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Joshua Green

How the House wrecked the ceiling

 Dick Gephardt’s 1979 “Gephardt rule” enabled the House to raise the debt ceiling without a vote on it.

FILE 2004/DINA RUDICK/GLOBE STAFF

Dick Gephardt’s 1979 “Gephardt rule” enabled the House to raise the debt ceiling without a vote on it.

The most infuriating part of the recent fiscal cliff crisis is that the whole construct was phony. The automatic spending cuts slated for Jan. 1 were just a threat devised by Congress to force itself to reduce the deficit. The tax hike set to take effect the same day was the result of an earlier ploy in which Congress had written the Bush tax cuts to “expire” after 10 years, thus masking the steep cost of making them permanent.

The cliff was averted. But the debt-ceiling crisis due to arrive in about six weeks is much worse, and, when you understand its purpose and history, that much more infuriating. It, too, is purely a creation of Congress. But it’s also the only example I know of where Congress actually solved a crisis, and then, for nakedly partisan purposes, abandoned the solution and ushered the crisis back in.

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Republicans have labored to suggest that both the cliff and the debt-ceiling dramas were brought on by the large deficit. That’s not true. In fact, the economic danger of going over the cliff was that doing so would reduce the deficit so quickly as to push the economy back into recession. The fight was over how to avoid that outcome.

The economic threat posed by breaching the debt ceiling is that the United States could default on its debt and thereby bring on a global recession. But default, should the GOP carry through on its threat not to raise the ceiling, wouldn’t be brought on by a refusal to cut spending. It would be brought on by a refusal to pay the bills for money that Congress has already spent — and that many of those same Republicans voted for.

Through a quirk of history that dates back to World War I, the United States has a two-step budget process. First, Congress passes a budget resolution that determines how much money will be spent. Then it raises the debt ceiling to accommodate that spending. This creates an opportunity for grandstanding that politicians in both parties (including a senator named Barack Obama) have found irresistible: They can vote for whatever programs they like in the budget resolution and then turn around and pose as heroic stewards of the public purse by refusing to raise the debt ceiling, with most voters none the wiser.

This has been going on for generations. As The Economist’s Greg Ip noted, President Kennedy’s Treasury Secretary, Douglas Dillon, was complaining about the debt limit 50 years ago. “[L]et no one labor under the delusion,” Dillon once griped, “that the debt ceiling is either a sane or an effective instrument for the control of federal expenditures.”

But in 1979, the problem was solved by a young Democratic congressman from Missouri, Dick Gephardt, who at the time had the thankless task of rounding up votes to raise the ceiling. “We were in charge of Congress, but nobody ever wanted to vote for it,” Gephardt told me. “Republicans wouldn’t give us votes, so it was our responsibility. Every time it came up I had to go to every member and seek their vote. It was painful and difficult and, I thought, unnecessary. I’d say, ‘Did you vote for the appropriations bill? The defense bill? The highway bill?’ They’d all say yes. And I’d say, ‘Well, then you gotta pay the bill.’ ”

Gephardt’s genius was finding a simple fix to meet the absurdity of the two-step process. With help from the House parliamentarian, he established the “Gephardt Rule,” which decreed that when Congress adopted a budget resolution (the first step) it was automatically “deemed to have passed” a commensurate increase in the debt limit (the second step). Presto. Problem solved.

It didn’t last. When Republicans took control of the House in 1995, they recognized that the second vote could function as a pressure tactic to shrink spending and did away with the Gephardt Rule.

But the threat of debt default did almost nothing to cut spending because nobody took it seriously. What’s different now is that some Republicans seem willing to follow through. That’s why, despite his protestations, Obama was willing to trade spending cuts the last time the ceiling had to be raised and probably will be this time, too.

So as the next crisis unfolds, keep in mind that the true outrage isn’t the deficit. It’s that we’re being forced to go through this whole crazed process at all, and risking another recession.

Joshua Green is national correspondent for Bloomberg Businessweek. Follow him on Twitter @JoshuaGreen.
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