With Congress engaged in partisan warfare over whether to raise the federal debt limit, jeopardizing the government’s ability to pay its bills in the coming days, lawmakers should take a much bolder step: Scrap the debt limit altogether.
The debt limit is worse than useless. It’s dangerous. It creates the risk that Washington will default on its obligations, which would spook U.S. financial markets that are already reeling from the impact of unfolding corporate scandals, send investors from around the world fleeing to other outlets, and raise interest rates on U.S. debt. That, in turn, would raise rates on homes, cars and everything else – adding untold costs to millions of individuals and businesses.
For nearly a century, Presidents and Congresses have enacted laws to limit total federal debt, raising the limit as annual budget deficits piled up more debt. Today, the limit is $5.95 trillion, which the government will reach in the coming days due largely to its return to deficit spending.
A legal limit, though, makes no sense. The debt goes up as the federal bills come due. The government has the same choice of whether to raise the debt limit (and, thus, pay its bills) as you and I do when our monthly mortgage or credit care bills come due. For us, the alternative is bankruptcy. For the government, it’s default.
The President and Congress have all the power they need to limit federal debt. They just need to make the right decisions on the front end, as they debate whether to cut taxes or increase spending. By the time the bills come due, the government has no choice but to pay them.
Nevertheless, the debt limit has become an increasingly powerful political symbol. As the government has bumped up against it over the years, Democrats and Republicans have sought to score political points by blaming one another for the nation’s fiscal mess.
In the 1960s and 1970s, as the debt tripled from $300 billion to $900 billion, Republicans blamed it on excessive spending by the Democrat-controlled Congress. In the 1980s, as it tripled again to nearly $3 trillion, Republicans kept blaming the Democratic spenders while Democrats took aim at President Reagan’s big tax cuts.
The arrival of a budget surplus in 1998 (the product of numerous deficit-cutting bills and a healthy economy) gave Washington a respite from the debt limit wars. In fact, projections as recently as last year of rising surpluses for “as far as the eye could see” seemed likely to make a higher debt limit unnecessary for many years.
In fact, it is those projections that make this year’s debate that much more heated. Democrats see an opportunity to trace the need for a higher debt limit back to President Bush’s tax cut of last year, which many of them predicted would send the budget back into the red.
Over the years, Members of Congress have grown increasingly reluctant to vote for a higher debt limit, fearing their opponents in the next election would paint them as fiscally irresponsible. Indeed, in the politically charged atmosphere of early 1996, it took the Clinton Administration many weeks to gather the needed votes to raise the debt limit. In the last few days, congressional leaders have had no easy time gathering the votes for still another increase.
Not surprisingly, as debt-limit increases have grown more political, Congress has sought to ease the pain by attaching the increase to other, more politically palatable legislation. Unfortunately, Congressional debate over that other legislation can hold the debt limit hostage to external forces. This year, for instance, the needed increase is tied up in inter-party squabbling over the supplemental appropriations bill for this year, budget targets for the 13 appropriations bills for next year, and even the need to keep Amtrak running with an infusion of federal dollars.
To be sure, gathering the votes to scrap the debt limit altogether would be harder still. But the benefits, financial and otherwise, would be obvious. No longer would we threaten the nation’s financial health with an unprecedented, perhaps catastrophic, default. No longer would we force Members of Congress to walk the political plank for a process that makes no sense and that carries no benefit for our fiscal well-being.
So, Members of Congress, scrap the debt limit. It may not be easy, but just think: It would be the last time that you would have to face this pointless exercise.