Here we go again. If Congress — which is leaving town for its August recess — doesn’t pass an increase in the debt ceiling by the end of September, the United States government will begin defaulting on its obligations, which could well cause a global financial meltdown. As if we didn’t have enough problems already.
As this moment of crisis approaches, we should solve this problem once and for all. Not simply by raising the ceiling — which of course we have to do — but by getting rid of it altogether. The debt ceiling is nothing but trouble, and we should drive a stake through its heart.
If you’re like most people, you had probably never heard of the debt ceiling before 2011, when Republicans newly in control of the House of Representatives decided they could use it as weapon of extortion against the Obama administration. That’s because up until then, it was a piece of Washington esoterica that no normal person would have occasion to care about. Raising the debt ceiling doesn’t actually spend any money; all it does is allow the Treasury to pay the bills for the things Congress has already decided to spend money on. The ceiling is always raised incrementally, and whenever it approached, members of the opposition party would make a few floor speeches condemning the president’s profligate spending, then an increase would be passed in due course. A few of those members might cast a symbolic vote against it, but no one seriously contemplated not increasing it, because that would be ludicrously reckless.
Once Barack Obama became president, however, the Republican Party all but made “ludicrously reckless” its official motto. In 2011, GOP members demanded deep budget cuts in exchange for increasing the ceiling, causing a standoff that would eventually result in America’s bond rating being downgraded. Although the nightmare scenario of a default was averted, we went through a similar crisis in 2013. Republicans realized that because Democrats actually care about responsible governing, their concern could be used against them to extract policy concessions (or at least try).
But let’s back up. Why do we have a debt ceiling in the first place? After all, it doesn’t actually perform any practical function other than forcing us to increase it or face a disaster. The story goes back to 1917, with its roots in the tug for power between the executive and legislative branches. In order to raise money to fund our involvement in World War I, Congress created Liberty Bonds, but put limits on the Treasury Department’s ability to issue them without periodically getting Congress’ permission. Then in 1939, Congress passed a law putting a limit on all the debt the government issued, thereby requiring the executive branch to come before Congress from time to time and ask for the authority to issue new debt. Congress has always obliged in the years since, but they usually raise the ceiling only enough to allow for another year’s worth of spending or so. (If you’re eager to read a history of the debt ceiling, you can find one here.)
So the fact that there is a debt ceiling is just an accident of history. The only other OECD country that has a debt ceiling is Denmark, and they set theirs high enough that it doesn’t precipitate a political crisis when it approaches.
If we were to eliminate it, nothing would change — except for the fact that one party wouldn’t be able to plunge us into a potential crisis by withholding its agreement to raise it. Despite what tea partiers might like to believe — or convince their constituents, who hear a candidate say “I won’t vote to raise the debt ceiling!” and assume it means he’s going to cut spending — the debt ceiling doesn’t limit the country’s debt in any way. To be crystal clear, how much debt we have is determined by the budget — what we spend money on — and how much tax revenue comes in. The debt ceiling has nothing to do with it. And for decades, it was like a weapon that nobody was dumb enough to pick up. Until Republicans took over Congress.
Which brings us to today. Up until recently, the Trump administration itself couldn’t even decide what it wanted to do about the ceiling. Treasury Secretary Steven Mnuchin was begging for a “clean” increase, one that didn’t have policy changes attached to it that would become the cause of political squabbling and potentially a stalemate that could result in default. But he was being contradicted by Mick Mulvaney, the director of the Office of Management and Budget, who until this year was one of those anti-government Tea Party congressman for whom “Burn it all down!” sounded like a sensible political philosophy. Mulvaney was advocating that the ceiling only be increased if spending cuts were attached, which could have caused another game of chicken, with the American (and the world’s) economy in the balance.
But Thursday afternoon, Mulvaney told reporters that he had backed down, and the administration is now united in favor of a clean increase. The only trouble is that congressional Republicans may not be. Mitch McConnell and Paul Ryan are having trouble convincing their members to just increase the ceiling and get it behind them, meaning they’ll have to ask Democrats for their help to pass an increase. The outcome is still uncertain.
This is madness. We can have our arguments about what government should spend money on and how much it should spend, but the debt ceiling does nothing but create opportunities for the least responsible people to do enormous damage to the country. All it would take to get rid of it is an act of Congress and the president’s signature. It’s long past time we tossed the debt ceiling in the trash where it belongs.