BEYOND THE NUMBERS
With the President’s announcement last week, the debt limit is about to rise — automatically — unless Congress enacts a law freezing it at its current level. While lawmakers may not enjoy allowing a debt limit increase, they all should keep the following facts in mind:
- Raising the debt limit allows the government to pay the bills it has already incurred, not incur new ones. As we pointed out last summer, “the amount of debt outstanding reflects Congress’s [previous] tax and spending decisions and the state of the economy, not the level of the debt ceiling. Citizens who urge their members to vote against raising the debt limit as a way of expressing displeasure with federal borrowing are picking the wrong target.”
- Congress has already enacted spending cuts that fully offset the automatic debt-limit increase. Last August’s Budget Control Act called for $2.1 trillion in cuts over the next decade, which will occur through caps on annual discretionary (non-entitlement) spending and automatic cuts in many programs starting in 2013. It also authorized a $2.1 trillion increase in the debt limit, to occur in three installments; the President’s announcement last week triggered the last of the three. While we disagree strongly with the concept (reflected in the Budget Control Act) of making debt-limit increases contingent on an equal amount of deficit reduction, those spending cuts will take effect unless Congress votes to block them.
- A vote to freeze the debt limit increase is a vote for default. Congress can prevent the automatic debt-limit increase with a two-thirds vote in both the House and Senate. But if it does, the federal government will default within a matter of months — roiling financial markets, boosting U.S. interest rates immediately and perhaps markedly, and probably sending the U.S. and global economies into a deep tailspin — unless it can immediately start running budget surpluses instead of deficits. Opponents of raising the debt limit haven’t offered a plan to accomplish that.
And no wonder — preventing the debt from rising would require some combination of budget cuts and tax increases totaling about $1.2 trillion per year, to take full effect immediately. To achieve that goal, Congress could cut all federal programs (including Social Security and Medicare) by one-third, or raise all taxes (income, payroll, gas, etc.) by more than 45 percent. Macroadvisers, a highly respected economic forecasting firm, wrote last fall that balancing the budget immediately would have a “catastrophic” impact, convert the sluggish economic recovery into an extraordinarily deep recession, and double the unemployment rate.
A first-ever U.S. default would mark a profound change in the nation’s global standing, change perceptions of U.S. debt as the world’s safest investment, and trigger an almost certain economic disaster; immediately cutting the deficit by about $1.2 trillion per year would trigger a different kind of economic disaster. In short, a vote not to raise the debt limit is simply irresponsible.