Andrew Tisch: The debt ceiling is antiquated and puts US credit rating on the line
Congress must consider killing it because it does not promote fiscal discipline
Editor’s Note: Andrew Tisch is the co-chairman of Loews Corporation and a co-founder of the political reform group No Labels. The opinions expressed in this commentary are his.
Another debt ceiling deadline is approaching this summer and a screw up of cataclysmic proportions from Washington is not out of the question.
When Congress nearly failed to lift the ceiling in 2013, the Treasury Department warned it risked putting the government into default and unleashing a financial crisis that “could echo the events of 2008 or worse.”
America skirted a self-made disaster then. But we’re courting it again now. Perhaps it’s time we the people ask why we tolerate the existence of the debt ceiling in the first place.
The debt ceiling is both dumb and dangerous.
It is dumb because it has utterly failed in its intent to force fiscal discipline on Congress. The first debt limit was set in 1917 at about $211 billion in inflation-adjusted dollars. It’s now $19.81 trillion, which is equivalent to a 13,500-mile-high stack of $100 bills. If you collected all the physical cash, gold and silver that exists in the world today, you’d still be about $7 trillion short of our national debt.
An idea like the debt ceiling could only be cooked up in Washington; instead of restraining Congress from spending taxpayer money, it invites them to run up debt first and then debate later whether to pay for it – or not.
This is dangerous because it enables grandstanding congressmen and congresswomen to jeopardize the ironclad commitment America has kept for over two centuries: That the United States government always pays its bills. That’s why our credit rating is so good.
If a moment arrives when people don’t think the US will repay its debts, investors will demand a higher risk premium in the form of higher interest rates. And the costs would be massive.
Earlier this month, the interest rate on Illinois state debt spiked 80 basis points (0.8%) amid the state’s ongoing budget crisis and the threat of a ratings agency downgrade.
If the interest rate on US Treasuries spiked the same amount in the wake of a debt ceiling default, it would increase the federal government’s annual interest payments by over $100 billion, while making every consumer product with an interest rate – from car and credit card loans to mortgages – more expensive.
So while the debt ceiling is dumb and dangerous, the only responsible action for a member of Congress is to support raising it when it comes to a vote this summer.
But this should be the last time Congress ever raises the debt ceiling. It has to go.
In its place, Congress should embrace a more substantive approach that would actually force Washington – and the American people – to pay for the government we want and can afford.
Two solutions come to mind.
One would be a grand fiscal bargain modeled on the Base Realignment and Closure Commission convened to close military bases. Using this approach, an independent bipartisan commission would propose an all-encompassing package of tax and spending reforms – with everything on the table including entitlements and defense spending that are the key drivers of federal debt – and submit it to Congress for an up or down vote with no amendments allowed. This would curb the relentless special interest lobbying and parochial pleading that typically kills such reform efforts.
Another approach would be for Congress to set a future limit on how big the debt can be as a share of our economy. Any year in which the country exceeded this limit would trigger automatic spending cuts and tax increases until we got back below that limit.
Each of these solutions has the virtue of forcing fiscal responsibility and accountability on our elected officials without placing too much political pressure on any single member of Congress.
Credibly dealing with the debt entails tough choices, which is why most in Washington prefer lip service over legislating. Their inaction is enabled by a public that cares less about the debt even as the problem has become more acute. A recent Pew Research Study found that support for the idea that reducing the budget deficit should be a top federal priority has dropped 16 percentage points since 2013.
But the debt and deficit math gets worse every year. Last year, for every seven dollars the government spent, it borrowed a dollar. Some years the government borrows more, some it borrows less, but it’s always a lot; and the upshot is a child born in the US today is born with an almost $60,000 share of the national debt. By 2026, interest on the debt will have increased to more than $700 billion annually; or four times last year’s budget for the Department of Veterans Affairs, 10 times that of the Department of Education and 100 times the Environmental Protection Agency. And the bill will be even higher if interest rates rise.
These deficits do matter. The interest paid on federal debt represents a double hit on the citizenry: The government will take more from taxpayers in the future to pay past obligations and current needs, and have less left over to fund medical research, education, food safety and countless other essential priorities, which will raise future costs.
It’s almost impossible to imagine Congress passing piecemeal the various reforms that would be required to get our debt in check. The only viable alternative is one big bold vote, in which members take a leap together to support a reform that will put America back on a firmer fiscal footing.
Getting rid of, and replacing, the dumb and dangerous debt ceiling should be an easy decision for Congress. If the US stumbles into insolvency intentionally or inadvertently, it will entail both financial and reputational costs from which we may never recover.
Get our free weekly newsletter
As currently conceived, the debt ceiling is a 100-year old law with no upside for America and a growing chance of apocalyptic downside.
It’s time to try something else.