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The debt ceiling: Pros and cons

Armstrong Williams | 9/26/2013, 3 p.m.

The House issued a challenge to the Obama administration this week. It passed a budget resolution that funds the government into December but defunds Obama’s signature legislation, the Affordable Care Act.

The Senate won’t pass the House bill, nor will President Barack Obama sign it. If a continuing resolution isn’t passed and signed by the start of fiscal year 2014 on Oct. 1, the government may be forced to “shut down.” If Congress doesn’t raise the debt ceiling by mid-October, the government may again be forced to shut down. Treasury Secretary Jack Lew says that the Treasury will exhaust all its tricks to stay under the current debt ceiling within four weeks. 

The current jockeying over spending and the debt ceiling has put the GOP under attack for risking the government’s credit. The two issues aren’t the same, but they are fundamentally linked. Obama refuses to negotiate on the debt ceiling and has said that he will not allow Republicans to tie it to the budget. 

The debt ceiling acts as a constraint on government debt. If Congress increases the debt ceiling too often or too easily, it sends a signal to investors that the government is not serious about controlling debt. The government’s credit and ability to service debt will eventually be impaired.

In order for Congress to prudently manage its debt, it must balance its budget. Refusing to raise the debt ceiling without balancing the budget is inconsistent with financial prudence. If Congress refuses to raise the ceiling without balancing the budget, it will damage our national credit. It would be better for Congress to move the country to a balanced budget than to shut the government down by refusing to raise the debt ceiling. 

Shutting down the government through the debt ceiling may cut spending, for instance, by eliminating funding for air traffic control, but it’s a blunderbuss rather than a knife. Rather than lopping off what we don’t need, it will put holes in everything. It is better to have a well-thought-out, balanced budget that cuts out unnecessary spending, restrains entitlement and promotes government efficiency.

House Speaker John Boehner has suggested that raising the debt ceiling be tied to spending cuts over the next 10 years—a proposal that Obama has rejected. A better option might be to tie it to a change in the federal budget baseline. Under the Deficit Control Act of 1985, better known as “Graham-Rudman-Hollings” or “Graham-Rudman,” the budget baseline was set at the previous year’s budget, without any adjustments for inflation. In 1997, the act was amended to include not only inflation adjustments, but an additional 3 percent. This has allowed fiscal liberals to accuse fiscal conservatives of cutting the budget even when they allow it to grow faster than the pace of inflation. 

A return to the original Graham-Rudman baseline calculation would do more to bring the federal budget under control than the sequester—another element of Graham-Rudman. The sequester has slowed the rate of budget growth, but not by as much, as if we were to return to the Graham-Rudman baseline.