Congress Needs The Debt Ceiling, And Should Use It Often — Forbes

Congress Needs The Debt Ceiling, And Should Use It Often - Forbes

Congress Needs The Debt Ceiling, And Should Use It Often

The US Congress building. (Image credit: AFP/Getty Images via @daylife)

The debt ceiling has been the central focus of national and world news for the last month and even with a short term deal on the horizon, it will stay in the news until a more permanent (meaning a year or so) deal is passed. After all, another debt ceiling deadline looms for sometime between February and July. For all its flaws and even though the debt ceiling seems superfluous, it serves an important purpose and Congress should not only keep using it, but use it often.

In many senses, the debate over the budget and the government shutdown that resulted from Congress’ inability to pass a budget by the legal deadline should be the more important story. After all, the budget is what controls how much money is spent and what it is spent on; the debt ceiling is only Congress giving the Treasury official permission to borrow money.

In and of itself, the debt ceiling should have no effect on anything. Yet, it has been an important part of the American political scene for nearing half a century and continues to maintain an outsize importance to its true place in the American system of government. Why is this so?

First, as much as commentators on whichever side of the political aisle find the debt ceiling inconvenient at a particular moment in time may pontificate on the pointlessness of the debt ceiling, it is a constitutional requirement. The debt ceiling was originally designed for convenience.

Congress must, according to the Constitution authorize the government to borrow money. The debt ceiling allows Congress to provide a blanket authorization to the Treasury for debt up to some total amount. So unless Congress wants to go back to the original practice of passing a law for every single issuance of debt (often more than one per week), the debt ceiling is here to stay.

Given that the debt ceiling is a legal requirement, why not set it so high that we never reach it (or at least so high we don’t reach it for a long, long time? The answer to that question lies in a dichotomy held by both the American public and our members of Congress. This is the second, and equally important, reason to retain the debt ceiling.

The American people, as a whole, do not like debt. Perhaps it is a holdover from the Great Depression; perhaps it is some remnant of the Protestant work ethic and religiously-based belief system (the Bible is strongly against debt). Even though Americans readily pile up debt in the form of mortgages, car loans, and credit card balances, as a populace we recognize debt as a bad thing. It would be hard to find a person who would not prefer to be debt free.

Because the American people dislike debt, they do not want the government to go to deeply into debt. They recognize that this national debt is, in some sense, theirs; that they are collectively responsible for the interest payments on that debt and, hypothetically, for paying the principal back one day. Thus, Americans do not want Congress to run up the debt.

However, and here is the dichotomy, Americans like government programs. People support cuts in government spending in the abstract and in total, but when you get into specifics it is much harder to find programs that people want to cut.

Further, Americans do not like paying taxes. Even liberals who continually argue in favor of tax increases do everything in their control to minimize the taxes that they pay personally. (For a great example, see Warren Buffett who argues in favor of higher taxes on the wealthy while personally using several different parts of the tax code to achieve a very low average tax rate.)

Americans hold views in direct conflict with each other: keep taxes low, keep spending high, and don’t pile up the debt. Yet, the first two items inevitably lead to the third.

Our politicians have a similar dichotomy. Many of them like lots of government spending because that gives them power and is a good way to convince their voters that they deserve reelection. Even most small-government politicians are happy to bring home the bacon by securing funding that goes toward infrastructure or jobs in their district. Overall, to almost all politicians, government spending is a plus.

Politicians also know that voters do not like debt. Further, the minority party in our government inevitably does not like the spending priorities of the majority party. So the minority is always interested in finding a mechanism to slow or cut spending on at least the programs they oppose.

The debt ceiling does a perfect job of allowing politicians and citizens to hold this dichotomy. If politicians vote to cut spending, they will upset whatever group of people and businesses were benefiting from that spending. Spending cuts, on their own, tend to be unpopular.

However, raising the debt ceiling is more unpopular. Politicians can support budget cuts as part of a legislative package to raise the debt ceiling and their voters will not complain nearly as much about the spending cuts. Essentially, the debt ceiling is used by our politicians to give themselves political cover to make spending cuts.

As fiscally irresponsible as our elected representatives are, there is still a small voice in their heads telling them to watch the spending and the debt. Politicians who want to slow spending either based on principle or because they are in the current minority party, can gain public support for slowing spending most easily by invoking the specter of the rising national debt.

The debt ceiling is a useful device for politicians to do what is politically unpopular (slow spending) by disguising it as something that people want (less debt). In fact, it is virtually the only tool that seems to work to reduce the growth rate of federal spending. Thus, the debt ceiling fills an important role in preventing spending from becoming even more out-of-control than it is.

Politicians hate to take unpopular stands on issues as it can lead to losses in upcoming elections. The debt ceiling is here to stay because it provides politicians with political cover for something that would otherwise cause them harm.

If the debt ceiling is the best mechanism to reduce government spending, then I say: keep the debt ceiling and I hope the government has to debate raising it often.

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