What To Do About the Debt Ceiling

What To Do About the Debt Ceiling

Daniel Greenwood: What To Do About the Debt Ceiling

The debt ceiling is a strange concept. We have one set of statutes that commits the government to a set of spending and taxation rules. And then we have another statute (the debt-ceiling one) that bars the executive from borrowing more than an arbitrary amount set by the legislature, even if that means that it must violate the other statutes.

Until now, Congress has always resolved this potential conflict by raising the debt ceiling, so the ceiling has been meaningless. This time, however, the GOP refuses to raise the ceiling unless the Democrats agree to massive cuts in spending and further budget-busting tax cuts (at a minimum, extending the Bush/Obama tax cuts beyond their current expiration date).

In a rational world, we wouldn?t have a debt ceiling and we?d debate our taxation and spending policies when we debated our taxation and spending policies. In our world, however, the United States stands on the edge of reneging on its obligations?it will not be able to pay its bills come August 2, or thereabouts.

What should the president do? That?s pretty simple. He should appear on TV today and every day until the default and announce that in his view the United States should meet its obligations. Decent countries don?t voluntarily refuse to pay money they owe. And he should demand that the GOP agree to repeal the debt-ceiling statute. Full stop. Now is the time to reestablish the fact that the United States honors its contracts?not to debate long-term budget priorities.

If that doesn?t work, he needs a back-up plan.

Brad DeLong has proposed one that seems not unworkable: He should simply declare that since the GOP has put him in the impossible position of having to violate one of two contradictory statutes, he must choose which to violate. The answer is obvious. The debt-ceiling statute makes no sense and threatens the reputation of the U.S. government as a responsible entity. Moreover, the statutes (or some of them) authorizing payment of bills are later in date than the debt ceiling and so, under the general principle that the law cannot be self-contradictory, they implicitly repeal it. So, he should announce that in his view the debt ceiling has been repealed by Congress and he intends to meet U.S. government obligations in full even if additional borrowing is necessary.

Alternatively, he should simply declare that the government will close, checks will not go out, and the troops will come home beginning the next day, unless Congress repeals the debt ceiling immediately and completely.

In either case, he should also make clear that he will veto any attempt to re-impose or raise the debt ceiling. Let budget battles happen before we?ve committed to spending the money, not when the bill comes due.

At the same time, he should announce that the time has come to fix the economy, and that he will therefore introduce a jobs bill every day until Congress passes enough of them to bring unemployment down to no more than 5 percent. The first one could appropriate enough money to build a high-speed rail network faster than any currently existing, one linking every American city with population over 100,000. The second one could raise the minimum wage to its 1965 level, adjusted for inflation, and automatically raise it with inflation thereafter. If those are not passed immediately, additional ones should follow daily.

While increased employment and spending will raise tax revenues, he should also announce that he intends to veto any continuation of the Bush tax cuts and will introduce bills raising taxes on unearned income, income above $1 million and at another rate at $10 million, estates of $10 million and over, and securities trading.

Unfortunately, these positions would require a mainstream Democrat in the White House. I fear that, instead, we are likely to see slashes to essential government programs, cuts in Social Security, and further tax cuts to the very rich. The result will be Rawls in reverse: greater unemployment, and slower growth, in order to achieve more redistribution of income to the best off.