The Debt Ceiling Dance
It may take two to tango, but the House, Senate and White House will have to get in the same rhythm to raise the debt ceiling. And they will. Because they have to.
The need to raise the debt ceiling is a symptom of the broken budgetary past characterized by massive overspending. President Barack Obama’s bill is coming due; there is no cash on hand; and the debt ceiling will have to rise.
To see this, suppose the ceiling stayed in place. In rough numbers, the $2.3 trillion in revenues would easily be enough to cover $300 billion in debt service — no default would take place. But then it gets tricky. The remaining funds would nearly cover the $2.1 trillion in mandatory spending, but a $100 billion haircut would have to come first.
Unfortunately, that would leave zero for the troops, military procurement, transportation, education, highways, basic research — you get the point.
So the debt ceiling will be raised, and blame for its necessity should rest squarely on the shoulders of an administration whose budgetary failures led the U.S. to this irresponsible position.
But raising the debt ceiling is just the symptom. The real problem is the continuing federal debt explosion. Even if there was not a debt ceiling, federal credit would be on a negative watch from Standard & Poor’s. Even if there was not a debt ceiling, the social safety net would continue to be submerged in a sea of red ink. Even if there was not a debt ceiling, future economic growth would stagnate under the staggering burden of the debt.
From a policy perspective, then, the key is to solve the real problem. That means real policy changes that lower spending in fiscal 2012: committing to lower spending over the medium term and changing the trajectory of the long-term debt explosion.
The only realistic way to accomplish the latter is through structural changes to Medicare and Medicaid that could both stem the red ink and preserve the programs. It’s a policy no-brainer that entitlements must be part of the equation.
Of course, the left will insist, as usual, that the solution is higher taxes. It’s not. Obama’s budget proved that. The projected Obama budget deficit in 2021, according to the Congressional Budget Office, is $1.2 trillion — and that assumes the economy is back to full employment and Obama has successfully raised taxes.
Raising taxes is not a serious solution to the debt explosion. It’s also not good tax policy. If the U.S. is going to effectively slay the twin evils of unemployment and fiscal unsustainability, it has to grow as fast as possible. Fair-minded analysts can disagree about the growth consequences of raising taxes on individuals and small businesses — but no one can conclude they are positive.
Growth issues are paramount at this juncture, though some will insist the proposals are needed as a matter of fairness. If this is paramount, why not just means-test Social Security, Medicare and other entitlements — for example, farm programs — more aggressively? This would be “fair,” address the real problem of spending and improve growth.
Good policy will be good politics because the public gets it. Nine out of 10 respondents opposed simply lifting the debt ceiling, according to recent polling by the American Action Forum and Resurgent Republic. If it deals with only the symptom and not the problem, they are not interested.
In contrast, 52 percent said making changes to entitlements like Medicare, Medicaid and Social Security to make those programs financially solvent in the future would increase their willingness to support raising the debt limit.
Congress and the White House will increase the debt ceiling. But there should be no standing ovation for just getting the dance steps right.
The real test is making a difference in the real problem: the federal debt crisis that threatens our national security, social safety net and economic prosperity.
Douglas Holtz-Eakin is president of the American Action Forum and former director of the Congressional Budget Office.