Hey there, time traveller!
This article was published 15/1/2013 (1352 days ago), so information in it may no longer be current.
In the final news conference of his first term, President Barack Obama called the increasingly real spectre of a U.S. default "irresponsible" and "absurd." Yet the absurd has become sadly commonplace in Washington.
Consider Obama’s news conference itself: At the same time he was comparing Congress to a bunch of deadbeat diners who refuse to the pay their bill, the president was careful to say this was a crisis Congress would have to solve. It is not exactly a confidence-inspiring message.
It is true that it is up to Congress to raise the nation’s $16.4-trillion debt limit so the United States can avoid default. It is also true that there is a precedent for Congress doing so with a minimum of hassle. Then the legislative and executive branches can get on with the more pressing budgetary concerns they both say they want to debate.
Perennial fights over the debt ceiling are more than a distraction — they are hugely damaging to the U.S. economy, preventing a more robust recovery and driving up the nation’s long-term deficit as nervous lenders demand higher interest payments. Yet these battles show no sign of abating, as Republican lawmakers continue to view the debt ceiling as a bargaining chip with which to elicit deep spending cuts.
Obama got it right when he said, "We’ve got to stop lurching from crisis to crisis to crisis." One way to avoid these tiresome disputes would be for Congress to give the White House power over the debt ceiling, so the U.S. can avoid a sideshow that threatens the "full faith and credit" pledge made to those who buy U.S. debt. Republicans, however, reject this as a power grab by the White House.
So here’s another way to end the fight: Tie spending decisions to automatic increases in the debt limit. The premise is simple — when Congress passes a budget resolution or spending bill, it should also authorize a concurrent increase in the statutory debt limit to pay for what it’s authorizing. This would have the added benefit of fostering fiscal restraint by linking spending decisions to the Congress that authorizes the money. If that local airport runway (or, as the case may be, "Bridge to Nowhere") is in the budget, then the Treasury Department can raise the debt limit to pay for it. No additional congressional action would be necessary.
It sounds absurdly unrealistic — no Congress, especially this one, would ever agree to such a plan. Except that it has: Such a rule has been in place since 1979. The Gephardt rule (named for its chief proponent, former Democratic House Majority Leader Richard Gephardt) was intended to avoid the exact scenario that’s occurring today, and it has worked: Of the 20 joint budget resolutions originated by the House under the Gephardt rule, 15 were enacted into law, according to the Congressional Research Service.
Unfortunately, the rule is not mandatory; each Congress can decide whether to follow it. And House Republicans have repeatedly decided not to, including in 2011, forcing a separate vote to raise the debt limit. That vote, once viewed as routine, has now repeatedly paralyzed the U.S. and threatened to derail the economy.
The Treasury reached its statutory borrowing limit on Dec. 31 and is now using extraordinary measures to pay for the government — essentially shifting money among accounts and suspending some payments. The U.S. could exhaust those measures as early as Feb. 15 and would be unable to meet $175 billion of its obligations in the following month.
Although some think Treasury could prioritize interest payments to forestall default, a 2012 report by its inspector general shows how hard it would be. Treasury makes more than 80 million payments a month, largely through an automated system that pays bills as they come due.
What Treasury would probably do is delay all federal payments until it had enough cash on hand and pay its bills on a day-by-day basis. The U.S. wouldn’t send a single Social Security check, Medicare payment or military paycheck until taxes and other receipts freed up enough cash to do so. And this is the course of action deemed least harmful by Treasury, which acknowledged it was likely to cause "great hardships to millions of Americans and harm to the economy."
There are important reasons to reduce how much money the U.S. borrows. The place to do that, however, is through regular budget negotiations — as spending decisions are being made. Linking spending bills with an automatic borrowing increase would also put an end to the debt-ceiling theater. As Obama said, the way the U.S. is operating now is akin to ordering a huge meal in a restaurant and then refusing to pay. The U.S. is not a dine-and-dash nation.