The Debt Limit Showdown

Finding a Solution that Serves the Nation

The Congressional debt limit showdown can have a solution that promotes the national interest. While Washington’s perennial gridlock may make us skeptical that a solution is possible, a positive vision of the future provides an essential first step toward an agreement that serves everyone. In the majority, House Republicans have a legitimate interest in mapping out a fiscally sustainable plan for the government. Democrats rightly point out that the services most likely to be cut under the Republican plan are widely supported by the people and critical for the future of the country. While most of the speculation about the possible outcomes of the showdown focus on winners and losers, a process-focused solution with an agreed upon goal could provide a win for both parties and the country as a whole.

How did we get there? The Constitution requires that Congress pass a budget each year. Since 2001, these budgets have required additional borrowing to allow for the spending therein. We have accumulated a national debt of about $31 trillion, the result of spending decisions by both Democratic and Republican majorities. When the budget requires borrowing, Congress has traditionally required a separate increase in the debt limit, although there is debate as to whether such a vote is legally required. As the budgets for 2023 passed under a Democratic majority, the new majority House Republicans refuse to pass a debt limit increase without an agreement on spending cuts. President Biden declines to negotiate with them, pointing out that the time to do so is in the budget process. At the time of writing, the House Republicans have passed a debt limit increase with extreme cuts to virtually every Democratic priority.

The primary antagonists in the dispute are President Biden (above) and Speaker Kevin McCarthy (below)

Zooming Out. When I was in the legislature, sometimes it helped to zoom out, identify the interests involved, validate their legitimacy, and see if an agreement can be found regarding a general solution before getting into specifics. Here, Republicans have legitimate interests in balancing the budget over time and limiting tax increases. Democrats want to preserve popular benefits and stop the gamesmanship involved in unnecessary debt limit increase negotiations. All these interests share broad support among voters.

Balancing the Budget. Borrowing money now limits our flexibility in the future. State and local governments generally must balance their budgets; but the federal government can provide the flexibility to borrow money when it’s necessary to secure a better future. Unfortunately, Congress is better at finding good new ways to spend money than it is at sustainably funding those programs. As an initial agreement, the parties might agree to a timeline to balance the budget. As Republicans discovered recently, 10 years is too short a period to do so without doing violence to programs that enjoy broad support from voters. However, 15 or 20 years could be a reasonable span to establish as an initial goal. Conversely, the “never” preferred by Democrats is not.

Balancing the budget is tough. Click on the picture of the Capitol above to play a simulation of how it works.

A Process for Cutting Budgetary Fat and Preserving Popular Programs. Balancing the budget requires more political courage than Congress typically has. When confronted with difficult political decisions in the past, Congress traditionally resorts to a commission or task force to come up with a solution. For example, when the Department of Defense protested that excess base infrastructure was sapping military readiness, Congress convened a Base Realignment and Closure Commission (BRAC), which recommended a slate of closures under Congressional guidance for a simple up or down vote in Congress. The BRAC report could only be approved as “all or nothing” to prevent every member with a planned closure in their district from amending theirs out of the bill.  Five different BRACs were approved by Congress.

Installations closed or modified from five different BRAC rounds.

The BRAC model can serve in a variety of contexts to reduce spending. While neither party wants to cut defense spending, the Department of Defense itself wants to get rid of excess base infrastructure and obsolete weapons systems. Congress has prohibited it from doing so, most often to satisfy political interests that have little to do with the national defense. Entitlement programs are a tough nut to crack, but the escalating costs of both Social Security and Medicare mean that failing to find a solution will result in drastic program cuts that few people support. The Congressional Budget Office has published an analysis of possible changes and the budgetary impact of each. Politically, the first key step in developing proposals for program cuts is the same as military bases - the vote is for all or none, with no amendments (except for those approved by a 2/3 majority, usually).

Limiting Tax Increases and Future Debt Limit Crises. The second critical part is providing that, where cuts do not fully balance the budget, they must be offset with revenue increases. For instance, Social Security reductions for higher income people are probably unavoidable, but we can make a great deal of progress on sustainability by removing the income cap on the payroll taxes that support it. Finally, a plan to balance the budget should have an annual progress requirement which, if met, serves as a waiver of the debt limit for that year. Congress can, and probably will, exceed any spending limit created, but the specter of another debt limit fight gives the president a strong incentive to veto overspending, absent unusual conditions. We cannot, after all, anticipate the next pandemic or invasion of an allied country.

None of this is to suggest that balancing the budget will be easy, but it can be done. Fiscal responsibility requires us to engage in a thoughtful process that carefully balances cuts and revenue, while minimizing the opportunities for mischief and self-interest along the way. The constant debt limit crises we currently face are the opposite; a process fraught with brinksmanship and conflict that does not serve the country well. While we will never eliminate political self-interest, we can restrain it with a strong process with agreed upon goals and clear incentives for behaving in the public interest.

Other News

These Boots Are Made for Walking. Several folks have asked me what the likely outcome of the Oregon Senate walkout will be. First, in contrast to former walkouts, there’s now a constitutional provision that prohibits legislators with 10 or more unexcused absences from running for office again. So, they are likely to return. Second, the most relevant deadline is the constitutional end of the session, usually around June 30. The state’s budget ends on that day and, absent a budget or continuing resolution, the state government shuts down on that date. Historically, the minority party would use walkouts to leverage concessions in negotiations at the end of June. Having spent most or all of their allowed absences earlier, I expect that they will have less leverage now. It is still a dark cloud, but there is that silver lining. I expect the standoff will be resolved later this week.

Negative Campaigning. This deep in any campaign, people start engaging in bad behavior. If you haven’t already voted, I encourage you to view any “late breaking news” with suspicion. It’s often false and done for political advantage.