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It’s time to do away with the debt ceiling
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News
February 21, 2023
It’s time to do away with the debt ceiling

Here we go again. The United States crashed through the nation’s debt ceiling on Jan. 19, according to Treasury Secretary Janet Yellen. For now, the government is relying on accounting tweaks and shifting money from one pot to another to pay the bills. But that only works for so long. Soon, Congress will have to raise or suspend the debt limit. The alternative, defaulting on America’s financial obligations and sending the world economy into a tailspin, is unthinkable. Or it should be. But we can expect a lot of brinksmanship and political posturing before we get to that point. The new Republican majority in the House of Representatives sees the debt limit as an opportunity to force big reductions in federal spending. President Joe Biden says raising the ceiling shouldn’t be linked to other demands. Both sides are determined not to blink. What should Congress do? The common-sense answer is to get rid of the debt ceiling entirely. It isn’t required, and in the 100-plus years that the United States has had a statutory limit on debt, it has rarely if ever had a significant impact on deficit spending. That doesn’t mean the national debt isn’t a big deal. At over $31 trillion and growing, it most certainly is. But standoffs over raising the debt ceiling don’t address the problem. They soak up political energy and distract from more important matters. The thing to remember about raising the debt ceiling is that it’s not about increasing spending; it’s about paying for purchases we’ve already made. If we failed to raise or suspend the ceiling and defaulted on our obligations, the results would be catastrophic. Moody’s Analytics predicts consequences comparable to the Great Recession: a 4% decline in GDP, almost 6 million lost jobs and a 9% unemployment rate. The debt ceiling is the limit, set by Congress, on what the government can borrow, including debt held by the public and money the government owes itself as a result of borrowing from various accounts. The first debt limit was adopted in 1917. Since 1960, Congress has raised or extended the limit 78 times, including three times during the Trump administration. Among advanced democratic nations, only the United States and Denmark have a debt ceiling, and Denmark sets its limit so high that it’s not an issue. Only in America do we seem to play this dangerous game every few years. This time around, conservatives in the House Republican caucus want to use the debt ceiling as leverage to shrink the size of government. They are not wrong to worry about the national debt. Even in the context of America’s massive GDP, $31 trillion is a worrisome number. Our economy has proven to be remarkably resilient, but, at some point, the debt will grow unsustainable. Interest on the debt costs hundreds of billions of dollars each year, crowding out spending on necessities. It leaves less money for infrastructure or human capital investments. It can make it harder to respond to future economic challenges. But the debt is not a partisan problem. It has ballooned under Republican and Democratic administrations. Spending increases and tax cuts both have driven up deficits and caused the debt to grow. Politicians know that funding services and cutting taxes are popular with segments of the public. In effect, Americans want more from government than we’re willing to pay for. Elected officials should tackle the debt problem with a long-term, methodical and bipartisan plan that addresses both taxes and spending. But using the debt limit to win partisan fights is unproductive and dangerous. Congress needs to adopt a clean and quick increase in the debt ceiling – or, better yet, get rid of it altogether.

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