US future being held hostage on debt ceiling
I’ll be the first to admit that the words “debt ceiling” are about as sexy as watching paint dry.
Democrats have tried to spice things up a bit by using inflammatory language targeted at Republicans, who now control the U.S. House of Representatives and are hoping to use their slight advantage as leverage to force some measure of budget restraint.
If you listen to the rhetoric, President Joe Biden and Democratic leaders are painting their political counterparts as terrorists holding the country hostage.
The White House insists raising the nation’s debt ceiling – what allows the country to pay its accumulated financial obligations – is “not negotiable,” nor will Biden entertain any discussion about compromise or spending cuts.
Similarly, New York Rep. Hakeem Jeffries, the House minority leader, has said that Democrats “are not going to pay a ransom note to extremists in the other party.”
Yet who is holding whom hostage? And which party is extreme?
Debates over spending trump massive debt itself
In two years, Biden has approved nearly $5 trillion in deficit spending, which has added to spiking inflation and higher interest rates. Republican administrations also have proved to be spendthrifts, and politicians from both parties prioritize buying votes over the country’s financial stability.
The federal government hit the debt ceiling last month (the national debt reached a whopping $31 trillion last fall), but default isn’t imminent.
The Treasury Department is tapping into measures that will get the country through until June.
After that, things could get dicey. The country has never defaulted on its debt, although it came close in 2011 during another standoff over this same issue. Republicans did negotiate $2 trillion in budget cuts, but that win came at the cost of a credit rating hit.
President Barack Obama and Biden, then vice president, felt they got burned by GOP leaders and vowed to never again use the debt ceiling as a platform for negotiations.
What else are House Republicans supposed to do, however, with Democrats still holding control of the Senate and the White House?
Brian Wesbury, chief economist at First Trust Advisors, said debates over spending are incredibly important and even trump the massive debt itself. Excessive spending is the root cause of economic instability, he said, and anything that brings attention to the problem is worthwhile.
In the past 90 years, Wesbury said, the government has grown at a much faster clip than the economy, which means to fund this expansion, Congress must either borrow or raise taxes – leaving less money in the private sector. That leads to other economic ills, such as job cuts.
“That’s astounding and nothing seems to stop it,” Wesbury told me. “And so I’m for anything that shines a light on it.”
Between the Trump and Biden administrations, the country has spent about $6 trillion in fighting COVID-19 alone, now money under the bridge. Just as a family needs to budget carefully after an unexpected expense, the federal government also needs to rein in its spending.
“Money doesn’t grow on trees, and I think this debate is really important for the whole idea that we get spending under control,” Wesbury said.
He pointed to when he served as chief economist for Congress’ Joint Economic Committee in the 1990s, and how the 1995 budget standoff and subsequent government shutdown spurred serious spending cuts, including the historic welfare reform under President Bill Clinton.
While that wasn’t a debt ceiling debate, the tough negotiations proved fruitful.
Pressure spenders to defend annual deficits passing $2 trillion
Holding the debt ceiling hostage, however, could backfire this time for Republicans, observed Manhattan Institute economic senior fellow Brian Riedl.
While he warned that the country is on an unsustainable path and that it’s only a matter of time before a true financial crisis will occur (think sizable program cuts and much higher taxes), Riedl said this isn’t the time or place to force budget negotiations.
Republicans and Democrats both used to attach spending cuts to debtlimit talks. Those days are long past, however, and Riedl recommended a different approach.
“Responsible lawmakers should emphasize that the debt limit will absolutely be raised before the extraordinary measures run out, but that not attaching spending savings would be another breach of precedent and threaten Washington’s long-term fiscal solvency,” Riedl wrote in National Review.
“Instead of defending the possibility of default,” he said, “pressure the spenders to defend annual deficits projected to surpass $2 trillion and Social Security and Medicare heading towards insolvency.”
This is absolutely the discussion that should take place.
I fear, though, that our elected politicians are more concerned with shaming their political opponents and less with actually addressing these entrenched shortfalls.
If anything is being held hostage, it’s America’s future.