Later today, the House is planning to vote on a bill that will “suspend” the debt ceiling until May 19. That way, the U.S. government will be able to keep borrowing enough money to pay all of its obligations for the next three months.
A modest debt-ceiling proposal.
But why not just eliminate the debt ceiling altogether? Every time Congress threatens not to raise the nation’s debt limit, experts ask this very question. Congress already has control over the country’s deficits by setting tax and spending levels. Why should politicians also hold a separate vote permitting the U.S. government to finance those deficits — especially since there are such dire consequences if Congress fails to act?
Below, we’ve assembled a long list of prominent analysts, economists and government officials who have argued over the years that the debt ceiling should be abolished.
1) Economists from the 1950s. Way back in the Eisenhower years, Marshall Robinson of the Brookings Institution wrote a book-length study on the debt ceiling. His conclusion? “On the record, the debt ceiling experiment has failed. Although at times the ceiling has clamped down on government spending, it has not prevented the long-term growth of debt. Indeed, there is some evidence that reactions to its short-run pressure may ultimately contribute to the growth of debt.”
2) The GAO in the 1970s. Once upon a time, the debt ceiling served an ostensibly useful purpose, as Bruce Bartlett points out: “it forced Congress to acknowledge the consequences of deficit spending from time to time.” But that changed in 1974. Lawmakers passed the Congressional Budget and Impoundment Control Act, which required Congress to pass an annual budget that set deficit levels.
In a 1979 report (pdf), the Government Accountability Office argued that this law “has brought into question the need for the Congress to consider the debt ceiling separately from the budget process.”
3) Lawmakers in the 1970s and 1980s. At least one politician took the GAO’s criticisms to heart. Back in 1979, Rep. Richard Gephardt (D-Mo.) proposed setting the debt limit to the level projected by the most recent budget resolution. This was known as the “Gephardt rule” and it allowed the debt limit to be raised without the need for a separate (and unpopular) vote. For the next two decades, there were few fights over the debt ceiling.
The peace didn’t last, however. Republicans waived the Gephardt rule when they took over Congress in 1995. “It was a very clever idea,” Newt Gingrich, the GOP speaker at the time, told Josh Green. “But we wanted to go back to the discipline of reminding the country that it was getting in debt.” As it happens, Gingrich is less sure nowadays about using the debt ceiling to force spending cuts.
4) Alan Greenspan, former chairman of the Federal Reserve. Back when he was still running the Fed, Greenspan told Congress in 2003 that “you may want to reconsider whether the statutory limit on the public debt is a useful device.” His reasoning? “As a matter of arithmetic, the debt ceiling is either redundant or inconsistent with the paths of revenues and outlays you specify when you legislate a budget.”
He phrased it more memorably later on: “Why we need suspenders and belts is something I’ve never understood.”
5) The Congressional Budget Office: Okay, the CBO doesn’t advocate for outright abolition. But in 2010, the agency explained that having a debt ceiling was basically useless: “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. 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.”
6) Three former Treasury Secretaries: Robert Rubin, Larry Summers, Paul O’Neill Here’s Robert Rubin, a Clinton appointee, when asked whether we should have a debt ceiling at all. “No, it’s an anachronism.”
Here’s Larry Summers, another Clinton-era Treasury Secretary, in an email to Annie Lowrey: “I think that given that Congress has to approve all spending and all tax changes, there is not much logic to the debt ceiling. And [I] suspect that any benefits it provides in terms of encouraging fiscal restraint are outweighed by the diversion of energy and accident risk of processes like the one we are seeing now.”
And here’s a Bush-era Treasury Secretary, Paul O’Neill: ”I would be happy to give up the current version of the debt ceiling in return for a majority of members of both houses who are smart enough to understand the facts, are dedicated to acting on the facts, and see as their first responsibility a duty to educate the people, not to pander to them.”
7) The current Treasury Secretary, Tim Geithner. ”It would have been time a long time ago to eliminate it,” Geithner told Bloomberg TV back in November. “The sooner the better.”
8) Moody’s and (possibly) other ratings agencies. Back in 2011, Moody’s issued a report suggesting that the debt limit be eliminated altogether. After noting that the constant fights over the ceiling created “periodic uncertainty” in the U.S. government’s ability to pay its obligations, Moody’s went for the throat. “We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” said analyst Steven Hess.
Another ratings agency, Fitch, called the debt ceiling ”an ineffective and potentially dangerous mechanism for enforcing fiscal discipline. But Fitch said it isn’t taking a stand on whether the ceiling should be abolished.
9) Most of the nation’s prominent economists. In a recent University of Chicago survey of academic economists, 84 percent agreed that having a debt ceiling “creates unneeded uncertainty and can potentially lead to worse financial outcomes.”
That included economists who were sympathetic to Republican calls for spending cuts. Here’s Princeton’s Angus Deaton on the ceiling: “It does indeed provide some brake on long-term spending, but there has to be a better way.”
But most of the economists were adamant. ”The debt ceiling is a dumb idea with no benefits and potentially catastrophic costs if ever used,“ said Richard Thaler. “Deciding whether or not to pay the debts incurred to fund the previously approved tax and spending is nuts,“ said University of Chicago’s Anil Kashyap.
10) Conservative economist Bruce Bartlett. “It is nothing but grandstanding for members of both parties to vote routinely for legislation that they know will create deficits and then profess shock and horror that the debt limit must be increased as a consequence. Even Captain Renault in ‘Casablanca’ would be offended by such hypocrisy.”
11) Libertarian investor Peter Schiff. He has a decidedly contrarian take on why the debt ceiling should be eliminated: “But in truth, the proposal has the merit of refreshing honesty. By telling U.S. taxpayers, and the world in general, that the U.S. government has no intention of ever balancing its budget or limiting its accumulation of unsustainable debt, then perhaps we can begin to have an honest discussion about our economic future.”
12) Brookings budget expert Isabel Sawhill. “Those who believe that a refusal to raise the debt ceiling will somehow put limits on spending and shrink the size of government are confusing the need to pay obligations already incurred by Congress with the need to rein in future expenses. Spending restraint is needed and along with new revenues is the right way to fix rising levels of debt. The debt ceiling itself is an anachronism.”
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So are there actual proposals to get rid of these constant debt-limit votes? Yes. Some House Democrats, led by Rep. Jarrod Nadler (R-N.Y.) recently introduced a bill to abolish the ceiling entirely. The problem? As John Carney points out, this may run afoul of the Constitution, which gives Congress the power “to borrow money on the credit of the United States.”
Another possible solution was proposed by Geithner in 2012. Under his proposal, the president would raise the debt ceiling and Congress could pass a resolution blocking an increase. The president could, in turn, veto the resolution and Congress could only block more borrowing if two-thirds of lawmakers overrode the veto. In the last Senate session, Republican Minority Leader Mitch McConnell actually crafted a bill to do just this, but he later opposed it when it picked up Democratic support.
