Opinion|Congress Shouldn’t Need a Crisis to Do Its Job
The tentative deal announced on Monday to increase the total amount the federal government can borrow is necessary, but it shouldn’t be.
Congress already has decided how much money the government can spend, and how much it can raise in taxes. Since the taxes don’t come close to covering the spending, there are only two choices: Authorize more borrowing or force the world’s largest borrower to default on its obligations, most likely causing a financial crisis.
But raising the borrowing limit, known as the debt ceiling, is not enough. Anything short of eliminating the ceiling is legislative malpractice at public expense.
Rather than treating debt ceiling increases as a matter of good housekeeping, politicians have fallen into the habit of flirting with default, engaging in bouts of brinkmanship that culminate in ad hoc deals on borrowing and spending. Congress seems unable to perform its duties unless it is acting under the threat of crisis.
That old show is playing again in Washington. The government hit its borrowing limit of about $22 trillion in March. The Treasury Department can operate at the debt ceiling for a few months through various kinds of legerdemain; officials have said an increase in the debt ceiling won’t be necessary before September. And, as the clock ticks toward midnight, House Democrats and the Trump administration have agreed on a deal to extend the debt limit for roughly two years, along with a broader agreement on federal spending over that period. The deal still requires passage by both houses of Congress and President Trump’s signature.
This is not a good way to run a government.
The debt ceiling was created during World War I, when Congress set aside the practice of approving individual bond issues and authorized the government to borrow up to a specified amount, much like the limit on a credit card.
Fans of the debt ceiling say that it encourages Congress to maintain fiscal discipline. Since at least the Eisenhower administration, fiscal conservatives have tried to use debt ceiling votes to constrain spending. They have won some short-term victories, most recently in a 2011 deal imposing a schedule of automatic spending cuts known as sequestration — an ill-timed turn toward austerity that slowed the economic recovery from the 2008 recession, imposing needless pain on millions of Americans.
But the debt ceiling has failed as a long-term check on spending. The latest debt ceiling deal completes the reversal of the 2011 spending cuts.
The deal embodies Congress’s longstanding approach to fiscal policy, in which the sacrifices largely consist in letting others have what they want. Democrats agreed to increase military spending; Republicans agreed to increase spending on domestic programs. In total, the deal would authorize about $320 billion in new federal spending, mostly paid with new debt.
Taxation is rarely even mentioned during debt ceiling negotiations. That’s a problem because reckless tax cuts, most recently in 2017, are a big reason that the federal government keeps hitting its borrowing limit. Federal spending declined as a share of the nation’s economic output during the first two years of the Trump administration. Federal revenue as a share of output declined more sharply.
The debt ceiling is simply the wrong tool for encouraging fiscal discipline. Debates about taxing and spending should be conducted as debates about taxing and spending. Eliminating the debt ceiling also would not make it easier to spend money. As The Times’s editorial board wrote in 1961, in the first of what has become a series of pleas to end a bad law, “Congress’ constitutional power over the Federal purse would not be impaired by such a move, nor would carefree spending be licensed. The power and the license rest, and will continue to rest, in how Congress acts on substantive governmental programs.”
Brinkmanship is also expensive. The United States government is able to borrow at very low interest rates because Treasury securities are regarded as very safe investments. Any glimmer of a hint that repayment might not be full and timely comes at the expense of taxpayers, because investors deal with fear by demanding higher rates.
A debt ceiling standoff in 1979 briefly delayed some interest payments on federal debt. A study found that the government had to pay a premium of 0.6 percentage points in the aftermath — which cost it about $6 billion a year.
The 2011 debt limit standoff raised government borrowing costs by an estimated $1.3 billion in that fiscal year alone, according to the Government Accountability Office. The G.A.O. estimates that an increase of even a tenth of a percentage point in the current average interest rate on the federal debt would cost $182 billion over the next decade.
Congressional Democrats in the 1980s sought to obviate the debt ceiling by making increases a part of the budget process. The current crop of House Democrats has revived the concept. It’s a reasonable approach in theory, but it requires Congress to pass budgets.
A bill to eliminate the debt ceiling, introduced by Senator Michael Bennet of Colorado, is a better approach. The current system has no apparent benefits, regular costs and the real possibility that it will cause a disaster. The stakes in federal budget debates are high enough. It’s time to eliminate the risk that those fights will cause a financial crisis.
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