Time to Introduce Reality into the Debt-Limit Debate

by Douglas Holtz-Eakin

Today the House will vote on the deceptively named “clean” increase in the federal debt limit. This is a reckless idea that should and will fail.

America has problems. A river of red ink emanates from its social-safety-net entitlement programs. Social Security is running a cash-flow deficit of $49 billion that will explode to $211 billion annually in ten years. Medicare’s hospital program (Part A) has an annual cash-flow deficit of $66 billion, while the doctor program (Part B) and drug program (Part D) cost $216 billion more than is paid in premiums. Medicaid has no dedicated federal funding. In effect, each year our children are ponying up $405 billion in federal deficit-financed costs. Altogether, health-care entitlements will combine to form a crushing annual burden of $1.4 trillion by the end of the decade. The upshot is that these crucial safety-net programs will implode without reforms; Medicare Part A is expected to collapse as soon as 2016. Liberals tout their defense of this status quo, when in fact business-as-usual is a callous political calculation that cruelly abandons future seniors and poor Americans without a durable safety net.

The river of entitlement red ink courses through a broken budgetary landscape. America is borrowing $58,000 every second — more than the median income of its households — and the gross debt already exceeds the level (90 percent of gross domestic product) that has historically toyed with a debt crisis. Even worse, the federal debt promises to explode in the next decade, which will surely result in a U.S. sovereign debt crisis. Erskine Bowles, co-chair of the president’s fiscal reform commission, has called it the “most predictable crisis in history.”

When the crisis inevitably arises, the painful memories of 2008 — panic, no credit, monthly job losses in the hundreds of thousands, Main Street businesses shuttering their windows and closing their doors, highly qualified college graduates despairing of ever finding real work — will seem quaint and mild by comparison.

Those are big problems: broken programs, a debt crisis, no jobs.

Voting to increase the debt limit will not solve a single one of those problems.

Indeed, if the U.S. did not have a federal debt limit, it would still have these problems. The need to increase the debt limit is merely a symptom of the spending problem — the bills for President Obama’s spendthrift ways are coming due and he will need to trade some political capital to get them paid. Indeed, to pass a reckless increase in the debt limit would effectively ratify the status quo and thereby send shivers through financial markets.

The focus should remain on solving the real problem. Any increase in the debt limit should be accompanied by actual policy changes that cut discretionary spending in fiscal 2012, and sets limits on spending over the medium term. But most importantly, it must be accompanied by real changes that improve the durability of the entitlement programs, stem the flow of debt, and lift the threat of a crushing recession from American workers.

Some argue that simply refusing to raise the debt limit will achieve these goals automatically. However well intentioned, this approach confuses starving the entitlement programs with real fixes that prevent the budgetary danger from re-emerging in the future. Ultimately, Congress must act to solve America’s problems. A strategy of inaction will not succeed.

At the other extreme, some liberals have labeled taking such a vote a mere political stunt. If liberals were connected to the reality of the problems facing the United States, or just crassly cognizant of the political reality that nine out of ten Americans oppose just increasing the debt limit (according to recent polling by the American Action Forum and Resurgent Republic), then such a vote would truly be unnecessary. But in the face of an Obama administration that continues to call for an increase and liberals who continue to insist on the dangerous status quo, it seems to be the only way to introduce reality into the debt-limit debate.

So get ready. The House will vote on raising the federal debt limit and it will vote no. Good. It’s time to solve America’s problems.

Douglas Holtz-Eakin is president of the American Action Forum.

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