Don’t play politics with the debt ceiling

It must be frustrating to be a Congressional Democrat these days. The minority party in both the House and Senate and having lost the White House, the only thing keeping the Democrats relevant is a dysfunctional White House and a disunited Republican majority in Congress. Watching the Republicans run out the clock on President Obama’s last Supreme Court nomination and then whisk through President Trump’s first SCOTUS nominee by paring back the filibuster must have been painful.

Democrats have taken any and all available measures to stymie the Republican’s attempts at passing unilateral measures, such as health care. They are perfectly justified in doing so. There is, however, one area in which they should drop any obstructionism and play ball with the Republicans—raising the debt ceiling.

Although the debt ceiling has been in the news repeatedly during the past two decades or so, it is still a somewhat obscure concept. It can be easily explained with the following analogy.

Imagine that you and your spouse have just finished a meal at an expensive restaurant only to discover that, not only do neither of you have any cash, but that you have maxed out your joint credit card.  The restaurant staff seem to be calm, but the maître d’ looks like he is about to call the police.

What should you do?

Well, if your credit is decent, you might want to try calling the credit card company and asking them to increase your limit. After all, your credit is pretty good. The problem is that your spouse, a joint signatory on the card, will not agree to make the request unless you accept certain conditions: you will agree to work additional overtime hours to bring in more money and cut back on some of your cherished spending priorities, like that new car you have in mind. If you don’t acquiesce, you’ll have to face the consequences with the angry maître d’.

The US government will find itself in a similar situation this coming fall when it runs out of both cash and credit. Unless Congress and the Administration can agree to allow the US government to borrow more money, the government will default on its debt. The consequences of a default would be catastrophic, roiling financial markets and making it much more expensive for the US government to borrow. Even the threat of a default would be costly for the government and the country.

The debt ceiling originated one hundred years ago, in the midst of World War I. At that time, Congress decided that it could no longer micromanage the government’s finances, issuing specific bonds to pay for each and every substantial government project. Instead, it authorized the Treasury to borrow up to a certain amount to finance all government spending. That limit currently stands at just over $19.8 tril­lion.

The debt ceiling was not controversial for most of its existence. Whenever the government’s debt approached the legal limit, Congress and the Administration agreed to increase the ceiling without much fuss or fanfare. In this way, the debt ceiling has been raised 78 times since 1960, under both Democratic and Republican congresses and administrations.

The debt ceiling became much more politicized after Newt Gingrich and the Republican Party swept into power following the 1994 congressional elections. Gingrich’s “contract with America” called for reducing the size of the federal government, and when then-President Bill Clinton did not cave in to Republican demands for certain spending cuts, Gingrich threatened to refuse to hold a vote on a debt ceiling increase, saying: “I don’t care what the price is.” He eventually relented. The government again came close to defaults in 2011 and 2013 when Republican majorities in Congress threatened not to raise the debt ceiling if then-President Barack Obama did not accede to their demand to impose spending cuts, particularly those meant to eviscerate the Affordable Care Act pressed by Sen. Ted Cruz (R-TX). In both cases, after nail-biting negotiations, the debt ceiling was raised—but not before the uncertainty caused by the impasses increased the interest rate that the government had to pay on its debt, imposing millions of dollars in higher borrowing costs on American taxpayers.

Because all the levers of power in Washington are in the hands of the Republican Party, it would be reasonable to conclude that raising the debt ceiling will not pose a political challenge this fall. Such a conclusion would be premature.

During the past months, Donald Trump has threatened to shut down the government if Congress does not accede to his demands to fund a border wall and to force creditors to take less than the amount that they are owed on US government debt. Hence, it is possible that the loose cannon president could take some impulsive action that would lead to a default. Even if Trump is talked out of such a strategy by the more sensible members of his administration, Republican Congressional hardliners like Ted Cruz have demonstrated their willingness to push the government into default.

Because of these uncertainties, Democrats in Congress should announce that they will not block, delay, or try to attach any amendments to legislation that would raise the debt ceiling. Combined with the majority of sensible Republicans who would also support such a move, the Democrats could effectively defuse threats from both Republican hardliners and an increasingly unstable president. No matter how bitter they are about their recent losses and no matter how many times they have been the victims of nasty fiscal tactics from the other side, the Democrats must not play politics with the debt ceiling.

Featured image credit: US Capitol at dusk as seen from the eastern side by Martin Falbisoner. CC-BY-SA-3.0 via Wikimedia Commons.