Averting Default, Achieving Restraint



The federal government will hit the statutory limit on its debt within the next two months, and further borrowing would require congressional action. Almost everybody recognizes that such action will need to take place, since no one has proposed a way to end all deficit spending immediately. But Republicans want to make sure that as Congress takes that action it both highlights the problem of overspending and takes steps to address it, while Democrats want to make sure that the problem receives neither attention nor remedy.

To achieve its end, each party has focused on a different element of the debt ceiling. Republicans treat the debt-ceiling vote as a moment to recognize the implications of runaway spending and to bring down the future trajectory of that spending (and therefore of the debt). They want any authorization of future borrowing to be tied to reductions in future spending, so that as we acknowledge how much debt we are amassing, we also do something about it.

Democrats, however, treat the debt ceiling as having basically nothing to do with the future. Past spending decisions are in the past, they say, and now Congress just has to pay for them. The debt ceiling, in their telling, threatens to stand in the way of Congress’s doing so, and especially to thwart debt repayment, raising the prospect of a default on the government’s debts, which would have catastrophic economic effects. As White House spokesman Jay Carney put it recently, “there are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default.”

The Democrats are treating all federal spending (not only the repayment of past borrowing) as a sacrosanct obligation that cannot be undone. And they insist that attaching any conditions to a debt-ceiling increase would be unprecedented and tantamount to blackmail, even though such conditions have been attached in the past and have resulted in some fiscal reforms (including the Gramm-Rudman-Hollings budget caps in 1985 and more modest measures in 1996 and 2011).

Republicans should recognize that the prospect of default is the Democrats’ chief weapon in their campaign of avoidance. That prospect is not a source of Republican leverage in the debt-ceiling fight; it is the primary source of the Democrats’ leverage. It is a way to distract the press and the public from the reality of our fiscal crisis.

The Democrats’ strategy offers Republicans an opportunity. Since the Democrats insist that the prospect of default is the reason they will not negotiate about spending restraint, Republicans should begin the debt-ceiling fight by permanently eliminating that prospect, turning the debt-ceiling debate into an argument about future spending rather than past borrowing.

The House should pass a bill to redefine the debt limit so that it constrains primary spending but not debt service. Under this reform, a Treasury that had hit the statutory borrowing limit could continue to borrow what it needed exclusively for paying interest on the national debt and to roll over existing debt obligations, but it could not borrow for any other government spending until the limit had been increased. This would take default entirely off the table.