Here’s How the GOP Can Force Obama to Negotiate

Commentary about business and finance.
Oct. 14 2013 3:37 PM

Don’t Just Lift the Debt Ceiling. Get Rid of It.

To get concessions out of Obama, Republicans have to make a bigger offer.

President Barack Obama enters the Brady Press Briefing Room of the White House for a news conference on October 8, 2013 in Washington, DC.
President Barack Obama enters the Brady Press Briefing Room of the White House for a news conference on Oct. 8, 2013, in Washington.

Photo by Alex Wong/Getty Images

The alarming congressional standoff over the statutory debt ceiling goes well beyond standard gridlock for one simple reason: The consequences of failing to raise it, though unknown, are extremely alarming. Without the authority to borrow more money to plug the gap between required spending and permitted taxes, the executive branch will be forced to do something odd and legally controversial— arbitrarily decide to pay some bills and not others, sell bonds for above their face value as a loophole, mint large-denomination platinum coins as a funnier loophole. Any of these scenarios seems likely to throw financial markets into chaos, and for Republicans, that’s become leverage too sweet to give up. For the White House, it’s a weapon that needs to be defused. President Obama feels, sensibly, that if using the debt ceiling as a means of extracting policy concessions becomes normalized, the cycle will never end. Giving in to GOP demands would postpone a debt ceiling crisis rather than eliminate it and permanently cripple the powers of the presidency.

But there is one way in which Obama could make some concessions to Republicans without engendering endless rounds of debt ceiling brinkmanship, and that’s if Republicans get over their ignorant aversion to authorizing government borrowing and offer a deal that eliminates the debt ceiling once and forever.

Democrats wouldn’t like the idea of giving something up in exchange for debt elimination. They’ll say that avoiding default isn’t a partisan or ideological priority of theirs, and so they shouldn’t have to submit to the other side’s partisan or ideological priorities to get it done. But even though polling shows the public overwhelmingly blaming Republicans for this mess, the one thing the GOP has going for it is dislike of the idea that Obama refuses to negotiate. If the Republicans shifted the terms of the debate from raising the debt ceiling to permanently eliminating it, then concerns about future extortion will be moot, and the White House will have little choice but to engage.

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Even better, Republicans would be accomplishing something useful for the country. The debt ceiling is the legislative equivalent of an infected appendix—an aspect of the political system that no longer has any constructive role to play in the governance of the nation but can nonetheless cause trouble. 

Historically speaking, the debt ceiling was never supposed to play this role. As Annie Lowrey explained in 2011, its purpose was to make it easier for the federal government to borrow money. Back during World War I, American military expenditures were not easily budgeted in advance. The War Department periodically needed more money, and Congress would need to authorize individual bond issuances to raise it. Then in 1917, Congress decided to simplify the process by generally authorizing Treasury to borrow such-and-such an amount of money.

In the context of the modern budget process, the debt ceiling is completely obsolete. Congress mandates some spending through so-called “entitlement” programs such as Social Security, Medicare, and Medicaid, where funds continue to flow unless Congress steps in and does something. Congress also appropriates “discretionary” funding through a more-or-less annual process. The regular appropriation bill for the military specifically involves an “overseas contingency fund” to recognize the potential need for war spending. And presidents from time to time submit requests for “emergency” appropriations to deal with unexpected war costs or natural disasters. In parallel, Congress also writes a tax code. The tax code raises a certain amount of revenue, the spending bills mandate a certain amount of spending (generally a higher amount), and Treasury issues bonds to cover the gap.

Absent the free-form wartime spending of 100 years ago, the debt ceiling does not actually constrain government spending. In a sense, it doesn’t really even limit government debts. Doctors who treat Medicare patients are still owed what they are owed. Paying doctors with money and raising the money in the form of bonds is the conventional and appropriate way to acknowledge that debt. But if we don’t sell the bonds and don’t pay the doctors, the debt still exists—it’s just owed to doctors rather than bond investors.

For all these reasons, every country other than Denmark manages to get by without any sort of statutory debt ceiling. If we scrapped ours, we’d defuse the risk of future defaults and give up nothing. 

Realistically, Republicans still couldn’t get big concessions out of the Obama administration even in exchange for permanent abolition of the debt ceiling. Sen. Ted Cruz’s notion that a hard core of House conservatives can drive the entire ship of state is just a fantasy. But Obama certainly isn’t going to give the GOP anything at all in exchange for a mere lifting of the ceiling that invites a new round of bargaining a few months or years down the road. If Republicans want to get something out of this imbroglio, offering total repeal of the debt ceiling is the way to get it.

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