The Debt Ceiling, Yet Again

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In the March 2019 issue of My City Magazine, I discussed the debt ceiling and the government shutdown that spanned December 22, 2018 to January 2019. Now, less than three years later, we face the prospect of another shutdown. The national debt ceiling was recently increased by approximately $450 billion, which prevented a shutdown in October. However, given the sheer amount of borrowing by the federal government, this only kicks the can down the road for another month.

The debt ceiling is illogical. Congress passes a budget in which expenditures exceed tax revenues, which means the Treasury Department must borrow to cover the difference. By refusing to raise the debt ceiling, Congress then prevents the Treasury Department from borrowing! Thus, the Treasury Department runs out of cash needed to meet expenditures, forcing the federal government to shut down and potentially default on the national debt.

Every member of Congress likely understands the irrationality of having a debt ceiling in the face of record yearly budget deficits. The fact that the debt ceiling persists, anyway, is a symptom of the broken policymaking in Washington D.C. Rather than using the debt ceiling to put a cap on the size of the national debt and thus, have more responsible levels of yearly deficit spending, each political party tries to use the debt ceiling as political leverage to try to get the other side to capitulate to some demand. President Trump shut down the federal government to get the Democrats to fund the Border Wall. Democrats are currently demanding that the $3.5 trillion Build Back Better bill be passed as part of the budget reconciliation process, thus bypassing the prospect of a filibuster in the Senate. As a consequence, Republicans are refusing to raise the debt ceiling. Moving this bill through the normal channels rather than through reconciliation would let the debt ceiling be raised easily.

Regardless of the merits of the border wall or Build Back Better bill, tying these proposals to raising the debt ceiling is inappropriate. Introducing the possibility of default on a portion of the national debt jeopardizes the low interest rates the federal government depends on to deficit finance its expenditures.

The Build Back Better bill is a 2,500-page document that few have read, but is packed full of new government programs. University of Chicago economist Casey Mulligan has read the entire bill and found that the new programs it proposes would be extremely detrimental to the economy. This is one expert’s opinion and others might disagree (though they should read the bill first). The new programs in the bill, such as free community college and paid family leave, should be introduced in separate bills and debated on their own merits in an open and transparent manner. The fact that they are instead being rammed through in a massive bill that represents the largest expansion of the federal government since the Great Society – using the debt ceiling as leverage – shows how broken the country’s policymaking has become.

 

 

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