THE ISSUE: If the Trump Administration and Congress cannot agree on how to raise the U. S. debt limit by around September 29, the Treasury Department will run out of money to pay its bills, including interest payments on the national debt and government obligations ranging from military salaries to social security checks. The problem with the debt ceiling is that it attempts to stop the debt without directly addressing the processes that generate the debt. THE THINGS YOU NEED TO KNOW: The debt ceiling took on something like its current shape during World War I, when Congress wanted to give the U. S. Treasury Department more discretion to manage the debt. There was never much deliberation in later choosing to use the debt ceiling as a tool for Congress to control the debt. This eventually evolved into the debt ceiling we have today, which is one legal limit on the amount of borrowing the Treasury can do, which Congress periodically raises it. Currently, the U. S. is about $20 trillion. Surveys show the American public thinks a hard ceiling on the debt is a good idea because government debt sounds bad. Raising the debt limit is also opposed by a majority. The problem with the debt ceiling is that it attempts to stop the debt without directly addressing the processes that generate the debt.
We have an appropriations process where we decide what to spend on discretionary spending, we have entitlement statutes that obligate our spending, and we have tax laws that determine how much revenue comes inвthose are the laws that actually determine how indebted this country will become, and the debt ceiling is an afterthought. A default on the debt and a government shutdown are actually two separate things, though they are often rolled together in media coverage. We could raise the debt limit so that we have no problem servicing the debt while still shutting the government down. If Congress and the president were to fail to raise the debt ceiling by the looming deadline, we could miss a payment. Continuing to miss payments over a protracted period of weeks or months would be disastrous. Suddenly, the U. S. debt that is treated as risk-free collateral by the global financial system would start to look risky, and that would likely cause a very bad financial crisis. If only one payment was missed, there is a good reason to think that it could be treated as an unfortunate misunderstanding and get back on track quickly, with Congress and the president raising the debt ceiling and making payments with late fees attached in a matter of days.
The debt ceiling is the only thing potentially preventing the U. S. government from making its debt payments on time. Itвs difficult to eliminate the debt ceiling for a number of reasonsвthereвs the facial logical appeal of the idea, it polls well with the public, and itвs a politically costly to eliminate. Beyond the politics, thereвs a sophisticated defense of the debt ceiling by some fiscal conservativesвit provides a good opportunity for us to periodically revisit the debt, and it will give fiscal conservatives a chance to make some demands to discipline government spending going forward. The problem, in practice, is that the debt limit tends to draw fiscal conservativesв fire away from the fights that are most consequentialвand in a debt ceiling fight, theyвll inevitably have to concede everything important because the debt ceiling really has to be raised. RELATED CONTENT:
When will we stop? $17 trillion? $20 trillion? $30 trillion? Infinity? Politicians do not want to make the hard but necessary choices needed to contain our spending. Everyone is for cutting spending, but just not for \”their\” programs.
No politician wants to face cuts on their watch– so they always punt the can down the road another 2 years and past the election. These perverse incentives mean politicians are INCAPABLE of doing what\’s right financially in the long run. The debt limit may be the only tool left in our arsenal to force politicians to make cuts. If they face a hard limit, they will either have to make cuts across the board, or fight hard to truly justify the programs they want funded. Our current trajectory of ever-ballooning debt is unsustainable. By definition, if something is unsustainable, it will not be sustained. We can either have a hard landing now (by taking our medicine and making difficult cuts), or we can have a crash later. The opportunity for a soft landing is long past, regardless of what some politician selling snake oil will tell you. Do not think I would reverse position if it were Republicans doing the spending. In fact, debt and spending have historically increased even faster when Republicans are in control! They need to be reigned in even more than the Democrats. We have long heard people complain that we are saddling our grandchildren with insurmountable debt.
Well, by now it is no longer the grandchildren, but our children and even ourselves! The time to pay the piper is fast approaching, and the less we do about it, the worse off we will be. In short, as painful as it may be in the short term, the time is long past due to make the hard choices that will ensure we still have a reasonable economic future. Before we raise the debt ceiling we need to do away with frivolous defense spending, welfare, and unemployment insurance. We should also pass a balanced budget amendment and a flat tax to raise more revenues before we take more loans that we will not be able to pay off. This is how the US will be able to control its debt, not by raising the debt ceiling. Absolutely Not! We are already in too much debt to pay off and raising the ceiling would compound the problem. As we get into more and more debt ore and more of our national income goes to debt service leaving less to use to start businesses, increase employment, or spend on our aging infrastructure. A reduction in the size of the government and a reduction in spending will contribute to the growth of our economy and allow for new businesses to start bringing in more revenue to the government.