Political games over our debt

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

Without qualification, the debt limit must be increased or suspended, and it should be done so as quickly as possible. Ideally, we would return to the practice of lifting the debt ceiling without relying on extraordinary measures – which have become all too ordinary – and refrain from making the increase anything close to a last-minute showdown. 

The debt ceiling is too important to turn into a game of chicken, and default should never be suggested by those with a fiduciary responsibility to govern the nation. Politicians who are rightly worried about the nation’s unsustainable borrowing path should take a hard stance against new borrowing and oppose legislation that would add to the debt while offering specific solutions to control the debt already on the books, rather than threatening not to pay the bills on borrowing that has already been incurred.

The debt ceiling does offer the opportunity for all lawmakers to pause, assess the fiscal situation of the nation, and take action as necessary. And it is necessary. The debt as a share of GDP is at near record levels. We are on track to begin adding $2 trillion per year to the debt by the end of the decade. Interest payments are the fastest growing part of the budget and are projected to start costing $1 trillion annually in only a few years. The Social Security and Medicare Hospital Insurance trust funds are headed toward insolvency. And last year alone, Congress and the President passed bipartisan legislation that added nearly $2 trillion to the projected national debt. This is an urgent problem that is not getting the attention it needs.

An ideal solution would be for Congress to lift the debt ceiling as soon as possible and at the same time put in place measures to improve our fiscal trajectory. This could include specific policies or processes such as a fiscal commission. 

Attaching fiscal reforms to the debt limit was common practice in the past when both policies and processes to improve fiscal responsibility were included as part of a deal. More recently, in a jaw-dropping act of fiscal irresponsibility, politicians in both parties pivoted to support debt ceiling increases along with legislation that made the debt worse. Under President Trump, the debt ceiling was lifted three times with bipartisan support and included legislation that added in total a stunning $2.1 trillion in new borrowing to the debt.

Congress should return to the past model of a debt ceiling increase, legislation to improve the fiscal situation, and a broad based understanding that the debt ceiling must be increased in a calm and timely manner. We must not threaten default. The cost is simply too high.

3 comments

  1. Again, no one is threatening default – that is the hype supplied by those who just want to go on spending more to buy votes, and who favor ever-increasing deficits and adding $1+ trillion to the national debt every year for as far as the eye can see or the CBO cares to predict.

    Excerpts from another blog I regularly read:

    “… Everyone keeps repeating that hitting the debt limit would necessitate a default on principal and interest. The Treasury itself says:
    1. “… Failing to increase the debt limit would have catastrophic economic consequences. …”
    2. “… It would cause the government to default on its legal obligations – an unprecedented event in American history. …”
    3. “… That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession. …”

    The first statement is correct.

    The first part of the second (statement) is not. The government is still hauling in tax revenues. The Treasury could easily say “given the catastrophe that a default would produce, we will always pay interest and principal on treasury debt before any other payment.” Congress could pass a law stating that fact. There is no economic reason that a debt limit should force a default. There is a legal argument, and a claim that the Treasury cannot prioritize debt payments over other legally mandated payments. … (however) The Treasury is legally obligated to make debt payments, as it is obligated to pay Social Security checks, and also legally obligated not to borrow. Law prescribes the impossible. It has to prioritize. Indeed, unpaid bills are a form of debt, so if you want to be a stickler, the government will violate the debt limit no matter what it does.

    The second part of the second statement is also false. The US has defaulted on gold clauses in the 1930s. It has defaulted on other “legal obligations.”

    The third is correct. If we are to tussle over paying Wall Street fat cats vs. grandma’s social security, keep in mind just what a catastrophe default would be. Grandma will be way worse off if that happens.

    Treasury secretary Janet Yellen should say out loud, right now “we pay principal and interest on treasury debt first, before anything else.” President Biden should back her up. Drastic delays in social security, medicine, government shutdown and more are plenty enough threat to get Congress to move, without risking a run. …”

    The debt ceiling games are being played by today’s Republican members of the House who were crapped on by last year’s Republican members of the Senate when they passed the Omnibus Act. Unless they are hypocrites, the folks holding up the stop sign DID NOT vote for the excessive spending during the last 2 – 3 years. For those who do not agree with the spending, don’t they have a duty to speak up, to “resist”, to negotiate? Isn’t that one of the reasons why their constituents elected them? What would YOU have them do – lie to the voters that they will resist excessive spending, then go to the beltway, join the go along / get along group and stand by meekly – not objecting to spending they never agreed to, and would never agree with?

    And, why didn’t all those who voted to spend, spend, spend raise the debt ceiling at the same time? Let’s poll those folks. Let’s criticize them. Obviously, they wanted to spend, spend, spend, but didn’t want to tax, tax, tax nor take any blame for our annual deficits nor our ever increasing national debt.

    As a payer of all sorts of income and other taxes during the current and parts of the past 6 decades, I am loathe to criticize those who hold up a spending STOP sign. I expect Congress will plow right through any STOP sign, but, someone needs to start talking about options to curtail excessive, federal spending.

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    1. Just read an editorial from Bloomberg News where the editors say that it is nonsense to argue over the debt limit, since it always increases, anyway.

      Well, what would our National Debt be today, how much more than $31.4 Trillion would it be, but for the fights over the debt ceiling?

      As the Bloomberg News editorial states, in part: “… Defenders of the current rules say that debt-ceiling negotiations provide at least a semblance of fiscal discipline. One analysis found that every major deficit-reduction deal between 1985 and 2011 resulted from such fights. Yet if the debt limit was ever an effective tool, it no longer is: Debt has increased to roughly 95% of gross domestic product (not counting intragovernment obligations), up from 78% in 2019. That figure is on track to keep rising. …”

      Again, just because there is a big leak is no reason to dynamite every fiscal “dam” in America, which would drown in debt all those Americans who are too young to vote today, and future generations yet unborn who live “downstream”.

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  2. I agree; both parties love to shower their constituents with freebies and the American people are only too happy to accept them with out any thoughts how they will eventually pay the bill.

    Some politicians are sincere about fiscal responsibility; a few are nihilists, pretending to be fiscal hawks. In truth, they are delighted to “burn it all down” and relish the attention they receive for posing as fiscally responsible elected officials.

    No Where for Very Long…

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