.”

Paul Krugman, New York Times

“In the modern era [the debt ceiling] has been transformed by Republicans into a political weapon. When they are in power, they largely ignore it, concentrating on cutting taxes for the wealthy, bloating the budget deficit, and issuing mountains of public debt. (During the Trump Administration, more than roughly seven trillion dollars of additional debt was created, with much of it taking place during 2020, after the coronavirus pandemic began.) When Democrats occupy the White House, Republicans use the debt ceiling to demand spending cuts, and to hold the government, and the country, for ransom.”

John Cassidy, New Yorker

A default would likely spark panic on Wall Street and could push us into a recession, resulting in millions of job losses. The Treasury Department would be unable to make payments on Medicare and Medicaid, Social Security, military pay, and veterans’ benefits, to name just a few programs critical to our nation’s functioning. On a global scale, it could mean a loss of faith in the American dollar and threaten our status as the world’s reserve currency. Even just getting close to [default] could lead to a downgrade in the country’s credit rating…

“Both parties have been profligate in their spending in recent years, resulting in a deficit that measures in the trillions. But risking catastrophic default on a biannual basis is perhaps not the most responsible method of forcing a discussion on government debt…

“The 2011 showdown resulted in the creation of a ‘supercommittee’ to determine how to balance the books. But to keep things short and sweet—or, I guess, just less long at this point—Democrats didn’t want to cut entitlements, and Republicans didn’t want to raise taxes… The fracas over the debt limit highlights the seeming inability by Congress to address an untenable fiscal situation.”

Grace Segers, New Republic

From the Right

The right worries about high levels of debt but is divided about the proper approach.

The right worries about high levels of debt but is divided about the proper approach.

Many argue, “In the first three months of this fiscal year, gross interest on the national debt hit $210 billion—or $144 billion in net interest, excluding interest on Treasury securities held in government trust accounts. That’s $840 billion gross and $576 billion net on an annualized basis…

“Congress has long been aware of the impending budget crisis and could have adequately prepared for it. The small group of Republicans threatening to vote against any debt-ceiling increase has the right idea—that is, to force action now. The longer we wait to rein in debt, the harder it will be to escape a looming fiscal tailspin. The House GOP should unite around these legislators and adopt a simple dollar-for-dollar approach, offering Democrats $1 of additional debt capacity for every $1 of domestic spending cuts today—not 10 years from now—leaving Democrats to designate what nonmilitary programs to cut.”

Red Jahncke, Wall Street Journal

Others note, “Recall the 2018 budget fiasco. That year, Republicans unveiled a budget resolution promising to balance the budget with $6.5 trillion in spending savings over the decade. No actual plan was ever designed to do so, and these promises were discarded as soon as the budget debate concluded…

“Paradoxically, getting serious on spending means scaling back the amount of promised spending reductions. Rather than performatively promising unrealistically bold savings that will be discarded as unpassable, serious lawmakers should offer more modest and plausible savings targets and then actually follow through. A Congress that enacts $400 billion in 10-year spending cuts is more fiscally responsible than one that promises to balance the budget within a decade, shuts down the government, brings a public backlash, and ultimately enacts nothing.”

Brian Riedl, The Dispatch

“Congressional Republicans will triumph if they can agree on a few reasonable demands; make those demands specific, understandable and public; then repeat the demands again and again on every television set and over every radio show and podcast… The party can insist on undoing the authorization and first appropriation for about 87,000 new IRS staff over the next decade. The idea that the economy will grow through better, faster, bigger tax collections is absurd…

“The GOP could also argue that the debt limit will continue to rise until the flood of migrants into the country ebbs, pointing to the quite obvious costs of uncontrolled migration. Saying that the debt limit won’t go up until the border wall goes up is concise, catchy and compelling, and would focus the country on the border crisis… For the sake of clarity, Republican priorities should be limited to a list of three items or fewer. Lay them on the table for the public to see.”

Hugh Hewitt, Washington Post

A libertarian's take

“While limiting discretionary spending is a good start, fiscal sustainability requires that Congress also cut the mandatory side of the budget. Indeed, Social Security, Medicare, and Medicaid—not defense or education—are still the chief drivers of our future debt, just as they have been in the past. Along with the interest the Treasury must pay on the debt, these three programs will be responsible for 86 percent of federal spending between 2008 and 2032… In other words, no level of discretionary spending cuts will ever be enough to control the upcoming debt explosion.”
Veronique De Rugy, Reason

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