The Corner

The one and only.

‘Debt Default and Government Shutdown Avoidance Act’?


My friend and George Washington Law School professor Michael Abramowicz recently sent me this suggestion about how to deal with the upcoming “debt ceiling” crisis. He suggests passing a bill called something like the “Debt Default and Government Shutdown Avoidance Act.” He writes:

There is a good chance that some deal will be made to avoid the fiscal cliff, either before the new year or shortly after. If a deal is reached, then there will presumably be some fix, temporary or permanent, to the debt limit statute. But if no deal is reached on the fiscal cliff, then the debt limit lurks as an additional potential catastrophe. This is not just a bargaining chip for Republicans, but the one existing legislative provision that would prevent massive increases in spending (particularly Medicare) over several decades. Public opinion reduces the Republicans’ leverage, however, because if we do go over the limit when the President wants to eliminate it, the Republicans will be blamed. Many members of the public will accept the President’s position that the Republicans are using the debt limit as a hostage in negotiations.

The Republicans could turn the tables on this issue by proposing or passing in the House a bill that would not eliminate the debt limit, but would change the consequences of hitting the debt limit. One approach would be to provide that the Treasury can continue to borrow to the extent necessary to make payments on the existing debt. That would put off the table the possibility of a default. Another approach might also protect some additional categories of spending, perhaps Social Security and funds needed to keep the government running. (But if the attempt is to seem anything other than partisan, Republicans could not just preserve their preferred spending.)

Perhaps the President would agree to such a bill, which might be called something like the Debt Default and Government Shutdown Avoidance Act. If he does, then the debt limit statute would continue to serve the useful function of ensuring that Congress periodically reconsider our budget trajectory, including spending not subject to annual appropriations. Any concerns that the debt limit is unconstitutional would be eliminated. Neither party would want to go over the limit, but the damage would be short-term. If the President refused to sign the bill, then it would be clear that he is also using the possibility of default as a hostage, and the Republicans would gain some political advantage or at least reduce their disadvantage. There is only downside for the Republicans if they think they are more likely to win a game of chicken than the Democrats if the stakes are really high. But given public opinion, I don’t think such confidence is warranted.

This is an interesting idea. It does kill several birds with one stone, including avoiding the threat of a default by making sure that interest payments are made on time by borrowing money above the debt ceiling when needed (this is different from the idea of allowing Treasury to prioritize interest payments with what is left of tax revenue). 

The weakest part of this argument in my eyes is the assumption that Republicans are serious about reining in Medicare spending. (I know, they have the Ryan plan. However, allow me to be skeptical based on the way they talked about Medicare spending during the campaign.) That being said, I would be more than happy to be wrong on this point. 

What do you think about this idea?