Averting Default, Achieving Restraint (Here's how to do it if we're serious)

National Review ^ | 01/15/2013 | The Editors

The federal government will hit the statutory limit on its debt within the next two months, and further borrowing would require congressional action. Almost everybody recognizes that such action will need to take place, since no one has proposed a way to end all deficit spending immediately. But Republicans want to make sure that as Congress takes that action it both highlights the problem of overspending and takes steps to address it, while Democrats want to make sure that the problem receives neither attention nor remedy.
To achieve its end, each party has focused on a different element of the debt ceiling. Republicans treat the debt-ceiling vote as a moment to recognize the implications of runaway spending and to bring down the future trajectory of that spending (and therefore of the debt). They want any authorization of future borrowing to be tied to reductions in future spending, so that as we acknowledge how much debt we are amassing, we also do something about it.
Democrats, however, treat the debt ceiling as having basically nothing to do with the future. Past spending decisions are in the past, they say, and now Congress just has to pay for them. The debt ceiling, in their telling, threatens to stand in the way of Congress’s doing so, and especially to thwart debt repayment, raising the prospect of a default on the government’s debts, which would have catastrophic economic effects. As White House spokesman Jay Carney put it recently, “there are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default.”
The Democrats are treating all federal spending (not only the repayment of past borrowing) as a sacrosanct obligation that cannot be undone. And they insist that attaching any conditions to a debt-ceiling increase would be unprecedented and tantamount to blackmail, even though such conditions have been attached in the past and have resulted in some fiscal reforms (including the Gramm-Rudman-Hollings budget caps in 1985 and more modest measures in 1996 and 2011).
Republicans should recognize that the prospect of default is the Democrats’ chief weapon in their campaign of avoidance. That prospect is not a source of Republican leverage in the debt-ceiling fight; it is the primary source of the Democrats’ leverage. It is a way to distract the press and the public from the reality of our fiscal crisis.
The Democrats’ strategy offers Republicans an opportunity. Since the Democrats insist that the prospect of default is the reason they will not negotiate about spending restraint, Republicans should begin the debt-ceiling fight by permanently eliminating that prospect, turning the debt-ceiling debate into an argument about future spending rather than past borrowing.
The House should pass a bill to redefine the debt limit so that it constrains primary spending but not debt service. Under this reform, a Treasury that had hit the statutory borrowing limit could continue to borrow what it needed exclusively for paying interest on the national debt and to roll over existing debt obligations, but it could not borrow for any other government spending until the limit had been increased. This would take default entirely off the table.
Other spending would have to be put off or reduced, based on the amount of revenue available at any given time, until the debt limit had been raised. Since debt service now amounts to roughly 8 percent of the budget while the deficit is well over 30 percent, this would mean very significant limits on spending until the debt limit had been increased — whether by a large, across-the-board reduction of remaining spending or a partial shutdown of the relevant government programs and services. Both parties would have a strong incentive to come to agreements that prevented the debt limit from being hit, at least for long.
This proposal would improve, rather than undermine, America’s creditworthiness, as it would both avert any possibility of default and compel a discussion about getting our government finances into order. It would enable Congress to exercise its exclusive Article I authority to borrow while meeting its 14th Amendment obligation to assure “the validity of the public debt of the United States, authorized by law.”
Such a move would turn the debt-ceiling debate explicitly into what Republicans already treat it as being: an argument about ongoing government spending and deficits, like the debates about the budget or continuing resolutions, rather than about paying debts incurred for past spending and deficits. Democrats do not want that debate, but would not have an easy time rejecting this proposal. To do so would be to insist that default remain on the table, or else to insist that the president be given an unlimited power to borrow and spend. Surely neither is what the public wants or what the country needs.
What the public wants, and what the country needs, is for the federal government to pay its past debts but reduce its future ones. The debt ceiling should offer an opportunity for a debate about precisely how to do so. By carefully redefining the debt limit in law, Republicans can make sure that discussion takes place. And by then proceeding to offer specific spending cuts coupled with a proportional increase in the debt ceiling, they can help make sure that it ends with our country less in debt and better positioned to prosper.