The Agenda

Alternatives to the Debt Ceiling

In January, Philip Wallach of Brookings released a paper offering alternatives to the debt ceiling as a tool for encouraging spending restraint:

First, we could easily address those who are seriously concerned that the debt is not yet sufficiently on the public radar and who value the attention-requiring characteristic of the debt ceiling. Instead of anything linked to a serious disruption of government operations, we could put into place requirements that legislative leaders and the President give the public formal explanations of distressing deficits. For instance, New Zealand’s Treasury Minister is required to provide such an explanation whenever debt deviates from “prudent” levels. We could require leaders from both parties to provide explanations—indeed, as long as we’re at it, why not make it a statutory requirement to offer the outlines of a plan that consists of something other than “wait for the voters to give my party complete control of government”? Such requirements are unlikely to have a huge impact, but they might improve deliberation about the debt.

Second, we could put automatic spending-control mechanisms into place that are directly sensitive to the business cycle. Automatic spending sequesters (ideally in combination with hard caps on tax expenditures) could kick in if unemployment is low and deficits are high—avoiding the pro-cyclical adjustments that Gramm-Rudman-Hollings caused. Since 2001, Switzerland has had such a “debt brake” that caps expenditures at revenues with business cycle adjustments. Such a rule might be passable, since it cannot be opposed on the grounds of being insensitive to our current jobs problem, and it would go a long way toward showing that America’s Keynesian budget instincts can be genuinely counter-cyclical instead of pushing us perpetually toward debt accumulation.

Far more fundamentally, we need to be thinking seriously about how to reform our dysfunctional budgeting process. Because debt ceiling fights happen after spending and revenue decisions have already been made, the leverage for deficit shrinking is at its nadir; far more control could be exercised if there were mechanisms forcing serious consideration of debt at the front end of the process. A radical shift, which would expose the costs of our entitlement programs to much greater scrutiny than they currently receive, would be to move all government spending on-budget, thereby bringing all of the government’s liabilities into the budgeting process. This would potentially force hard choices about the tradeoffs between low-efficiency marginal healthcare spending and potentially high-return spending on research, basic infrastructure, etc. Less radically, we should think carefully about what should follow a failure to pass a new budget. Perhaps continuing resolutions should be forced to automatically push us toward balanced budgets, creating a default rule in which current unsustainable levels of spending are not retained simply through inertia and an inability of our two parties to compromise. Perhaps we need something as crass as the “No Budget, No Pay” law proposed by Representative Jim Cooper (D-TN), which would suspend congressional pay until a budget is passed. [Emphasis added]

Wallach’s suggestion that we consider moving all government spending on-budget seems particularly interesting.

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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