Fixing the fiscal problem: work on what matters

There are various time-honored practices in DC, which serve to distract from the real issues without improving results. Periodic conversations about raising the debt limit are a prime example, and it might be well to eliminate this ritual.

Not that SAFE is resigned to ever-increasing government debt; we certainly don’t feel that way. See, e.g., Fixing fiscal problem won’t be easy,
2/27/17. The point is that the debt limit won’t prevent the government’s debt from rising.

A. Background - Republicans used the debt limit aggressively in a 2011 budget negotiation with President Obama. Slouching toward a debt limit deal, 6/20/11. The results were disappointing for the GOP, however, and since then the debt limit has seemed largely irrelevant.

•After the debt limit showdown was resolved, Treasury debt was downgraded by Standard & Poor’s, supposedly because the showdown stoked justifiable anxiety on the part of lenders. We argued at the time that a credit downgrade could have been justified in any case. Debt limit deal settled nothing,

•Per the terms of the settlement deal, a Joint Committee was established to negotiate a $1.5 trillion package of spending cuts and/or tax increases to avert imposition of a sequester (across the board caps of $1.2 trillion on future discretionary spending). Republican members of the JC were focused on spending cuts, while Democrats were primarily interested in raising taxes. The negotiations deadlocked after several months, ensuring that the hated sequester would go into effect. Tax cuts for rank and file now, tax increases for the wealthy in 2013,

•The effect of the sequester was watered down in subsequent negotiations, e.g., by a budget conference committee in the fall of 2013. The Bipartisan Budget Act of 2013, House Budget Committee, Dec.

•Shortly before House Speaker John Boehner stepped down in 2015, the two parties resolved several outstanding fiscal issues. Among other things, the debt limit was suspended until March 15, 2017, meaning that it could rise freely in the interim. Power of the purse, use it or lose it,

B. Current situation – On 2/25/17, the president tweeted that the debt had stopped rising – and contrasted this result to what had happened under his predecessor.

The media has not reported that the National Debt in my first month went down by $12 billion vs a $200 billion increase in Obama first mo.

Trump’s claim was overstated, as his administration had been drawing down excess cash balances versus ameliorating the deficit problem. Treasury Department burning through cash as debt ceiling approaches, Pete Kasperowicz, Washington Examiner,

The debt limit was reinstated as of March 15, at a $19.8 (or $19.9) trillion level vs. $18.1 trillion when it was suspended in the fall of 2015. Treasury has requested that the new limit be raised to provide some running room, albeit assuring that it could live with the limit for several months by employing “extraordinary measures” (e.g., deferring contributions to pension funds). Steven Mnuchin urges Congress to raise debt limit before summer break, David Sherfinski, Washington Times

Few if any members of Congress would want to take responsibility for “shutting down” the government, and there are no immediate plans to eliminate the chronic gap between outlays and revenues – the president’s supposedly draconian budget proposal shows deficits until 2027. OK, the debt limit must be raised soon, so why not just comply with the request from Treasury and move on to other matters?

Things of importance are rarely done in Congress, however, before the proverbial last minute. And it’s customary to make a production out of raising the debt limit, thereby feigning concern about the practice of running deficits and leaving the tab for future generations.

Treasury’s request has sparked many questions, therefore, about how long the debt limit decision can be deferred without serious consequences. Capitol Hill lacks clarity on debt-ceiling date, Kate Davidson, Wall Street Journal,

Mr. Mnuchin’s remarks Friday [June 9] suggest Treasury doesn’t see those measures running out before lawmakers return from their recess on Sept. 5. *** The comments could be interpreted by Congress as a reason to delay action until then, despite Mr. Mnuchin’s earlier entreaties to act sooner. Lawmakers will likely try to pin him down this week when he testifies on Capitol Hill three separate times, starting Monday afternoon, on the president’s budget.

Good news! The following week, the Bipartisan Policy Center predicted – based on its detailed evaluation of Treasury cash flows – that the last minute wouldn’t be reached until fall. Debt ceiling debt likely in October or November, think tank says, Joseph Lawler, Washington Examiner,

Whatever the timing, some members of Congress envision the possibility of trading their vote on a debt limit increase for political favors.

House conservatives would like to attach spending cuts of some sort, and Budget Director Mick Mulvaney is said to have a four-page list of budget reforms “on his desk.” Administration claims it’s not divided over the debt ceiling, Joseph Lawler, Washington Examiner,

In recent years, Democratic votes have been needed to pass “clean” debt limit increases because many conservatives voted “no” as a matter of principle. Now, with a Republican president, the Democrats would likely expect a quid pro quo. Democrats weigh using debt ceiling debate to thwart GOP tax cuts, Laura Litvan,,

Congressional Democrats might abandon their calls for raising the nation’s debt limit without any conditions, with House and Senate party leaders now discussing whether to use their leverage to try to prevent Republicans from enacting tax cuts for wealthy Americans. House Minority Leader Nancy Pelosi signaled the shift Friday, telling reporters that “we’re not there to raise the debt ceiling to throw a few crumbs to the middle class” and provide big cuts for the wealthy. 

Meanwhile, neither house of Congress has unveiled a budget plan for fiscal year 2018, as should have been done (per the congressional budget rules) in April, and there has been no definitive reaction to the president’s budget proposal either.

What’s the holdup? Reportedly there is a major difference of opinion in the House as to whether a big boost in defense spending should be offset by lower spending in other areas. The likeliest outcome is said to be an omnibus appropriations package; it “would represent a GOP wish list,” which “would stand no chance of passing the Senate” where some Democratic votes would be needed to avert a filibuster. Rift delays House GOP efforts on budget reconciliation, Kate Davidson et al., Wall Street Journal,

And time is running short to find a solution, because Congress will be in recess for the entire month of August.

News flash: fiscal year 2018 will begin on October 1, and by then there is not only supposed to be an approved budget in place but also appropriation bills for each major spending area, which will provide a meaningful spending blueprint for the coming year.

Hmm, sounds a bit like the legendary
Gordian knot, which was so cunningly tied that no one could figure out how to untie it until Alexander the Great cut the knot cleanly in half with his sword.

C. Path forward – Here are three modest suggestions for coping with this situation. We acknowledge, however, that putting them into effect might be easier said than done.

#ABOLISH DEBT LIMIT – If one is serious about stemming the seemingly endless growth of government debt, the obvious course is to tighten up the procedures used to establish and enforce budgets for the government’s revenues and outlays. Setting and monitoring a debt limit is at best a reminder of past errors, equivalent to “locking the barn after the horse has been stolen.”

Some may recognize that a debt limit isn’t an effective control, but conclude that it doesn’t do any harm. If Congress is forced to vote on a debt limit increase now and then, the logic goes, this may inspire them to start scrutinizing the budget more carefully. But the potential benefits seem relatively minor, whereas an extended impasse over raising the debt ceiling could have serious consequences. Managing our national debt responsibly: A better way forward, Jacob Lew (then Secretary of the Treasury), Harvard Journal on Legislation,

I have been deeply involved with debt limit decisions our country has faced over three decades and during administrations of both parties.  More times than I care to count, I have testified before, written to, and engaged in discussions with Congress about the debt limit.   And I will never forget sitting in the Oval Office and discussing nightmare scenarios with the President.  I hope that my experiences and the experiences of my predecessors can serve as a warning of the danger of coming to the brink of default.  Congress should avoid a return to brinksmanship that causes grave risk to our nation.  The actions of the past eight years have proven that extending the debt limit cannot be negotiated.

There is just so much legislative time available, moreover, and if the members of Congress are focusing on whether/how/and on what conditions to raise the debt limit, this will reduce the time and energy devoted to managing the budget – which is the only realistic way to combat deficits and debt.

Some have suggested ways to enhance the utility of the debt limit as a control device. For example, why not provide by law that the government would prioritize payments if the debt limit was hit versus simply declaring a government shutdown? This would provide certainty that high priority payments (debt payments, Social Security, healthcare benefits, etc.) would be made without interruption, even if other payments had to be delayed. Trump should use the 100-year-old debt ceiling - to fix the debt ceiling, Robert Romano,,

Such an arrangement wouldn’t be all that different, however, from the established script for a government shutdown: “Essential” government functions continue without interruption; other functions are paused (e.g., employees are asked to stay home, on the understanding that their back pay will be made up later) until the debt limit is raised, after which everything returns to normal. Moreover, the debt limit would remain an ineffective way to eliminate chronic government deficits. Don’t raise the debt limit – repeal it, Jason Furman & Rohit Kumar, Wall Street Journal,

Lawmakers are right to be concerned about steep increases in the debt. But those worries should be expressed when the policies that actually increase the debt are voted on. Once new policies become law, defaulting on interest payments or veterans’ benefits [or any of the government’s obligations] is hardly productive.

Realistically, however, getting rid of the debt limit may be easier said than done. The main obstacle is the well-known human proclivity for wishful thinking. While proposals to stabilize the debt by cutting expenditures or raising taxes are typically unpopular, people seem to take comfort in having a debt limit. New poll shows Americans do not want the debt ceiling to be raised, Christine Roe,,

Only 2 in 10 voters say they believe Congress should raise the debt ceiling, according to the poll, with only 20 percent of Republicans and 25 percent of Democrats in support. [Of individuals who make over $100,000], 30 percent are in favor. However, a majority, 53 percent, of these higher earners oppose raising the ceiling.  For paid government workers and those who receive their salaries from the Treasury. . . thirty-one percent said they support raising the debt ceiling, while 54 percent oppose.

Three of four letters commenting on the repeal the debt limit column disputed the writers’ conclusions, and the fourth (see below) predicted that debt limit is here to stay because politicians find it convenient. Wall Street Journal,

Messrs. Furman and Kumar make a lot of sense in advocating federal debt-limit repeal. It will never happen. Doing so would deprive elected politicians an opportunity to pontificate and obstruct to create the illusion of fiscal discipline. - Prof. Oscar Varela, University of Texas at El Paso

#GO NUCLEAR – For reasons discussed in previous entries, the filibuster rule in the Senate has become a big obstacle to getting anything of substance done. A 40% minority can block most legislative proposals from being brought up for discussion, let alone passed. Such a rule isn’t required by the Constitution, and there is a ready procedure (the so-called “nuclear option”) for getting rid of it. Time to bin the filibuster,

When the filibuster was eliminated for Supreme Court appointments (thereby clearing the way for ratification of Neil Gorsuch), however, 61 senators (29 Republicans & 32 Democrats) went on record against abolishing the filibuster altogether. Consequences of keeping the legislative filibuster,

Given this background, isn’t it idle to talk about doing away with the filibuster? Perhaps, but its negative effects remain.

Despite their minority status, Senate Democrats can effectively veto most bills simply by voting against their consideration. And while some bills are exempted from the filibuster by the budget reconciliation process, e.g., the pending healthcare bill, a raft of technical requirements must be complied with. The time and energy that goes into strategizing such workarounds will reduce the time available to work on crafting the optimal legislation.

As previously noted, it’s won’t be easy to develop a spending package in the House this year, which reflects the priorities of the majority party. And even if a commendable package is crafted, it will probably be a nonstarter in the Senate. Rift delays House GOP efforts on budget reconciliation,
op. cit.

If that’s how things work out, look for a continuing resolution at the end of September and an omnibus spending bill in December that preserves existing budget priorities and does little if anything to start bringing down the deficit. Such an outcome would be consistent with what’s been going on in Washington for years.

To achieve better results, our political leaders – especially on the Republican side of the aisle – need to get their act together. We don’t fully subscribe to Mr. Schlichter’s rant, but he is spot on about the need for a greater sense of urgency. The GOP Congress better get its act together, or it’s sunk, Kurt Schlichter,,

We are sailing toward disaster in 2018 – the House Speaker needs to lead – start doing what we sent you to do and letting us in on it – work as hard as we do – our country faces the terrifyingly real chance of falling apart if you fail.

#CANCEL AUGUST RECESS – If the work of Congress was ahead of schedule, it might be OK to take August off, but that’s simply not the case. Not only are the detailed appropriation bills for fiscal year 2018 lagging, but bills need to be passed (or at least proposed and debated) on healthcare, tax reform, and half a dozen other subjects.

Mr. Schlichter has a suggestion: Congress should spend August in Washington, D.C. getting caught up on its work. And he’s not overly subtle about it.

And let’s see you cancel the August recess. Work. We keep hearing about how you “don’t have time” to do your jobs, but then you propose to vanish in August? Hey, how about staying around that sticky, sweaty swamp of a city through August and getting your job done? I’m going to be working in August. Everyone else I know is going to be working in August. You bums need to work during August too.

We don’t know about the GOP leadership, but House conservatives are on the same page. They apparently fear their inputs will get short shrift unless the legislative calendar is expanded. House Freedom Caucus to Ryan: Cancel August recess,,

Enough said, Congress, get it done!
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