Debt ceiling crisis: The debt ceiling is a pointless, dangerous relic, and it should be abolished.

Commentary about business and finance.
May 16 2011 6:19 PM

Abolish the Debt Ceiling!

It's a pointless, dangerous historical relic.

Illustration by Mark Alan Stamaty. Click image to expand.

Today, the United States officially hit its $14.3 trillion debt ceiling, meaning the country can no longer issue new bonds to finance its debt. The Treasury Department has already started undertaking "extraordinary measures" to keep the country's bills paid. Eventually, though, the United States will need to do one of three things: default on its obligations, start making drastic cuts in federal spending, or raise the debt ceiling again.

But perhaps there is a fourth alternative, one that will spare us from endless partisan bickering and protect the markets from uncertainty: The United States should just get rid of the debt ceiling, once and for all.

Advertisement

The ceiling is entirely unnecessary for managing the country's finances. Every year, Congress determines the government's rates of taxation and spending, and therefore its surplus or deficit. Annual deficits accrue to the overall national debt, which Treasury finances by issuing bonds. The ceiling relates only to the total amount of debt the Treasury is allowed to issue. In and of itself, it does nothing to constrain spending, raise taxes, or otherwise improve the country's fiscal situation.

The nonpartisan Congressional Budget Office may have explained the dangerous pointlessness of the debt ceiling best: "By itself, setting a limit on the debt is an ineffective means of controlling deficits because the decisions that necessitate borrowing are made through other legislative actions," it writes. "By the time an increase in the debt ceiling comes up for approval, it is too late to avoid paying the government's pending bills without incurring serious negative consequences."

The debt ceiling is a historical relic, the budgetary equivalent of the appendix. Before 1917, Congress needed to approve each and every debt issuance. But when World War I hit, the legislature decided to make the process easier, setting an overall debt limit and letting Treasury issue as many bonds as it needed to stay within it. A century ago, the ceiling made more sense. The government was smaller, with discretionary spending a bigger portion of the federal budget. Having the additional check helped to keep appropriations under control. But now, the debt ceiling does little to encourage smarter budgeting. Most of the country's debt stems from spiraling mandatory spending on programs like Medicaid, Medicare, and Social Security anyway.

Yet, in the past decade or two, the ceiling has transformed from useless political relic to handy political football: Whenever the country comes close to hitting the limit, the opposition party—whether Republican or Democratic—seizes the opportunity to thwack the other side and refuses to vote to lift it.

Today, for instance, President Barack Obama and other Democrats are slamming Republicans for "playing chicken" with the debt limit, risking spooking the almighty bond market. But back in 2006, none other than Barack Obama took to the Senate floor to hit Republicans for trying to raise it. "Leadership means that 'the buck stops here,'" he said. "Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren."

Again, Congress finds itself at an unnecessary budgetary impasse—and one that threatens real, immediate economic harm. Just six months ago, Congressional Democrats and Republicans together passed a tax deal that obviously required an increase in the debt limit. They extended the Bush tax cuts for all filers, and did not cut spending nearly enough to compensate for the billions of dollars of lost tax revenue. But they did not actually raise it.

Now, Republicans want to tack on extra cuts, and some Democrats are balking. Some more-conservative members of Congress, such as Rep. Michele Bachmann, are even arguing for just leaving the limit as is, and immediately slashing spending $125 billion a month to get it to equal receipts.

At some point, Congress needs to raise the debt ceiling. Until it does, Treasury is moving money around to continue meeting the country's obligations. But it can only do so until Aug. 2. Then, the country will start to default. That might mean not sending out Social Security checks. Eventually, it might even mean failing to make scheduled coupon payments on bonds—raising the possibility of throwing the world markets into turmoil and causing a worse economic crisis than the recession itself.

That worst-case scenario seems vanishingly remote. The best-case scenario for raising the debt ceiling is that Congress does it quickly—and then moves on to tackling the country's real, long-term, enormous fiscal imbalance. Given the horrific downside and negligible upside, why not just get rid of it?

Annie Lowrey is a contributing editor for New York magazine. She can be reached at annie.lowrey@gmail.com.

TODAY IN SLATE

Technocracy

Forget Oculus Rift

This $25 cardboard box turns your phone into an incredibly fun virtual reality experience.

The Congressional Republican Digging Through Scientists’ Grant Proposals

Renée Zellweger’s New Face Is Too Real

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

Whole Foods Is Desperate for Customers to Feel Warm and Fuzzy Again

The XX Factor

I’m 25. I Have $250.03.

My doctors want me to freeze my eggs.

The XX Factor
Oct. 20 2014 6:17 PM I’m 25. I Have $250.03. My doctors want me to freeze my eggs.
Politics

Smash and Grab

Will competitive Senate contests in Kansas and South Dakota lead to more late-breaking races in future elections?

George Tiller’s Murderer Threatens Another Abortion Provider, Claims Free Speech

These Companies in Japan Are More Than 1,000 Years Old

  News & Politics
The World
Oct. 21 2014 3:13 PM Why Countries Make Human Rights Pledges They Have No Intention of Honoring
  Business
Moneybox
Oct. 21 2014 5:57 PM Soda and Fries Have Lost Their Charm for Both Consumers and Investors
  Life
The Vault
Oct. 21 2014 2:23 PM A Data-Packed Map of American Immigration in 1903
  Double X
The XX Factor
Oct. 21 2014 3:03 PM Renée Zellweger’s New Face Is Too Real
  Slate Plus
Behind the Scenes
Oct. 21 2014 1:02 PM Where Are Slate Plus Members From? This Weird Cartogram Explains. A weird-looking cartogram of Slate Plus memberships by state.
  Arts
Brow Beat
Oct. 21 2014 1:47 PM The Best Way to Fry an Egg
  Technology
Technology
Oct. 21 2014 5:38 PM Justified Paranoia Citizenfour offers a look into the mind of Edward Snowden.
  Health & Science
Climate Desk
Oct. 21 2014 11:53 AM Taking Research for Granted Texas Republican Lamar Smith continues his crusade against independence in science.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.