Washington is bracing for yet another round of debt limit drama. Instead of moving to the brink of disaster, our leaders should dedicate their time and energy to laying the groundwork to fix the debt.
Treasury Secretary Steven Mnuchin had been telling Congress that the statutory debt limit needs to be raised by September 29 because he will run out of “extraordinary measures” to avoid exceeding the limit soon afterwards. However, he is now saying that the deadline may move up because of the government response to Hurricane Harvey.
Quick action is required to avert disaster in the near term, but more substantive efforts are necessary to prevent a catastrophe down the road. Posturing around the deadline won’t fix anything and will only make the situation worse by destabilizing markets and the economy. Instead, using the moment to begin seriously addressing the debt so that such debt ceiling silliness is no longer commonplace would be a much better response to the situation.
Simply put, if lawmakers refuse to raise the debt ceiling, the ensuing default will cause immediate economic turmoil. However, if Washington continues to ignore the unsustainable growth of the national debt, there will be considerable long-term damage to the economy.
Some suggest that refusing to raise the debt ceiling will promote fiscal responsibility, like cutting up the credit card to prevent running up large balances. But the analogy is wrong because the debt has already been incurred through tax and spending decisions previously made by Washington. This situation is more akin to running up a large credit card balance, then refusing to pay. That scenario never ends well for the borrower.
Fix the Debt co-chairs Ed Rendell and Judd Gregg put it bluntly in a Washington Times op-ed.
We need a plan to immediately raise our legal debt ceiling, or the consequences could be far greater than embarrassment — they could even be catastrophic. Congress has already spent the money, now it’s just debating whether to pay the bill.
Our partners at the Committee for a Responsible Federal Budget also portray the situation in a similar way.
While first and foremost we encourage policymakers to pass the needed increase immediately, we also support their using this opportunity to take long-overdue action to deal with the debt. When your credit card bill arrives, you pay it. But if it’s too high, you may also need to adjust your borrowing habits going forward.
The debt ceiling is one of the few mechanisms that truly causes us to take pause and assess our debt path. In fact, some previous debt limit episodes led to deficit reduction policies or processes. However, the full faith and credit of the country is not something to mess around with.
Lawmakers concerned about the debt should stop voting for tax and spending policies that increase it. There are plenty of ideas for creating a much better mechanism for enforcing budget discipline, but in the meantime, policymakers should increase the debt limit and then start fixing the debt.
Governor Rendell and Senator Gregg outline a plan for moving forward in the op-ed.
Here is a plan that people of all political persuasions should be able to get around:
First, we need to raise the debt ceiling as soon as possible to provide certainty to the economy.
Second, we need to put our long-term debt on a downward path back toward the historical average as a share of the economy. An easy start would be reforming the budget process to make it harder for lawmakers to keep digging deeper. Right now, the budget process is broken, and oftentimes lawmakers use accounting gimmicks just to get over the next fiscal bump with no plan to address the building mountain of debt just down the road.
Third, we need a plan to address our unsustainable entitlement programs, including Social Security and Medicare. They are the largest drivers of the long-term debt and on a course toward insolvency. Without changes, Social Security alone will run out of full funding by 2034. Because the issue is so politically charged, a bipartisan commission should be created to craft a plan to shore up these programs while protecting the most vulnerable.
Finally, we need to enact tax reform that grows the economy, not just tax cuts that add to the debt.
You can show the politicians how to fix the debt with the Debt Fixer interactive budget tool.
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