One of the issues that will greet the next House speaker, who is now all but certain to be Paul Ryan, will be the debt ceiling. The Treasury Department says that it is running out of cash faster than it expected and that it urgently needs more debt. Not just a little debt, mind you, but trillions of dollars of new debt, to pay for additional spending.
President Obama is demanding that Congress raise the debt ceiling in the next two weeks, without offering any restraint on future debt. Given an $18 trillion national debt, that’s a recipe for fiscal disaster. To have a strong economy and be a world leader, we have to return to fiscal health, and that requires spending restraint and an end to Washington’s debt binge.
The problem for Congress is that the money has already been spent. The debt law was written backward. It allows the government to spend first and then forces the approval of the debt. The administration is using the debt limit to put taxpayers between a rock and a hard place — either authorize more debt or face a financial crisis and government shutdown that will be orchestrated by the president.
The immediate risk to fiscal conservatives is that outgoing House speaker John Boehner may use his departure to push through an extra-large increase in the debt ceiling to fund government largesse into 2017. He may think this helps Republicans by avoiding conflict with President Obama, but it doesn’t. It leaves the party divided and without a way to prove to voters that there is any difference between it and the Democrats, when it comes to fiscal health.
There’s a better approach. It is vital for Republicans to make spending and debt a key election issue in 2016, but that won’t happen if the debt limit is kicked to 2017. Given the tight deadline, the speaker should allow a vote to extend the debt limit, but only into early 2016. The president will need to get almost all Democrats to vote for it.
That sets up an opportunity for the president and fiscally responsible members of Congress to rewrite the debt limit so that it actually works. Every government, even a liberal one, has to make spending choices and limit spending growth. The president has been ducking that responsibility for seven years, creating a fiscal dead end.
Use the next several months to agree on new procedures that will restrain future spending and debt. We are not suggesting a government shutdown, but we are suggesting an upheaval in the budget process. It should be forced on big spenders by short-term debt-limit increases, one in 2015 and more in 2016, each a tough vote for Democrats. The debt-ceiling law is fatally flawed because it operates only after the money is spent, so Republicans shouldn’t keep playing the game of approving it.
From a growth standpoint, the key budget reform is to give the private sector confidence that federal spending growth will slow and be allocated better. Government spending should, on average, grow more slowly than the economy, not faster, as it has been doing. The most pro-growth law would be to provide enough spending restraint to cause a decline in the debt-to-GDP ratio. It now stands at 74 percent and, per the Congressional Budget Office, is likely to rise, when it should be going down. It’s a report card on Washington’s spending choices, which get a giant F. A ratio target works much better than a year-by-year deficit target because it’s cumulative and keeps track of backsliding — like a diet keyed to a desired weight, it neutralizes the tendency to cheat.
Spending growth should slow enough to allow the debt-to-GDP ratio to fall by one percentage point per year until it stabilizes at 50 percent of GDP. (See chart.) That would require balanced budgets in some years and substantial spending restraint consistently. That’s an outcome that would be almost as powerful as tax cuts in stimulating private-sector investment and growth.
Big spenders will call this “austerity,” but it’s not. It’s belt-tightening for the government, but for everyone outside Washington, it means more growth, less future taxes, and more room for private-sector jobs. If the government could cause federal spending and taxes to start growing more slowly than the economy, it would invite investment and productivity growth. That would finally allow a rising median income, not the annual declines that have plagued the Obama years.
To meet the debt targets, Congress might grant impoundment powers to the president to underspend the budget when the debt ratio is over that year’s limit. Congress will probably want to change its own rules to help restrain both discretionary and entitlement spending. There could be carrots and sticks, pay freezes for all senior government officials when over the limit, pay hikes when under. If those incentives don’t work, Congress should resort to a sequester, a blunt tool but better than the unchecked spending growth envisioned in the president’s budget proposals. This sequester should also apply to entitlements, except Social Security.
President Obama cannot be forced to participate in reform, but if he won’t, Republicans should place the voting burden for raising the debt limit squarely on his shoulders and those of House and Senate Democrats. Donald Trump’s high poll numbers this year are an expression of voter anger over the incompetence, arrogance, and waste in Washington. Politicians ignore this rage at their peril. A spending-limitation measure tied to the debt ceiling will force the president and Congress to spend more carefully and be accountable for it. They won’t like it, but that’s tough.