The Recurring Debt-Limit Drama
This time, spending cuts and tax reform should be part of the deal
Get ready for a little deja vu from Washington. The federal government is about to hit the debt ceiling, now set at a whopping $16.8 trillion. Yes, again. It’s like the Bill Murray movie “Groundhog Day” – only this time, unfortunately, no one is laughing.
Time and again, Congress bumps up against the debt ceiling amid talk of finally getting spending under control. Time and again, they raise the ceiling, but only after a sufficient dose of political theater. How’s this for a punch line: The gross debt breaks down to more than $140,000 per American household. Still not laughing?
Small wonder that more serious-minded lawmakers are trying to escape the cycle. They don’t want to risk another credit downgrade, which happened for the first time ever in 2011, the last time both sides were playing political football with the issue. Avoiding another downgrade, though, will require a lot less theater and a lot more action.
“The United States of America, the most creditworthy nation on Earth, ought to pay all its debt in a timely fashion,” said Rep. Steny H. Hoyer, Maryland Democrat and House minority whip. “Playing politically motivated games with the creditworthiness of the United States will only risk another downgrade.” Exactly, and so it’s past time to get spending under control.
Some GOP lawmakers have other ideas, however. The latest proposed tactic: attract conservative support to yet another debt-limit increase by tying it to tax reform. GOP lawmakers have long argued for a thorough overhaul of the nation’s tax code, which is needlessly complex and weakens the economy by perverting incentives.
There’s no question that tax reform is a worthy goal. But this is no time to fall for the old “fake stick toss.” To agree to raise the debt ceiling in exchange for a vague promise to pass some kind of tax reform somewhere down the road would be a mistake.
It would be a different story if the debt limit were to increase if and only if President Obama signed into law a concrete tax-reform proposal, one that actually instituted the kind of pro-growth tax reform our economy needs. That might be worth supporting if the tax reform was good enough. It all depends on the details.
It’s true, as economist J.D. Foster notes, that “tax reformers have good reason for optimism.” There is bipartisan interest in tax reform, and Ways and Means Committee Chairman Dave Camp, Michigan Republican, and retiring Senate Finance Committee Chairman Max Baucus, Montana Democrat, are working to find a way to harness that interest and get something accomplished.
Mr. Obama has voiced support for tax reform as well. There seems to be broad agreement, at least in principle, on cutting the corporate income-tax rate and making the tax code simpler, more transparent and more conducive to economic growth.
“All good,” Mr. Foster writes in a recent blog post, “but there is as yet only the outlines of broad consensus, and much, much work left to do, a message given greater weight by the recent release of a 568-page tome on tax reform by the Joint Tax Committee.”
Enacting, not simply voting on, pro-growth tax reform can help, but the real fiscal problem lies on the spending side. Absent reform, spending on entitlement programs such as Social Security, Medicare and Medicaid is set to rise sharply over the next few decades. It’s all set to happen automatically. Ruinous debt is guaranteed unless action is taken to get spending under control.
That won’t happen if lawmakers keep kicking the can down the road. It’s time to focus on the steps necessary to bring the budget back into balance within 10 years. When it passed the Ryan budget in March, the House of Representatives signaled its commitment to achieving a balanced budget within that time frame.
That can’t happen unless we do something different. As in “Groundhog Day,” we can’t break the cycle by repeating the cycle. It’s time for a game-changer: Only serious spending cuts followed by genuine tax reform can ensure that we don’t find ourselves doing this all over again. And again.