The debt-ceiling crisis is no fun for anyone. It sends financial markets into convulsions, it costs the government billions, and it hurts economic confidence. So what would it take to end future debt-ceiling fights... forever?
Very broadly speaking, there are three options here. We could stop racking up any more debt. Or Obama could circumvent the debt ceiling. Or — simplest of all — Congress could just repeal the entire ceiling once and for all.
1) The United States could stop running deficits and accumulating more debt. Slate's Will Saletan considers this option on Twitter :
Hey, Democrats! Here's an idea: If you rein in spending and borrowing, you won't have to win another debt-ceiling increase a year from now.
— Will Saletan (@saletan) October 11, 2013
But this is much harder than it sounds. The United States is up against the debt ceiling right now. If we wanted to avoid more borrowing, we'd have to stop running deficits altogether. Immediately. And that could be painful.
The U.S. federal government currently takes in enough tax revenue to pay for about 80 percent of its spending.* So balancing the budget right away would mean cutting spending by 20 percent, hiking taxes by 25 percent, or some combination of the two.
Most economists will tell you doing this immediately would crush the economy. As Paul Krugman pointed out, cutting government spending by enough to stay under the ceiling would trigger a recession. Once that happened, deficits would rise higher as tax revenue fell and safety-net programs expanded automatically. So, to stay under the debt ceiling, we'd have to keep cutting.
Once the dust settled, Krugman estimates, eliminating the deficit that much would cause GDP to fall by around 10 percent and trigger a 5 percent rise in unemployment. Maybe more. This is basically what Greece did to deal with its debt crisis. And Greece still hasn't yet eliminated its deficits, even after years of massive austerity.
Now, obviously you could reduce the deficit more gradually than this — most Democrats and Republicans are in favor of a softer approach here. But as long as the United States keeps running any deficits at all, the federal government will continue to accumulate more debt and will need additional borrowing authority. Even the most ambitious deficit-reduction plans now on the table will still require future debt-ceiling hikes.
2) Obama could try to defuse the debt ceiling himself — by unorthodox means.
Ever since the first big debt-ceiling showdown in 2011, legal scholars and pundits have dreamed up all sorts of ingenious ways that President Obama could circumvent all by himself.
Law professors Neil Buchanan and Michael Dorf have argued that Obama should ignore the debt ceiling in order to preserve all the other laws on the books. Yale's Jack Balkin has suggested that Obama could declare the ceiling unconstitutional under Section 4 of the 14th Amendment (the part that says "The validity of the public debt... shall not be questioned").
Then there are the "Mint the Coin" folks who say Obama should exploit a loophole in our commemorative-coin law and mint a $2 trillion platinum coin to replenish the Treasury. Finally, Bloomberg's Matt Levine has suggested that the Treasury Department could issue "super-premium bonds" to circumvent the ceiling.
These ideas are undeniably clever. But they likely wouldn't end the debt-ceiling crisis. For one, they'd likely cause a political uproar and a flurry of lawsuits. Cue the impeachment proceedings in the House. And that turmoil could unsettle financial markets. Who's willing to buy U.S. debt that might later get deemed unconstitutional?
So that leaves one final option...
3) Congress could simply repeal the debt ceiling... forever!
This is, by far, the easiest way to stop future debt-ceiling crises. Get rid of the debt ceiling. After all, it serves little purpose anyway — except to cause chaos.
A bit of history: Back when Congress enacted the statutory debt limit in 1917, it was arguably a useful device for Congress to prevent the president from spending however much he pleased. But since 1974, Congress has created a formal budget process to control spending levels. The debt ceiling doesn't do anything to determine the level of spending. It only allows the Treasury Department to pay for bills Congress has already racked up.
As such, many experts don't see why there's any need for a separate debt ceiling — especially when a failure to lift it is so devastating. In a January survey of academic economists by the University of Chicago, 84 percent agreed that having a debt ceiling "creates unneeded uncertainty and can potentially lead to worse financial outcomes.”
So how do you repeal it? One option would be to simply roll back the 1917 statute. But maybe that wont fully solve the problem. After all, Article I of the Constitution clearly states that only Congress has the power "[t]o borrow Money on the credit of the United States.”
A second approach would be for Congress to formalize the "Gephardt rule." Back between 1979 and 1995, the House agreed to lift the debt ceiling automatically as soon as the chamber approved a yearly budget. Why not pass a law like that? Whenever Congress sets new tax and spending levels, the debt ceiling automatically gets lifted by enough to cover the difference (if needed).
Another approach would be to do what Congress eventually did in 2011. Under a plan devised by Sen. Mitch McConnell (R-Ky.), the White House was able to request $2.3 trillion in additional borrowing authority, and Congress could only veto it with a super-majority. So why not extend the McConnell plan forever? This would allow lawmakers to grandstand against borrowing without actually imperiling the U.S. government's ability to pay its bills.
* Correction: Was looking at 2012 number, not 2013. This year the government took in enough revenue to pay for about 80 percent of spending, not two-thirds. Though because of the way spending and revenue is spread out, staying under the ceiling would still require cutting roughly one-third of spending in the coming month.