Decouple the Debt Service Debate from Budgetary Disputes
The current debt-ceiling dramatics put politicians at center stage in a high-stakes drama, and provide onlookers with a mixture of amusement, disgust and sheer horror at the dismal spectacle of the nation’s credit standing held hostage to intractable disputes over taxes and spending. There has to be, one intuitively feels, a better way. And there is.
The idea is simple: Decouple debt service — payment of interest and principal due on the nation’s debt – from budgetary disputes.
What is pulling both sides towards the brink, despite near-unanimity on the necessity of avoiding a default caused by failure to pay interest and principal in full and on time, is that debt service is enmeshed in the long-running, highly emotional policy disputes on the budget. These disputes reflect deep-rooted philosophical differences between the two parties on the size of government, who pays for it and how powers are distributed between the federal and local governments. The only way to resolve these issues without risk of default is to separate the issue everyone agrees on — the need to responsibly service debt — from those that generate deep divisions in the body politic.
So how can we implement procedures to avoid the appalling spectacle of the world’s leading power seemingly unable to discharge its obligations in a timely, orderly manner?
Congress should pass a law mandating that the debt ceiling is automatically adjusted as necessary to permit full payment of interest and any principal currently due, without additional action by Congress or the president. Budget matters must be expressly denied inclusion in any automatic ceiling adjustment.
Voter cynicism with politics is fueled by these periodic political contests that amount to a high-stakes game of political chicken. Politicians are forced, for their part, to take bet-the-company risks, with consequences that are catastrophic for the country as a whole, and equally so for the political party that shoulders primary blame.
Budget matters should not be resolved now in a long-term deal. Neither the 2008 nor 2010 elections turned on budget priorities. President Obama campaigned on his broad theme of “hope and change you can believe in,” restoring economic growth and redistributing wealth. The GOP off-year sweep of 2010 turned on excessive spending and a poor economy, but off-year elections, as politics maven Jay Cost notes, do not confer full mandates. Only when a party takes the White House can it plausibly proclaim a mandate for major change.
Thus the 2012 election should be fought not simply on the economy, but also on the longer-term picture of where America should go. Most Democrats, including President Obama and the Congressional leadership, desire a European-style welfare state with a vast federal establishment, dominant over state governments and the private sector as well. European-level spending would be financed by huge tax increases, targeting not simply the wealthy but of necessity, the middle class as well. Such requires a government of at least a 25 percent share of gross domestic product; European government GDP shares can top 50 percent.
Republicans seek a return to the historic share of GDP claimed by the federal government, around 18 percent. Taxes would be lower and flatter. Closing loopholes, which would raise tax revenues, would be offset by cutting tax rates and additional spending cuts. State governments would take over many responsibilities that the federal government has claimed over the past 80 years. While not small by any stretch of the imagination, the GOP federal government would no longer be the leviathan Democrats champion.
These public policy issues are of grand sweep, affecting those not yet born as well as those presently alive. They need not be saddled with hundreds of billions, perhaps even a trillion dollars or more, of added interest rate charges in the coming years due to a technical default, now or in the future.
While passing an automatic escalator removes the risk of technical default, the risk of a credit rating downgrade would remain, if the nation fails to solve its budgetary problems. Those problems can only be resolved, ultimately, by the 2012 election. Put simply, the conditions for a constructive grand bargain are not present. And the idea that the crucible of default pressure can force solution to budget disputes ignores vast chasms of bedrock disagreement and thus invites hasty, poorly-crafted compromises.
A national conversation on budget priorities should not be conducted under the gun of looming debt service default. The issues are too important for the two to be conflated. Doing so risks a default virtually no one wants, for inability to agree on issues only the voters can settle, come 2012.
Congress should put a permanent end to debt ceiling dramatics, by passing a mandatory debt service adjustment. Dramatics belong in the theater, with actors who on stage are more compelling than politicians playing financial chicken.
Ridiculous suggestion.
We already have a Constitutional Amendment for this, the 14th. What more do you want?
This suggestion is just a reaction to the dishonesty of the Left. The debt ceiling does not stop the debt from being repaid. It just limits government spending. Other things stop, but the debt gets paid. The Left has been conflating the debt ceiling with default. It is a Big Lie, and you want another law written… because they are lying? Will the existence of such a law prevent them from making the same lie, when there is already a Constitutional Amendment dealing with it? What the heck do you hope to accomplish? Oh, right, we need yet another law! Are you mad?
["Other things stop, but the debt gets paid."]
I’m not so sure about that Marc! To many folks are somehow, it seems, looking at the national debt as they would their own credit card debt. There are many debt instruments involved in the public and government held debt and many not only are short term with interest, but also, short term principals that MUST be paid or the debt rolls over in principal increases and interest increases.
Paying interest is not paying down the pricipal debt.
We are the Country that ‘manages’ good credit by putting our debts on credit and those debts on credit and those debts on credit w/interest.
Uh? We are in a state of bankruptcy by debt alone.
There is no need to raise the debt ceiling to service the debt. The treasury takes in sufficient revenue monthly to service the debt (and pay something over half of the current federal spending).
http://blogs.reuters.com/james-pethokoukis/2011/07/12/the-issue-isnt-default-but-government-shutdown/
Raising the ceiling would allow the government to continue spending more than it takes in. That IMHO is the “budgetary dispute” and the debt limit is the only leverage those who want to cut spending have. Increases to the debt ceiling should NEVER be automatic.
I’m sorry, but that was the COMMITMENT that the United States Government made.
The Government is committed to paying Social Security and Medicare benefits to every American who has just started working now. That represents decades of commitments; a 17 year old high school graduate who just got his first full-time job is promised his Social Security checks 48 years from now, in the year 2059. Plus cost of living adjustments and all the rest of it.
The total unfunded commitment comes to many trillions of dollars. And yet ANY sign that the Government is prepared to welch on any of it (by not borrowing enough to pay it, if the debt ceiling isn’t raised) is going to trash the “full faith and credit” of the United States.
You must be kidding. First, that 17 year old will not receive SS at the age of 65. Those born after 1959 have to wait until they are 67. You really think that will be the age when your 17 year-old reaches 67? Right. More than likely SS won’t be around at all, commitment or not. What’s he gonna do, sue the US gov’t?
Well said! Paying interest hardly impacts off-budget (which practice still remains) and unfunded debt rolling into the 1st and 15th of each month and the future. The liabilities of many programs vary from day-to-day and month-to-month and are darldy static or even predictable numbers.
But shallow disingenuous political rehetoric is all brain food for many.
The government is not comitted to paying out Social Security to every 18 year old just starting work. Wherever did you get that notion?
So they are allowing newspeak here at PJM now. How else can we explain this genius’ idea of a “ceiling” that increases automatically whenever it might actually limit anything,
This is ridiculous! Everything is coupled and one cannot decouple debt limits from spending practices.
The Democrats won’t even present real budget proposals, they only shoot down what the Republicans propose.
There is no budget debate to be had outside of the debt limit debate. At least not now.
The only reason the word “default” is in play is politics. Hence, any attempt to take it back off the table is also political.
The only apolitical way to “decouple the debt service debate from budgetary disputes” is to accurately describe the use of such posturing as “bunkum”.
Personally, I prefer “poppycock”.
HR4646: The Damned Democrat 1% Solution for What Ails Us
. . . Well, those Dems are at it again with HR4646. Compounding their deceit and since they were unable to pass it in 2009, it will be shelved until after the 2012 election, assuming they win.
When first proposed, then-Speaker Pelosi said of HR4646, “I believe that the transaction tax still has a great deal of merit” and would have a “really minimal impact on the transaction, but a tremendous impact on helping us meet our needs.”
From the perspective of the multimillionaire Pelosi family, the 1% tax/fee might be really minimal. From the perspective of real Americans, the impact would be really significant.
Even liberal-leaning Snopes.com expressed outrage in its article, “The One Percent Solution,” subtitled, “The Transaction Tax WHAT THE HELL IS THIS??” (Snopes’ emphasis) . . .
(Read more at http://www.genelalor.com/blog1/?p=5094)
It sounds like a great idea in the idealist tone, much like the sausage, from how its made story. How it is made, or the political reality of becoming savagely render has yet to be factored.
What ever is being proposed now is an outline. Then comes the legal language, plus the riders. After the riders comes the earmark-pork-bribes. Then comes the final draft which works opposite of the best intentions. Good luck with that. Those congress critters have been screwing up the best intentions for many decades.
And then there is Hauser’s law, an empirical observation. Whatever the marginal tax rate, 80 percent or 30 percent of income on individuals or corporations, Federal tax revenue as a percentage of GDP averages 20 percent. So, when marginal tax rates are high, the economy is depressed; when marginal taxes are low the economy hums. Of course, the Europeans can’t even defend themselves and remove a tin pot dictator in Libya with their Potemkin militaries at 50 percent marginal tax rates. But, on the bright side, their Muslim immigrants get great welfare benefits to burn cars in Paris; our immigrants at least pick grapes and send their kids to public schools when dropping out to do drive by shootings and show up in the public hospitals on the county dole. At least it keeps the doctors and teachers and grape growers richly endowed with state ducats. Crime pays.
Great idea. I’m going to de-couple servicing my own debt from my budget. Now I can spend all I want and the interest on my mortgage and other loans will get paid. What a relief. Brilliant!
They need to go past the deadline. They really do. The government needs to feel the pain of running out of money. And having to be creative. Just like every private business has done countless of times. This hypersensitive respect for the federal government is ridiculous. Let them run out of money. Let them be unable to pay their bills for a change. The states run out of money on a regular basis. It’s not the end the world. Also they have plenty of assets they can sell. Seriously what is it exactly, the government provides that people can’t survive without for a few weeks?
The author says,
Payments on principal already reduce the national debt. If the treasury holds $x in debt, and pays off $y in debt, the debt is obviously reduced in the amount of $y, making it possible — with no increase in the debt limit — to borrow more to replace the $y just paid. This suggestion would simply increase the debt limit every time principal is repaid when due, without any necessity to do so. The Secretary of the Treasury would probably love it, but that’s beside the point.
As to interest on the debt, it is my understanding that more than enough is collected in revenues each month to deal with that and much more besides.
Dan….Are we going to redefine ‘debt’ and ‘interest’ to be synonymous? Around our casa, interest isn’t debt unless we don’t pay it and let it roll over into the principal. I don’t stay up with every last minute bit of rhetoric, but I guess I’ve failed to hear the rhetoric that says their plan includes paying the interest on the principals, in addition to paying down the principals, plus paying the short term principal instruments as they come due. Who has that plan, sir?
Turbo Tax Timmy and other prominent theftists have assured us that Amendment XIV, Section 4, mandates that The Once can brush aside mere legality in paying the debt.
At least, they did before someone pointed out the words “authorized by law” to them and they realized that they would be losing control of a trillion and a half in bribe money were such a thing to happen.
T.T., No I don’t think we should; that was the idea presented by the author of the article in the sentence I quoted.
Were the debt limit to be increased to pay interest, the debt limit could grow like Topsy. Whether it would grow more or less as a result of that than as a result of increasing it to pay back principal, I don’t know; but in either case the result would be very unpleasant. And, as noted in my earlier comment, when principal is repaid the debt is thereby diminished in the amount of the payback; the author’s suggestion would mean a debt limit increase on top of a reduction in the debt — a twofer in borrowing ability.
Thanks Dan.
I guess I see thing from a more simple perspective. We have two columns of fixed costs and one column of dicretionary cost. If the Tea party folks would have stayed true to their origns and stayed honed on cutting the size of government, the two columns of fixed costs would have essentially remained static while at the same time using the savings from downsizing to reconstitute the economy and JOBS….a two-prong approach using a private-public strategy.
Regardless of tax rate, revenues would increase substanially, allowing for more fiscal control over an otherwise uncontrollable spending and debt problem with an econbomy in the tank and increasing unemployment.
The solution in my opinion, is first cutting government size, reinvest that savings into reconstituting the economy into some sustainable model (infrastructure), lowering unemployment and then approaching a sensible systemic control policy over the debt.
On the fixed side, reductions could easily be achieved by means testing for SS and MC and…..either repael the Afordable Health Care Act or suspend it indefinitely. Saving from means testing would be secured by account.
You don’t grow a business/economy without investment! Private sector is NOT going to independently invest in the nations infrastructure. Infrastructure investment is the fastest way to employee folks and kick start an economy…and increase tax revenues. A modern high speed ‘national’ rail system somewhat mirroring the old inter state system for coast to coast freight and passengers with spurs North and South is sorely needed. Modern dam systems is sorely needed. Salt water desalinisation networks would be beneficial. Expanded regional pipline networks for oil and gas distrubution, decentralizing refining. Modernizing regional and major air traffic control systems.
Politics never solves problems or governs and everybody including the Tea Party and their following are playing politics while the nation and its people face continuing threats of demise.
Just imagine all the professed intellectuals on sites like this, if they were to indulge in real problem solving rather than personalized political assassination I’ll bet even you would have some grand ideas. Let perpetuate the old system of people govern and politicians implement!
I’m willing to go along as long as we stipulate that when the debt ceiling is automatically raised the President, Vice President, and all members of the house and senate are by statute removed from office, stripped of their pensions and barred from holding any type of government position for life, on the grounds of dereliction of duty.
That’s a fine idea. With the exception of a firing squad, it mirrors my own solution pretty closely.
If you decouple the debt-ceiling issue from taxation and spending, Obama will wipe his brow and give a huge sigh of relief. The freshmen Republicans were astute to see this as an opportunity begin turning the Obama Dreadnaught NOW, instead of waiting until 2013 to begin the hard labor. I say keep the pressure on. Make Obama sweat. Make him feel he has no choice but to set aside his office pleasures and come before the American People to read empty rhetoric off his teleprompter. The more we see him, the lower his numbers drop.
Although, in logical terms, raising (or lowering) the debt ceiling is a moot issue. All that matters is stopping Obama and Merry Leftists from raising our taxes and blowing through our money to pay off HIS constituents. Nothing will change even if we raise the debt ceiling by 100 Trillion. But I still think the Tea-Party House is correct to dig in and fight.
The republicans from the beginning of this charade should have repeatedly explained there is no default crisis and that failure to come forth with a credible plan is what will spook the rating agencies. Instead they offer plans that are pitifully short of what is needed and they have allowed BHO to set the narrative that the sky will fall because of a faux default deadline of August 2.
If the Debt Ceiling is automatically raised, then what is the point of a Debt Ceiling?
This is all political theatre. Unfortunately the audience in the rest of the world is laughing at us. My brother in Shanghai says the new jokes springing up about our deadbeat nation are spreading like wildfire- and yes this has actual economic consequences when the world’s largest economy and most powerful nation looks infantile. Those who advocate pushing this to the limit as the only leverage to get Obama to stop spending are truly childish. The only entity in the entire Federal Government who can originate any spending bill is the House. As any schoolchild knows if the Republicans wish to reign in spending, and I agree wholeheartedly that they do, all they have to do is do their JOB!
The House IS doing their job, putting forth budget bills. The Senate keeps tabling them without discussion. It’s the Senate that is not doing their job. Heck, they even table items and then go home early instead of doing their job. Why are we paying these guys again? It should be illegal to table an item without discussing it.
I think an Amendment needs to be put in that if Congress and the President do not pass a yearly budget they have to return their previous year’s paycheck. Also include in that law that all House and Senate pay is done by the states, not paid for out of the federal budget, and any pay increases they want must be voted on by their state of origin.
“Congress should pass a law mandating that the debt ceiling is automatically adjusted as necessary to permit full payment of interest and any principal currently due, without additional action by Congress or the president.”
In other words, eliminate the debt ceiling altogether.
There would be no point in hitching spending cuts to the debt ceiling vote without the presumed necessity of raising the ceiling. That coupling has, in fact, proved to be the most effective leverage that Republican cost cutters have ever had at their disposal. While we cannot expect to make fundamental structural changes (like reforming the tax code or eliminating whole bureaucracies) till we control both houses of Congress, this exercise demonstrates just how much we can accomplish even when we don’t.
If nothing else we have reshaped the playing field in ways that will serve us well, whether or not we retake the Senate. Tax hikes barely even register in the current equation, and the relationship between overspending and crushing debt has been firmly planted in the public zeitgeist. That’s a good thing, and this is no time to be making counterproductive technical distinctions between annual deficits and long term obligations.
Trivializing Republican efforts with talk of emotional spectacles and bickering and all the other dismissive pejoratives now in circulation just undercuts our own team and our very chances at success in the 2012 polls. That’s what’s really stunning to watch here.
This makes a great deal of sense. It also is more in line with the way the Constitution treats Federal Bond Debt. It must be paid first. All other obligations and operating costs and payments follow. I guess if we need a law to make us better follow our Constitutional mandates, so be it.
Taking it out of the budgetary arguments makes not only fiscal planning more understandable, it removes the highly emotional and misleading terror tactic inherent in the use of the word “Default”.
We are not going to default now, ie not pay our Bond obligations, nor will we in the future.
When has the debt ceiling restrained anything. The debt ceiling always has been defeated. What the Republicans should do is forget about the debt ceiling and submit a balanced budget. The rest is up to the Democrats. It’s their baby. Also the Republicans should forget about a balanced budget amendment to the constitution. Which would rather have? : a balanced budget of 14 trillions of dollars or an unbalanced budget of 100 billions? I pick the smaller budget.
Both the House and the Senate have legislation requiring the debt to be serviced first whether the debt ceiling is raised or not. There is more than sufficient funds incoming to do that and fund much more, without more borrowing.
Before anyone tries a new scheme, help get these passed, or help make sure the country knows who forced any default that may occur by pointing our who voted against them.
No need to decouple anything from anything.
What you see as a mess, a fiasco, a disgrace is democracy at work.
Not saying it is making us look like we are efficient and run the country like a well oiled machine, but it is actually a very good thing for the country. The citizens are awake, the debate is exposing the politicians for who and what they are, and the voters will take note and perhaps do a better job in the next election than they have in the past 50 years.
The US is not going to default. It will not happen. Some deal will be made, if only to go through this again soon. That won’t be fun, but the next election might be. The voters will sort this out. Let it be.
There is nothing worse in this world than an enslaved man who naively believes himself free, except, perhaps, trying to explain to that same man his predicament. You can lay truth after truth before his feet. You can qualify your every position with cold hard irrefutable data. You can plead and scream and raise veritable h e l l, but before he will ever listen, he must first become aware of his own dire circumstances. As long as he views himself as “safe and secure”, as long as he imagines his chains to be wings, he will see no reason to question the validity of the world around him, and he will certainly never invest himself into changing his own deluded destiny.
“Associate with men of good quality if you esteem your own reputation; for it is better to be alone than in bad company.” George Washington