President Biden is offering Republicans in Congress a reasonable path to resolve the standoff over raising the federal debt ceiling. He has rightly insisted that the ceiling itself must be raised without conditions, so that the government can meet the obligations it has already incurred, while expressing his willingness to separately negotiate measures to curb debt growth. federal.
As Biden and congressional leaders prepare to meet Tuesday, the question is whether Republicans are serious about avoiding a crisis. Party leaders have so far offered only a mix of outlandish demands and reckless threats. A bill to raise the debt ceiling that House Republicans passed last month, which House Speaker Kevin McCarthy describes as the party’s bargaining position, is more in the nature of a demand for unconditional surrender. . It would require Democrats to agree to a long wish list of Republican priorities, including deep cuts in federal spending, and to agree to the reversal of recent victories, including investments in tax enforcement and green energy. All for less than a year of peace before the government hit the debt ceiling again.
There isn’t much time to reach a deal: The federal government may not have enough money to meet all of its obligations as soon as early June.
Debt ceiling crises have become a recurring feature of American political life. The government requires permission from Congress to borrow money; Congress does this by setting a limit on total borrowing. Raising that cap was once a routine act of good housekeeping, but Republicans have used the votes as an opportunity to re-fight battles they couldn’t otherwise win, demanding the rollback of already passed legislation and spending already passed. approved.
The United States borrows heavily to cover a widening gap between tax revenue and spending. The federal debt totals about $24.6 trillion, equivalent to about 94 percent of the nation’s gross domestic product, a high level by historical standards. The government spent nearly a trillion dollars in interest payments in the first quarter of the year, and the combination of rising interest rates and mounting debt is likely to push that figure up substantially.
The debt ceiling, however, is not a useful mechanism to prevent the federal government from living beyond its means. When Congress passes a spending bill, it commits to spending money on highways, aircraft carriers, or cancer research. People’s lives and livelihoods depend on those promises. Much of the nation’s economic activity depends on those promises. And to meet those obligations, anything not collected in taxes must be borrowed. It was intended to establish a borrowing limit to facilitate that borrowing. Until World War I, Congress voted on individual rounds of loans. In 1917, on the other hand, he authorized borrowing up to a fixed limit. But that limit does not prevent the government from incurring new obligations that it can only meet by raising the debt limit. As a result, as this board wrote in 1961“The debt limit does not limit debt.”
Republicans who have used the debt ceiling votes as useful leverage are playing a dangerous game. And it’s gotten more dangerous over time because repeated rounds of chicken have emboldened some to doubt that hitting the ceiling causes a crisis. This is very irresponsible. As most members of Congress profess to understand, Treasuries are seen around the world as the closest thing to a risk-free investment, and investor confidence that the United States will pay its debts not only provides a safe harbor for investors; it is also the basis for a wide range of other transactions. A blow to that confidence would have far-reaching economic consequences for the central role of the United States in strengthening the global financial system.
A functioning government cannot debate whether to pay its bills, and Biden has rightly insisted that there can be no price for raising the debt ceiling. But there is a difference between talking about the federal debt and talking about the debt ceiling. Congress has an obligation to pay what is already owed, but the president and congressional Republicans should spend more time talking to each other about the scale of future borrowing.
Given the popularity of the programs that account for the vast majority of federal spending, the most sensible way for the United States to reduce its reliance on borrowed money is primarily by raising taxes.
Still, Democrats may also have to accept that, having failed to get rid of the debt ceiling last year, a future deal with this Republican House will also require some spending cuts. Democrats could have voted to remove the debt ceiling between the fall elections and January, when Republicans took control of the House, or they could have voted to provide the government with sufficient borrowing capacity until the next congressional election in 2024. Instead, they chose this confrontation. . Last fall, Biden called proposals to remove the debt ceiling “irresponsible.” Other Democrats seemed to enjoy the politics of a fight. Now they face the consequences, which will most likely include the partial reversal of legislative victories won during Biden’s first two years.
If another opportunity arises, perhaps the Democrats will learn their lesson.
There are sensible alternatives. Senator Mitch McConnell of Kentucky, the minority leader, proposed in 2011 that Congress empower the president to raise the debt ceiling. A group of Democratic senators inserted legislation to that effect this year. Under the plan, a two-thirds vote in both chambers could still block a raise.
Abolition would be even more expedient. Congress could simply authorize the government to borrow the funds necessary to make any payments that Congress has separately authorized.
In fact, some Democratic and liberal groups argue that the administration could get rid of the debt ceiling unilaterally, for example, by issuing special types of bonds or even minting a single valuable coin. The legality of such measures is uncertain, the consequences unclear.
Administration officials have also reportedly discussed whether the president could claim the debt ceiling is unconstitutional because the 14th Amendment requires the government to meet its financial obligations to creditors. This could remove the debt ceiling, but the potential for a court fight and financial volatility are significant.
Treasury Secretary Janet Yellen put it well when she said in 2021 that it would be a crisis simply for the United States to be in a position where it is faced with a choice between such experiments and default. She reiterated Sunday that “there are no good options” if Congress doesn’t act. “We shouldn’t get to the point where we have to consider whether the president can continue issuing debt,” she said. saying. “This would be a constitutional crisis.”
There is still time for Congress to act before the United States is faced with those kinds of fateful decisions.