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Of all the reforms in House rules secured by the conservative rabblerousers last week, arguably the most momentous was the promise that Republicans will not pass any debt ceiling increase until substantial budget process reforms and spending cuts are secured.
The need for such a rule would seem self-evident. The debt has risen by some $4 trillion in just two years. Government borrowing last year hit 13 figures, or $1.4 trillion. Absent budget reforms, we could easily see a decade ahead with another $10 trillion added to the debt. And don’t forget, every one-percentage point rise in interest rates by the Fed raises the debt by well more than a trillion dollars over the next decade.
So, budget hawks and those concerned about our national debt should be applauding this commitment.
Hardly. Instead, President Joe Biden, Senate Majority Leader Chuck Schumer, the entire Washington special interest community, are collectively sounding a primal scream that we will have economic Armageddon if there is even a hint of the debt limit expiring this summer. The New York Times hyperventilated earlier that “Breaching the debt limit would lead to a first-ever default for the United States, creating financial chaos in the global economy. It would also force American officials to choose between continuing assistance like Social Security checks and paying interest on the country’s debt.”
This is upside-down logic. The nation’s good credit standing in the global capital markets isn’t imperiled by not passing a debt ceiling. The much-bigger danger is that Congress does extend the debt ceiling, but without any reforms in the way Congress grossly overspends.
We just experienced one painful repercussion of runaway government spending and debt over the past year: The runaway inflation that climbed to a 40-year high – costing the average American family nearly $4,000 in a loss of real take home pay.
The government’s addiction to red ink isn’t due to insufficient tax collections. The Congressional Budget Office just reported this week that in 2022 the United States government raked in a record $4.9 trillion from Americans. As a share of our GDP that was very close to an all-time record high.
Yet Biden and the Democrats in Congress say they want a “clean” debt ceiling bill – with no conditions attached.
To that, Republicans should say “no deal.” The experience of the last 40 years shows definitively that the only time fiscal conservatives have secured major spending reform concessions from Democrats as a condition for raising the debt ceiling. These are “come-to-Jesus moments” for fiscal discipline.
In 1985, the Gramm-Rudman deficit ceilings were enacted as part of the debt bill; that put congressional spending on a diet. In 1996 congressional Republicans and Democratic president signed an historic budget agreement on the eve of a debt-ceiling vote. Three years later the budget was balanced for three straight years – the only time we haven’t run a deficit in the last 50 years. Then in 2011, House Republicans leveraged the debt-ceiling vote to win approval from President Barack Obama for the Budget Control Act, which included automatic spending cuts, and brought the deficit way down.
The lesson is clear: if we are to make any progress on reducing the debt crisis, House Speaker Kevin McCarthy must use the debt ceiling vote as the bargaining chip to secure spending reductions and reforms.
This is lambasted by the inside-the-Beltway crowd as grossly irresponsible – as holding the country hostage. Wait. If a business owner is many millions of dollars in debt and goes to the bank for a loan or a credit card extension, the bank will rightly say: what’s your financial plan for getting out of debt? If there isn’t a plan, they’ll punt the owner into the street with no loan and no credit card extension.
We all hope it doesn’t come to this, but If for some reason bullheaded Democrats refuse to budge and the debt ceiling is not raised in time, this doesn’t cause a debt default. Rather, it immediately prohibits Congress from borrowing more money. It can still spend the tax money that comes into the Treasury each day – but not a penny more. Republicans are working on a contingency plan that ensures the debt payments are met and Social Security checks go out as the top priority. But other low-priority programs – like the Department of Education, foreign aid, energy programs, etc. will shut down until a deal is made. There is no default – unless Biden’s Treasury Department allows a default.
Republicans in the House can make the case that almost all of the increase in the debt over the past two years is because Biden and congressional Democrats ran up the debt by spending $4 trillion we don’t have – most of that spending happened with few if any Republican votes. The Democrats own this debt increase.
But if Republicans agree to go-along-to-get-along by raising the debt ceiling without any concessions from Democrats, they will be aiding and abetting Biden’s big-government socialism agenda. And that, ladies and gentlemen, would be the biggest financial crisis for America of all.