Democrats, left-wing advocacy groups, and the mainstream media are salivating over the debt-limit fight as a way to undermine the fiscal credibility of the newly elected Republican House majority. Some Republicans have threatened to vote against raising the debt ceiling if significant spending cuts aren’t passed as well; the Left argues that if they make good on this threat, they will severely damage the fiscal health of the country. This argument, however, overstates the risk of not increasing the debt ceiling and recklessly spreads fear in capital markets.
The most egregious example of deceptive framing happened on Election Night, when MSNBC host Lawrence O’Donnell made the hyperbolic claim, “The single most important vote ever cast by members of the House and Senate is on the debt ceiling.” The stakes, as O’Donnell explained them, are that failure to increase the debt ceiling will “wreak havoc on the world financial markets and cause a worldwide depression with one consistent holding to principle.” That last part is critical: The Left wants us to believe that the only way to avoid an economic disaster is to disregard the principle of fiscal responsibility.
That’s the opposite of reality. Adherence to principle doesn’t require repudiating the debts accumulated by the reckless Pelosi-and-Reid-led Congresses. Indeed, the most responsible action consistent with limited-government principles is to acknowledge those debts and pay them — in exchange for deep cuts in federal spending that will put us on a real path to a balanced budget and then debt reduction. Moreover, since federal regulation now creates a staggering $1.75 trillion per year in compliance costs, a regulatory timeout to let the economy get back on a sound footing should also be part of the deal.
And if Congress fails to reach a compromise, leaving the debt ceiling where it is, O’Donnell’s worries of a debt apocalypse will prove unfounded. Pennsylvania senator Pat Toomey recently eviscerated the scaremonger story in the Wall Street Journal with some simple math:
If Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt. Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?
Toomey is sponsoring legislation called the Fiscal Integrity Act (Rep. Tom McClintock is sponsoring a companion bill in the House) that would require the U.S. Treasury to prioritize debt payments over other federal outlays. While the Treasury would almost certainly do this even without a legal mandate, the Toomey-McClintock bill would put to rest any fear that the United States would ever default on its bonds. If Democrats refuse to support the bill, they will be exposed as wanting to keep alive the fear of a default for use as a political weapon.
At the end of the day, it may not be possible to come up with a workable plan to cut federal spending enough to avoid an increase in the debt ceiling. Time is short, the new Congress inherited an enormous budget deficit, and implementing the reforms needed to balance the budget and stop accumulating debt is a big challenge. But we need to put the doomsday scenario of bond default to rest so we can have an honest discussion of what’s achievable in terms of spending reductions, rather than allowing the Left to intimidate Congress into giving the Obama administration another no-strings increase in its capacity to keep spending and piling on more debt.