Analysis-Despite chaos and risks, Washington sticks to its debt ceiling

By Andy Sullivan

WASHINGTON (Reuters) – The latest standoff over the U.S. debt ceiling, resolved just days before the government faces a devastating default, has prompted some to call on the country to drop its self-imposed borrowing limit .

This shouldn’t happen anytime soon.

Although the showdown has angered investors and prompted threats of a second U.S. debt downgrade in just over a decade, proposals to abolish the debt ceiling have gained little traction in Congress in recent years. .

Republicans have shown no interest in giving up a point of leverage they used to win trillions of dollars in spending cuts from Democratic administrations.

“There’s no other way to fix the spending habits we have,” Republican Sen. Mike Rounds said.

This year’s debt standoff and the last two major ones – in 2011 and 2013 – have all unfolded with a similar division of power in Washington, with a Democratic president and Senate majority, and Republican control of the House. representatives.

But Democrats did not attempt to abolish the debt ceiling when they controlled the White House and both houses of Congress in 2021 and 2022. Now they cannot afford to do so.

Last November, after the Democrats lost their majority in the House of Representatives but before the Republican majority was sworn in, Treasury Secretary Janet Yellen warned Democratic lawmakers to deal with the debt ceiling and then avoid a crisis. His appeals went unanswered.

As a result, Washington will have to deal with the issue again before the current deal expires on January 1, 2025.

‘SURVIVED ITS USEFULNESS’

Some fiscal hawks who previously supported the debt ceiling now argue that the growing dysfunction in Washington has made the risk of default too great.

“If this was ever a useful tool, it’s outlived its usefulness and it’s time to get rid of it,” said Steve Ellis, president of Taxpayers for Common Sense, a watchdog group that dropped its support for the cap. debt earlier this year.

The United States is one of only two industrialized countries that require policymakers to approve the payment of debts they have already incurred. The other country, Denmark, raised its limit high enough to make it unnecessary.

“We are really the only country to inflict this on ourselves, and it has proven to be a complete failure to limit the deficit in any way,” said Democratic Representative Bill Foster, who drafted legislation that would abolish the ceiling. debt.

Foster’s bill won the support of 44 House Democrats, and he says Republicans have told him privately that they support the idea. But no one publicly endorsed it.

Similar legislation in the Democratic-controlled Senate also failed to win support from Republicans.

Congress has voted 21 times to raise or suspend the debt ceiling since the country last recorded a budget surplus in 2001.

During that period, the debt burden rose from 27% of GDP to 98%, according to government statistics, as lawmakers approved wars, tax cuts and economic stimulus packages while expanding programs of safety net.

But the debt ceiling has sometimes proven useful as a means of forcing legislators to deal with the consequences of their tax and spending policies.

Congress tied several debt ceiling hikes to bipartisan budget deals in the 1980s and 1990s that led to balanced budgets by the end of the century.

More recently, Republicans leveraged a debt ceiling vote to win over $1 trillion in spending restraint from Democratic President Barack Obama in 2011, and $1.3 trillion from Biden this time around. this.

“The debt ceiling is a terrible tool for fixing deficits, but it’s the only one we have,” said Brian Riedl, a fellow at the curator Manhattan Institute.

Riedl and other independent budget experts have proposed to Congress ways to account for the national debt while eliminating the threat of default.

The Bipartisan Policy Center has suggested the debt ceiling could be raised automatically when Congress passes an annual budget, while Riedl says the budget process itself should be less siloed and flexible.

In the absence of these reforms, many budget experts argue that the debt ceiling is the only way to impose some sort of fiscal restraint.

“I would never give up on the debt ceiling and do nothing else for it. It’s the only fiscal speed bump there is,” said Maya MacGuineas of the Committee for a Responsible Federal Budget.

(Reporting by Andy Sullivan; additional reporting by David Morgan; editing by Scott Malone and Chizu Nomiyama)

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