Should We Kill the Debt Ceiling?

Should We Kill the Debt Ceiling?

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One reason that raising the debt ceiling has stalled is that fiscal conservatives lack faith. They do not trust that future “special committees” will rein in spending. They do not believe that agreed-upon tax hikes will be offset by promised spending cuts.  They have been fooled before and are set against being fooled again.

In 1990 President George H.W. Bush agreed to raise the debt ceiling and to increase taxes. Democrats pledged to come up with $2 in spending cuts for every $1 in higher taxes. Bush hiked taxes by $137 billion, but outlays did not go down. According to the CBO, spending in fact rose by $22 billion from levels projected before the bargain was struck. It turned out to be a terrible deal – both for the president, who lost his reelection bid, and for the country. 

Tea Party 365 is one group rallying supporters to help defeat the Boehner bill, arguing that it cuts too little and depends too heavily on a “special committee” to come up with further savings. In a blast email they say there have been 17 such committees since 1982 – and yet the nation’s debt has continued to rise.

In addition to these failed approaches to reining in government spending, I would add the debt ceiling itself. What purpose does it really serve? It went into effect in 1917 at a time when the country needed to raise money for World War I, to appease those opposed to increased borrowings (and maybe to the war itself). Since then it has been raised dozens of times, generally with considerably less caterwauling than we have today. The debt ceiling is backward-looking. In effect, it allows the country to pay the bills for spending   agreed upon earlier and mostly implemented. Given the trajectory of government outlays – not just those related to the recession but also those incorporated in our massive entitlements programs, it is clear that its impact on spending decisions has been negligible.

Yet even at this perilous moment, only a brave few have called for abolition of the debt ceiling. In a recent New Yorker piece James Surowiecki does just that, pointing out that the debt limit was useful in the era before 1974, when Congress had little sway over expenditures, which were controlled by the president. Since that time, however, Congress has assumed authority over spending and borrowing; he argues the debt limit therefore is no longer needed.

That assumes that Congress is to be trusted. The reality is that putting elected officials in charge of the nation’s purse almost guarantees that spending will go up and not down. Who buys votes by taking away programs or saying no to expanded benefits? One of the most forceful arguments favoring Congressional term limits is that for at least one term in office, senators and representatives would be freed from the necessity of fund-raising and campaigning, and therefore more likely to “do the right thing.”

Wherever this tug-of-war over the debt ceiling ends up, it will likely spur debate over its abolition. Though the periodic debate has done little to rein in the size of government in the past, at least it alerts the country to our expanding obligations and the spending that gets us there. That is not a bad thing.  

After more than two decades on Wall Street as a top-ranked research analyst, Liz Peek became a columnist and political analyst. Aside from The Fiscal Times, she writes for, The New York Sun and Women on the Web.