The ongoing “fiscal cliff” fireworks in Washington have made for a riveting wonk drama — sequestration! marginal tax rates! chained CPI! — and they may yet result in a sensible deal to avoid an economic cataclysm next year. But part of any eventual settlement should include reforms to ensure this kind of manufactured crisis never again threatens the nation’s economic well-being.
The current negotiations were sparked by last year’s fight over the debt limit — a statutory cap, instituted during World War I, on how much the government can borrow. Breaking with decades of precedent, House Republicans refused to raise the limit last year. They claimed to be taking a stand against government spending, but their focus on the debt limit confused the issue of spending with that of borrowing. Essentially, the House GOP took the creditworthiness of the United States — its ability to pay for spending lawfully approved by Congress itself — as a hostage in a policy fight over future budgets.
It was a dangerous ploy, and it exposed the debt limit as a destructive anachronism. Congress controls federal spending. And once it votes to spend money, it should not be able to threaten the national credit needed to finance that spending. The debt limit’s continued existence will only serve to undermine economic confidence.
With the Treasury expected to hit the debt limit again sometime next year, there are three approaches policy makers could pursue:
■ President Obama could simply ignore congressional opposition to raising the limit, and direct the Treasury Department to continue issuing debt even after Treasury passes the limit. He arguably has the authority to do so under the Constitution. But it’s a risky approach. What happens to those debts if, years later, the courts decide the president lacks that power after all?
■ The president could, as he has already hinted, simply refuse to negotiate over the debt ceiling. The idea would be to call the bluff of congressional Republicans, and shut down the federal government when Treasury can no longer finance its operations. If Obama took that position and stuck to it, the economy could plunge into chaos. But the GOP would come under enormous pressure to back down, and if it does, that would likely eliminate the debt limit as a source of political leverage for either party.
■ Finally, the best-case scenario would be for Congress to limit its own power by abolishing the debt limit entirely as part of any fiscal-cliff deal. The failure of House speaker John Boehner’s “Plan B” last week, which seems to have increased President Obama’s negotiating power, may give him the opening to insist on making a debt-limit reform part of the eventual settlement.
There are three approaches policy makers could pursue.
Eliminating the debt ceiling — ideally by formally changing the law, but if necessary by an informal bipartisan understanding — is a matter of sound government. That doesn’t mean Congress shouldn’t be concerned about debt. But the right way for lawmakers to tackle the problem is to either spend less or raise more revenue. Calling the existing obligations of the US into question is not an answer. The spectacle in Washington this month has been fun to watch, but now the farce needs to end.