Debt-Limit Increase Signals the Need for Budget Reform

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Debt-Limit Increase Signals the Need for Budget Reform

November 17, 2004 2 min read

Authors: Alison Acosta Fraser and Keith Miller

Sometime Thursday, Congress will likely vote to increase the government's debt limit by more than half a trillion dollars. The current limit of $7.384 trillion, set in May of 2003, will be increased by at least $650 billion and perhaps as much as $800 billion.


This vote is a necessary procedural step: Failure to raise the limit would mean default on the federal debt. But Congress should seize this moment as a catalyst to install meaningful budget reforms that would prevent this situation from recurring. Unfortunately, the prospects for reform seem dim.


A Political Hot Potato

Raising the debt limit is not politically popular on the right or the left. Conservatives believe that it is endemic of runaway spending, while liberals argue that it proves that taxes are too low.


Therefore, during last month's run-up to elections, congressional leadership sidestepped the vote to keep the spotlight off of their prodigal spending habits. This week, leadership tried to hide the measure in the mammoth omnibus appropriation bill.


But it now appears that Congress will consider the debt-limit increase as a stand-alone measure. Democrats have promised to use the debate to criticize the President's fiscal record. But the only solution they have proposed would be the reinstitution of pay-as-you-go (PAYGO) budget rules. As earlier noted, PAYGO would lead to tax increases and would do almost nothing to slow spending growth. (See "Memo to Budget Conferees: PAYGO on Tax Cuts Means Higher Taxes," Heritage Foundation WebMemo No. 460.)


Time for Reform

Conservatives would consider raising the debt-limit more palatable if it were accompanied by substantial reform to the budget process. Yet most Republicans lawmakers who have pledged to improve their spending records are sadly silent on this opportunity.  This lack of action highlights their general unwillingness to do anything besides talk about controlling spending in general. Process reform would make it easier for Congress to make the better spending decisions in the future. Two changes would be of particular use in changing budgeting and spending incentives in favor of fiscal discipline.


First, Congress should create a universal cap that would limit all federal spending. Putting all outlays within the same limit would force Congress to set real priorities and make tough choices. One way to do this would be with a Taxpayers' Bill of Rights. (See "Restrain Runaway Spending with a Federal Taxpayers' Bill of Rights," Heritage Foundation Backgrounder No. 1793.)


Second, the annual budget should reflect the full value of the future obligations that the federal government has already promised. Similar accounting practices are required of all private businesses. Lawmakers and taxpayers should know how much already-promised mandatory spending programs will cost in the future so that they can make informed decisions on reforms that may be initially expensive but cost-effective in the long-term.


A New Leaf

If it attached these budget reforms to the debt-limit increase, Congress would signal that it takes the spending and entitlement problem seriously. Such budget reforms would also create a more level playing field for the President's Social Security reform agenda. And these steps would be the first step towards restoring fiscal sanity, which is much needed. Who knows, with budget reform, the new debt limit might even last longer than 18 months!


Keith Miller is a Research Assistant in, and Alison Acosta Fraser is the Director of, the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.


Alison Acosta Fraser

Former Senior Fellow and Director of Government Finance Programs

Keith Miller

Senior Fellow