Bad Ideas Watch: Shutdown/Debt Ceiling Edition

Bipartisan discussions over how to end the partial government shutdown and raise the debt ceiling are coming down to the wire as this week begins, with only three days left until October 17 -- the date that Treasury Secretary Jack Lew says the U.S. government would be left with a dangerously low amount of cash on hand and default could potentially be imminent.

There are a number of good ideas out there for breaking the impasse, but there are also a number of bad ideas. As policymakers negotiate over how to re-open the government and lift the deal celing, they should avoid the following fiscally irresponsible policies:

  • Waiving sequestration (without offsets): There is currently broad agreement in Congress to continue funding government at current levels of $986 billion on a temporary basis -- which is about $20 billion higher than what is called for under sequestration. Although ideally policymakers would work to replace the sequestration with more intelligent spending cuts, there are some rumors that they may waive sequestration without other spending cuts. As we previously explained, any reduction in the sequestration cuts not accompanied by offsets would send the message that Washington is not committed to controlling deficits and debt and that it cannot responsibly stick to already enacted savings.
  • Repealing or delaying the medical device tax (without offsets): A number of policymakers have suggested accompanying a continuing resolution with a repeal or delay of the 2.3 percent medical device tax established by the ACA ("Obamacare"). As we've explained before, repealing or delaying this tax would add to the deficit to the tune of $3 billion per year. Policymakers should avoid making any changes to the medical device tax -- or any other deficit-increasing policies -- without fully offsetting the cost of doing so.
  • Using pension smoothing as an offset: Several policymakers have suggested a change in pension contributions rules to help offset the costs of other policies. As we've explained before, this "pension smoothing provision" would represent a timing shift that would raise revenue in the short-run but lose revenue over the long-run. Using temporary revenues from a timing shift to offset a permanent reduction in revenues or increase in spending would be a budget gimmick.
  • Enacting a year-long Continuing Resolution: Some proposals have called for funding the government on a long-term basis -- for six months to a year. Yet continuing current funding levels on a long-term basis would be a mistake on a number of fronts. For one, it would lock in the mindless across-the-board sequestration cuts implemented in March of this year. It would also lead to a second $20 billion defense sequester in January. Ultimately, policymakers must agree to a sustainable level of discretionary spending and then pass appropriations bills which make the hard choices as to how to allocate funds within that level. Cuts should be focused on low-priority spending, not applied across the board.
  • Repealing IPAB: Particularly in the House, there is bipartisan support for repealing the Independent Payment Advisory Board (IPAB) established under the ACA; and some rumors suggest this could be part of a broader deal to raise the debt ceiling and open the government. Yet IPAB provider an important backstop if Medicare grows quicker than anticipated by automatically implementing targeted provider savings when costs grow too fast. Although there is plenty of room to improve IPAB, it should not be repealed unless replaced with an alternative mechanism to control long-term Medicare growth.
  • Offsetting Sequestration with a Repatriation Holiday: The idea of replacing part of sequestration with revenues from a repatriation holiday for multinational companies has been floated in recent days. While a repatriation holiday would generate more revenue in the short run, it would likely reduce revenues later in the decade and over the long term. Although a broader discussion over how to reform international taxation is long overdue, using short-term revenue from a repatriation holiday to finance spending increases would be a serious gimmick.
  • Waiting until the last possible moment to gain leverage: The country is only days away from exhausting all of our borrowing authority. After Thursday, the Treasury would only be able to pay bills with the cash it has on hand, greatly increasing the risk of a default. At the same time, the government shutdown continues to drag on and certainly is not helping give consumers and businesses the confidence they need to spend and invest and is taking money out of the economy. Taking the United States to the brink might result in a better outcome for one side over the other but at the expense of the U.S. economy. It isn't worth it.

Lawmakers need to stop the madness, start discussing responsible solutions, and solve the debt problem.