At some point around mid-October, Congress and the President will have to raise the country’s $16.7 trillion debt ceiling or else risk a default on the country’s commitments. It’s as simple as that. What is less simple, however, is how – and even whether – elected leaders will address the still-unfinished task of controlling U.S. public debt over the long term.
The Obama Administration continues to argue that Congress must raise the debt ceiling without any delay because approaching the final deadline is economically dangerous. Many Republicans in Congress, however, argue that the debt ceiling can help force much needed budget reforms. The truth is that while both sides have presented fair arguments, both are missing a crucial element: we need a stable and falling debt path.
The debt ceiling must be raised – a reality that Congressional leaders, the Administration, experts, investors, and concerned citizens all recognize. A failure to do so would be unprecedented. The United States is the world’s single largest economy, and the U.S dollar and Treasury securities serve as benchmarks for currencies and interest rates throughout global markets. Throwing the legitimacy and value of those benchmarks into question would surely have abrupt and unforeseeably dangerous effects.
Ideally, the debt ceiling would have been raised (and our future debt path controlled) months ago, well before the Treasury had to begin taking special steps not to breach the debt ceiling.
Along with raising the debt ceiling, setting the goal of putting the debt on a downward path as a share of the economy is critical. A downward debt path would help strengthen economic growth and even help reduce short-term austerity in the form of the sequester cuts.
Smart debt reduction would also put the country on sound footing by tackling much needed tax and entitlement reforms, and potentially pave the way to a long-term, bipartisan solution for raising the debt ceiling. While both political parties have proposed budgets that would achieve downward debt paths, our elected leaders have thus far failed to make a public case for taking advantage of the fall calendar to achieve long-term budget sustainability.
While lawmakers must raise it, the debt ceiling is a natural opportunity to refocus the national attention back to our budget trajectory.
Under the latest projections, debt as a share of the economy will fall for the next few years as a result of the improving economy and the savings enacted to date. Although lawmakers have probably focused too much on short-term savings at the expense of long-term reforms, evidenced by the sequestration in effect, a falling debt path is a very welcomed development. Unfortunately, our debt will once again rise later in the decade and over the long term unless we make changes.
For many Democrats, a rising debt path threatens large and sudden spending cuts to some of the country’s largest social safety net programs, on which millions of Americans rely, and fewer available resources to devote to Democratic priorities. For many Republicans, a rising debt path threatens large and sudden tax increases and fewer resources to devote to a lower tax burden.
But for all Americans, a rising debt translates into a weaker economy, a weakened ability to respond to crises – be they economic crises, security needs, or natural disasters – and a much larger burden on future generations of Americans to pay off that debt. That’s a losing strategy all-around.
Lawmakers should take advantage of the debt ceiling – along with discussions over government funding levels, the sequester, and tax reform– to discuss smart deficit reduction this fall. With a smart deficit-reduction package, we could replace the mindless, indiscriminate, and temporary cuts from the sequester with larger, smarter, and permanent savings; boost growth in the short and long; and raise the debt ceiling. Now that would be a win all-around.