Debt Limit Calls for Congress, Trump to Fix the Budget

COMMENTARY Budget and Spending

Debt Limit Calls for Congress, Trump to Fix the Budget

Mar 29th, 2017 4 min read

Commentary By

Romina Boccia @Rominaboccia

Deputy Director, Thomas A. Roe Institute

Jonathan Iwaskiw

Spring 2017 member of the Young Leaders Program at The Heritage Foundation

The new debt limit in place since March 16 stands at $19.9 trillion.

It’s time for lawmakers to take the fiscal doctor’s diagnosis seriously. Like a patient struggling with unhealthy habits, the government needs to take a long look into the mirror because its fiscal future is in jeopardy.

Since the debt limit suspension expired this month, the temptation to raise or suspend it once more will be strong on Capitol Hill. The ensuing period, where so-called “extraordinary measures” are being used to fund the government on a temporary basis, will be a valuable opportunity to make real, impactful, fiscal changes.

The debt limit is a useful check on federal government spending and borrowing. It uniquely highlights the unsustainable spending that contributes to the rapidly increasing size of the national debt, which is quickly approaching $20 trillion. At that level, debt far exceeds our nation’s gross domestic product and is equivalent to five times the massive 2016 federal budget.

Research shows that spending controls are more effective at achieving fiscal responsibility than debt controls alone. Unsurprisingly, at the heart of our fiscal woes are spending numbers that are unsustainable, harmful, and unnecessarily high.

The Congressional Budget Office projects that federal spending will outpace revenues in the immediate and long-term future. A broader spending cap, encompassing all noninterest spending, could help lawmakers focus in on the real problem.

When Congress and the president approach the debt limit, they must seize the opportunity to make fiscal reforms, especially when it comes to out-of-control entitlement spending. Congress needs to step up and enact reforms that put the budget on a path to balance, and enshrine its commitment with spending limits that are enforceable by law. Only spending reforms can effectively rein in government borrowing and debt.

Caps on discretionary spending (spending that must be appropriated annually by Congress) are also necessary to ensure that the budget does not run up against those debt limits in the first place. While enforcing discretionary spending caps can be politically difficult as special interests always demand more spending for their pet programs, limits are a necessary and proven tool to fostering fiscal discipline.

Since enacting the Budget Control Act in 2011, Congress has increased the debt limit through “suspensions.” The debt suspensions make the debt limit’s statutory authority essentially moot since the Treasury Department can borrow an unlimited amount of debt during the suspension period. It is impossible to know by how much the debt will increase until the end of the suspension.

As of March 16, the debt subject to the limit has increased by $1.4 trillion to a whopping $19.9 trillion since the 2015 suspension. Suspensions merely hide the fiscal irresponsibility of legislators while opening the door for the erosion of the debt limit’s authority.

With the debt suspension officially expired, Congress and President Donald Trump should pursue spending cuts and budget process reforms before increasing the debt limit again. And any increase should be reflected by an actual debt limit; not a suspension.

Rep. Mark Sanford, R-S.C., recently introduced the Debt Limit Control and Accountability Act, which would prohibit the use of debt limit loopholes, known as “extraordinary measures;” and “expresses the sense of Congress that the debt limit should not be suspended; and that increases should be tied to spending cuts or controls; and that the Treasury Department should prioritize payments in a way that prevents a default, if the debt limit is breached.”

That’s the right sense to address the debt limit.

Some recent legislative proposals to enact spending controls are also promising. The Penny Plan is one option. Introduced by Sanford and Sen. Mike Enzi, R-Wyo., the bill would curb spending through targeted and aggressive sequestration (automatic spending cuts). This plan would create a spending cap and decrease it by 1 percent every successive year through 2021 at which point spending caps would reflect a percentage of the GDP.

A similar, proven solution is the so-called “Debt Brake.” It was successful in places like Switzerland and Germany and helped to bring about balanced budgets. At its core, the Debt Brake creates spending and debt rules based on the cyclical nature of the economy.

Arguably, one of the most challenging sells to the American people on spending cuts is reductions in entitlement benefits. Necessary reforms require more structural and systematic reforms than merely indiscriminate spending cuts.

Many of these programs are outdated, harmful, and unsustainable. Reductions in mandatory spending programs such as Social Security and Medicare and Medicaid will make the most impact in reducing the debt now and in the future.

The consequences of our current fiscal trajectory are indisputably negative for millions of Americans. Economic growth alone will not be enough to right the ship. Accordingly, Congress and the president must fundamentally reform those primary drivers of debt, Medicare, Medicaid, and Social Security to avoid a future fiscal crisis.

While the Treasury Department and lawmakers have claimed that the threat of default from the debt limit impasse justified avoiding these reforms, documents obtained during the Obama administration’s second term tell us the administration intentionally misled Congress into believing default was impending and unavoidable.

In fact, the administration had plans to prioritize debt payments, and thus avoid default, during the 2013 debt limit impasse.

These arguments should not sway members of Congress, who should concentrate on long-term fixes to spending and debt instead of the temporary Band-Aid fixes that have been all too common in recent years.

Congress and the president should make meaningful and lasting reforms toward a fiscally sound future before increasing the debt limit again. Fiscal rules and other spending controls can prevent Congress from overspending and provide a workable pathway toward balance. Congress must not continue to pass the buck to future generations. Doing so compromises America’s future.

This piece originally appeared in The Daily Signal