Maya MacGuineas is president of the Committee for a Responsible Federal Budget.
In the past, this act has occurred smoothly, and on many occasions, it has been used productively to spur fiscal efforts from budget deals to process reforms to the creation of a fiscal commission. But in recent years, the debt-ceiling-as-leverage strategy has been taken too far with absurd and damaging threats to actually allow a default.
In a surprising twist, President Trump and Senate Minority Leader Charles E. Schumer (D-N.Y.) have reportedly come to an agreement to try to retire the debt ceiling once and for all.
On one hand, this is desirable; we should not weaponize the economy. On the other, debt remains a huge problem and is itself a threat to the economy, slowing growth and creating new risks. Given that the debt ceiling is the only real check on borrowing, tossing it out without any plan for restraint would continue the fiscal free fall we are already in.
So instead of repealing the debt ceiling, we should reform it.
One main problem with the debt ceiling is that it gets raised long after the tax and spending decisions that add to the debt are made, allowing policymakers to support adding to the debt while opposing the debt increase itself. You don’t rein in your family budget by going on a spending spree and then refusing to pay the bill. The restraint has to come earlier in the process.
To address this, Congress could tie the debt ceiling to budget resolutions or any major legislation that adds to the debt. Thus, Congress would have to vote in favor of lifting the debt ceiling when supporting the policy that necessitates it, which might give legislators more pause before adding to the debt.
A second problem is that the height of the debt ceiling is quite arbitrary. Some level of debt is perfectly fine and, in fact, desirable for a country to have. And the amount of debt we can support depends on the size of the economy.
Accordingly, it would make sense to shift measuring the debt ceiling from a specific dollar figure, as we currently measure it, to a share of the economy. Policymakers could set a glide path to reduce the debt-to-gross-domestic-product ratio from today’s postwar-era high; the debt ceiling would only apply when our debt load breaches a set percentage of the economy. Such a reform would give Congress an incentive to enact fiscally responsible policies to avoid a politically difficult vote to increase the debt ceiling.
Yet another problem with the debt ceiling is that the hammer in this case is just too dangerous. Given our past flirtations with the nuclear option of default, it needs to come with an escape valve.
That could take the form of allowing the president to lift the debt ceiling while automatic tax and spending adjustments went into effect until Congress put together its own plan. Or it could take the form of a softer trigger in which the president and Congress submit plans to make improvements to the debt.
And a final recommendation for Congress and the president: Stop adding more to the debt.
Increases in the debt ceiling are always accompanied by rhetoric decrying the growing level of debt, even though politicians keep voting for more deficit-increasing policies.
With our national debt so high, we need a multitrillion-dollar debt-reduction plan that phases in savings from revenue and entitlement reforms. However, in today’s hyperpartisan environment, where politicians assume our fiscal policies come with free lunches, a serious debt deal seems pretty far off.
In the meantime, we can and should at the very least agree not to adopt new policies that add to the debt. It will require the old-fashioned notion of paying for things. Tax reform should be deficit-neutral. Spending plans should be fully paid for. And yes, even emergency spending, which should be passed swiftly, should be paired with plans to cover the costs.
Politicians need to stop claiming that their policies are too important to pay for or that they will magically pay for themselves; instead, our lawmakers should start identifying real solutions to offset new costs.
We shouldn’t depend on a debt ceiling in any form to replace politicians doing their jobs. They need to determine what spending is worthwhile — and then figure out how to pay for it.