Abolish the debt limit

Posted: Sun, 1/13, 8:46am, Updated: 9 months ago

Until the 112th Congress came to Washington, lawmakers raised the federal debt limit without much attention from their constituents or the media. Neither major party considered delaying the vote until they got their way on a separate issue, such as spending or taxation.

This is, of course, because the consequences of not raising the debt limit in a timely manner have severe implications for not only the national but global economy. The debt limit does not actually prevent the federal government from spending more. By the time the debt limit needs to be raised, Congress has long spent that money on things like military and health care expenditures. The attention of those wishing to tackle the federal debt should be directed to the decisions made much earlier in the budget process, when Congress originally approves the spending it will eventually have to pay for.  

As Glenn Kessler wrote in the Washington Post,

"Even under the most conservative budget plans, the United States would have to keep adding to the national debt in order to meet all sorts of current obligations, such as Social Security payments, Medicare and the wars in Iraq and Afghanistan. So the debt limit will have to be raised, one way or the other."

Indeed, to not raise the debt limit, which is essentially an arbitrary number that determines the amount of money the U.S. can borrow, would be to decide that we no longer wish the pay for the things we have already purchased. The country would subsequently default on its debt obligations, unless it could somehow raise enough revenue (taxes) itself. Kessler goes on to say, "assuming revenues could not be raised, the cuts in spending immediately would be about 42 percent. Even if all discretionary spending were eliminated — and that would include defense spending — mandatory spending (such as Social Security, Medicare and Medicaid) would still need to be reduced."

To summarize it in as few words as possible, the federal debt limit is in place so that Congress can retroactively approve the spending it has already passed. If that doesn't make much sense to you, you're in good company.

The debt limit was fashioned around the time of the First World War, giving voters the belief that Congress is responsibly managing the nation's barrowing and spending. Nearly a century later, both Republican and Democratic Presidents have overseen massive increases in the federal debt, financing unnecessary wars, passing expensive tax cuts, and failing to reform social programs when necessary. It's clear that for how much risk is involved in having a federal debt limit, it remains to be seen if there are any benefits to having it in the first place.

This brings us back to the 112th Congress, now thankfully departed (although its successor, the 113th, does not appear to be much better). In 2011, desperate House Republicans decided to use the debt limit as political weapon, holding the nation's financial security hostage in order to get their way on federal spending cuts. While a deal was eventually struck, not surprisingly on House Republicans' terms, the uncertainty had detrimental effects on the market. Stocks fell, and the nation lost its AAA credit rating, resulting in $1.3 billion in higher borrowing costs in 2011, according to the Government Accountability Office.

On Dec. 31 the nation hit the debt limit, and it will once again need to be raised sometime before Valentines Day in order to avoid default. After agreeing to raise taxes in the deal to avoid the "fiscal cliff," Congressional Republicans in the 113th Congress are seeking political revenge, and some GOP lawmakers are again threatening to delay the vote on the debt limit until a deal to cut spending is agreed upon. House Speaker John Boehner (R-Ohio) recently suggested raising the debt limit in monthly increments. As New York Times columnist Maureen Dowd sarcastically wrote, "What's wrong with weekly, or how about hourly?"

It's clear that in the coming years, as is the case right now, the debt limit will be used as leverage by whichever party is irresponsible enough to do so. The existence of a federal debt limit has never prevented Congress from making poor budgetary decisions, and it now poses much damage to the country's financial security in this new age of hyper partisanship. While it's unlikely to happen anytime in the near future, Congress should prevent a completely self-inflicted financial catastrophe from happening by abolishing the federal debt limit.  

 

William Bornhoft

Welcomes comments at wbornhoft@mndaily.com

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