Two Views on the Debt Ceiling
It's September and that means we've entered the final month of the FY 2013 continuing resolution. While the threat of a possible government shutdown and the problems from the ongoing sequestration should be on everyone's minds, the debt ceiling is also around the corner. A recent letter from Secretary Lew said that the Treasury Department is likely to exhaust the extraordinary measures taken to advert the debt ceiling as soon as mid-October.
Today, two different views of how to approach the debt ceiling appear in USA Today, one from Speaker of the House John Boehner (R-OH) and the other from the paper's editorial board. In his piece, Speaker Boehner argues that the debt ceiling presents an opportunity to negotiate a deficit reduction agreement. Our Realistic Baseline shows that the budget is on a clearly unsustainable path and Boehner believes that the debt ceiling increase can accompany a meaningful deficit reduction agreement.
The American people know that our deficits and debt are hurting our economy and costing jobs. They want their elected leaders to take meaningful action to reduce spending.
Every major effort to deal with the deficit over the past 30 years has been tied to the debt limit. In 1985, President Reagan signed the Gramm-Rudman-Hollings deficit reduction bill, which included a debt limit increase. When President Bush reached a budget deal with a Democratic Congress in 1990, it included a debt limit increase. President Clinton reached similar agreements with a Democratic majority in 1993 and with a Republican majority on the balanced budget agreement of 1997.
Boehner points out that the Budget Control Act, despite its flaws, led to significant savings and is one reason why the budget picture looks better today than just a few years ago. But the USA Today Editorial Board cautions that above all, we cannot hold the debt ceiling hostage and threaten default. Failing to raise the debt ceiling would be very irresponsible:
But trading a government shutdown for the risk of defaulting on the national debt is a dangerous game. Even the hint that the United States couldn't meet its obligations rattles the financial markets and threatens the nation's credit rating. That would drive up interest rates, drive down stock markets and weaken the economic recovery.
The U.S. actually hit its $16.7 trillion borrowing ceiling in May, but Treasury Secretary Jack Lew has been maneuvering to delay the "X date" when the government can't pay all its bills. He said last week that the X date will now fall sometime in mid-October. Congressional action is imperative, and with the Syria resolution taking center stage when lawmakers return next week, the time for dealmaking is growing short.
As we said in our paper,"What We Expect From the Upcoming Fiscal Discussions," the debt ceiling should be raised as soon as possible, and lawmakers should not threaten the full faith and credit of the United States. Taking the country to the brink could have a devastating effect on the confidence of markets and households at a time when the economy is still weak. However, the "presence" of the debt ceiling can have a positive effect if it encourages discussion on our fiscal outlook. We need a comprehensive deal that will put debt on a downward path, and lawmakers should use upcoming fiscal speed bumps as a chance to make our long-term outlook sustainable.