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Debt-Ceiling Fight Looms as next Big Test for Congress

Michael D. Tanner

If you thought the recent fight over health-care reform was fun,
get ready for the next big Washington circus: raising the debt
ceiling.

In October of 2015, Congress chose to avoid the usual fight over
setting a symbolic debt target by agreeing to waive any limit on
the debt for 17 months, until March of this year. For the past few
months, the Treasury Department has engaged in what it calls
“extraordinary measures” to extend the deadline through the end of
September. By that time, the U.S. national debt will officially
exceed $20 trillion.

As is almost always the case, the big fight will be over whether
or not to pass a “clean” increase in the debt ceiling — i.e.,
one without any amendments. A bill to raise the debt ceiling will
require 60 votes in the Senate, effectively giving Democrats veto
power over any Republican proposal. If Republicans added a
provision supporting Mom, the flag, and apple pie, Democrats could
be counted on to oppose it unanimously. Indeed, many Democrats are
expected to back a proposal by Senator Brian Schatz of Hawaii to
abolish the debt limit altogether.

In the end, the fight
over the debt ceiling will mostly be a question of political
theater.

Yet, many Republicans see this as one of their few opportunities
for budget leverage. Wisconsin senator Ron Johnson is typical in
warning, “I’ve been raising the issue of the debt ceiling for
months now, and certainly what I’d like to see is some meaningful,
structural control enacted in conjunction with increasing [the debt
limit].”

House Republicans are expected to take an even harder line
against any bill that raises the debt ceiling without making an
attempt to rein in future spending. Just this week, Representative
Tom Cole of Oklahoma, never considered a firebrand, said that he
could not see any scenario in which the House agrees to raise the
debt ceiling without accompanying spending cuts. Meanwhile, the
conservative House Freedom Caucus is backing a number of separate
proposals, ranging from as much as $50 billion in spending cuts to
a demand that the federal government sell property to pay down the
debt. Some also want to attach a partial repeal of Obamacare to the
bill.

It should come as no surprise that the Trump administration is
putting out conflicting signals about what it wants from this
fight. Treasury Secretary Steve Mnuchin reportedly prefers a clean
bill, as Treasury secretaries have since time immemorial. Office of
Management and Budget director Mick Mulvaney is more ambivalent. He
originally wanted spending cuts in exchange for increasing the debt
limit, but has recently dropped that demand. He now says that the
administration hopes for the “cleanest possible” bill. But he also
remains one of the chief proponents of “prioritizing” debt
payments, which would allow the federal government to avoid default
if the debt negotiations drag on.

All of this will take place against a backdrop of apocalyptic
commentary from much of the media and the business community. They
will ignore the fact that the federal government actually did
briefly default on its debt in 1979, in part as the result of a
debt-ceiling impasse under a Democratic-controlled Congress. Since
then, both Democratic and Republican Congresses have missed
deadlines to increase the debt ceiling: Once in 1981, a second time
in 1985, a third time in 1996, and a fourth time in 2002. In none
of those cases did the world end.

Moreover, until fairly recently, it was considered routine to
add all sorts of conditions to debt-ceiling legislation. Perhaps
the most famous of these provisions was the Gramm-Rudman-Hollings
amendment in 1995.

Of course, failure to raise the debt limit would not be a good
thing. Financial markets could be expected to react badly.
Increased uncertainty would slow economic growth. And we might even
see another downgrade of the U.S.’s credit rating. But those
consequences pale in comparison to the almost-certain calamity that
will result from a failure to get control of runaway federal
spending and debt.

In the end, the fight over the debt ceiling will mostly be a
question of political theater. An increase in the debt limit will
eventually pass. Congress will go on spending money on a bipartisan
basis the way it always does. And, in a couple of years, we’ll do
this all over again.

But amid all the noise that’s sure to follow, it’s important not
to forget that our fiscal irresponsibility can’t continue forever.
Congress may be in the habit of pretending otherwise, but we’re
headed for a fall.

Michael
Tanner
is a senior fellow at the Cato Institute and the author
of Going for Broke: Deficits, Debt, and the Entitlement
Crisis.