Democrats Can End the Debt-Limit Drama, If They Want
(Bloomberg Opinion) -- Few topics induce quite as much hysteria and hypocrisy as a debt-ceiling debate. This year’s is proving to be a doozy.
As the Treasury Department approaches its $28.4 trillion statutory borrowing limit, it’s been resorting to “extraordinary measures” to ensure the U.S. meets its obligations. It currently expects these measures to expire on Oct. 18 or thereabouts. If Congress can’t come to a deal by then, the country may well default and a financial crisis could ensue.
Both parties bear some guilt for the impasse. Republicans who racked up debt — and repeatedly raised the borrowing limit — during Donald Trump’s presidency now say they must take a stand for fiscal sanity. Democrats who used the debt limit as leverage when they were in the minority now deplore any such gamesmanship with the nation’s “full faith and credit.” Anyone who has spent time in Washington knows this drama by heart.
Fortunately, the Democrats now have an out. According to news reports, the Senate parliamentarian has told congressional leaders that they can increase or suspend the debt limit — it’s not yet clear which — using the budget-reconciliation process, which requires only a majority vote. Although doing so would be politically fraught and time-consuming, it would allow Democrats to dispense with the issue without imperiling their broader agenda or needing Republican votes.
They should seize this chance, then make a good-faith effort to reform a seriously flawed mechanism.
In years past, it was plausible to argue that the borrowing limit — for all its faults — had a salutary effect. With so much of the federal budget expanding on autopilot, it provided a rare opportunity to force lawmakers to reckon with rising costs. It also allowed minority parties to demand some restraint: Almost every major deficit-reduction measure over the past four decades has been attached to a debt-limit deal, including the 2011 Budget Control Act, which forced both parties to accept cuts to their favored programs.
Yet the promised restraints never amount to much. Federal debt keeps rising and deficits keep widening. More than 60% of federal spending consists of “mandatory” outlays outside the budget process, which are hard-wired to keep growing. Not only that, but debt-limit brinkmanship itself imposes costs: By increasing the likelihood of default, it leads investors to demand higher yields on Treasury bonds and thus adds hundreds of millions in borrowing costs each time around.
This year’s fracas is all the more pointless because it lacks even the pretense of fiscal responsibility. Democrats have not even offered any incentives for Republicans to come to the table. They seem to think they can shame their opponents into accepting their rightful share of the blame for earlier deficits and soaring debt. That would be the right outcome, but it isn’t a likely one. Shame is not a naturally occurring emotion on Capitol Hill, and Republican leaders insist they’ll do no such thing.
That leaves reconciliation as the best way to avoid default. In going down this road, Democrats should make clear that they’re also going to push to reform the debt-limit process. A better approach would pair higher net spending with a boost in the Treasury’s borrowing authority. The majority party would still need to defend this added debt with each new budget, but the nuclear bomb of default would be set aside. Alternatively, in the event of a future breach, Congress could mandate that the Treasury still make its debt-service payments. Again, the result would be bad — a government shutdown on steroids — but not as catastrophic as default.
It’s clear by now that the risks posed by the debt limit far exceed its theoretical benefits. No other country routinely toys with defaulting on its obligations. Enough.
Editorials are written by the Bloomberg Opinion editorial board.
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