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January 21, 2023

What to Do About the Debt Ceiling

Take simple steps toward smaller government.

Republicans enter the debt ceiling fight with no leader, no strategy, and no specific proposal. They face a president who refuses to negotiate, a Democratic Senate, and a hostile media. When the Treasury Department’s “extraordinary measures” to avoid default come to an end this spring, markets are sure to tremble, and business and investors will pressure Congress for a quick fix. If the crisis isn’t handled properly, outcomes include a government shutdown, economic contagion, downgraded U.S. debt, and renewed GOP infighting. Oh, yes — in the worst-case scenario, federal spending would remain uncontrolled.

The way out of this briar patch is tricky but navigable. It involves drawing correct lessons from history, settling on a realistic objective in advance, neutralizing inevitable attacks, and taking the long view. That’s a tall order, but not a reason to abandon the cause. The GOP’s renewed interest in limiting the size and scope of the federal government is both warranted and welcome: The $31 trillion national debt is an ugly 124 percent of Gross Domestic Product. Multitrillion-dollar deficits are expected for years to come.

Debt of this size is a mark of national decline. It invites harmful tax increases on work, savings, and investment; requires high interest payments that crowd out spending on defense and erode U.S. primacy; and saddles future generations with burdensome obligations. It is a national security threat that deserves to be taken seriously.

And you take it seriously by studying precedent. For Republicans, recent attempts to address debt and deficits are cautionary tales. They also tried to get Bill Clinton and Barack Obama to restrain spending, with mixed results. Then both Clinton and Obama were reelected.

The 1995 budget fight climaxed in government shutdowns. Clinton painted Republicans as enemies of Medicare. The 2011 clash over the debt ceiling fed into Obama’s portrayal of Republicans as extremists. In each case, Democratic incumbents fashioned themselves as the sober defenders of middle-class entitlements against anti-government crazies. The performances won them second terms.

Republicans did not emerge empty-handed, however. The combative and emotional drama between Clinton and then-House speaker Newt Gingrich may have shut down the government, but in subsequent years it produced a successful welfare reform, a capital gains tax cut, and a balanced budget. The confrontation over the debt ceiling in 2011 was just as vitriolic and messy. But plenty of fiscal hawks were happy when it delivered the budget sequester of automatic spending cuts.

For better or worse, Republicans and Democrats under divided government have fallen into the habit of using the budget process and debt ceiling authorization as opportunities for either fiscal improvement or political recovery. Which is what makes President Biden’s current stance a riddle. He says he won’t engage in talks with the House. He calls for an unconditional hike in the debt ceiling. He seems to have arrived at the conclusion that Clinton and Obama are examples to avoid rather than ideals to pursue.

But how is Biden’s position any better than theirs? He is neither as savvy as Clinton nor as popular as Obama. Biden’s inflexible posture not only offers Republicans a possible line of attack. It also increases the chances that a compromise won’t be reached, that America will at least partially default, and that Biden might not enjoy the same fate as his predecessors.

Republicans aren’t following the historical pattern, either. Their House majority is much smaller than it was in either 1995 or in 2011. Speaker Kevin McCarthy won his position by giving his harshest critics unprecedented influence. He doesn’t have the pull that Newt Gingrich had in the nineties or Paul Ryan had in the teens. He’s promised that the Budget Committee will come up with a plan to balance the budget in 10 years, starting from fiscal year 2022 spending levels. That would entail more than a hundred-billion-dollar cut in discretionary spending next year — including in national defense.

A 10-year balanced budget is a fantasy. Why? Because, as Manhattan Institute analyst Brian Riedl points out in a must-read piece for the Dispatch, “If one assumes that current tax cuts will be extended, balancing the budget would require slashing $12 trillion in scheduled spending over the decade, and $2.7 trillion in 2032 alone. That means eliminating one-third of all projected federal spending a decade from now.” And practically all that spending is popular. The public wouldn’t stand for it.

Riedl wants the House GOP to rally behind achievable goals, beginning with a freeze in annual discretionary appropriations. He would add a package of about $400 billion in savings over 10 years, as well as measures that address entitlement programs such as Social Security and Medicare but wouldn’t involve specific cuts in benefits or increases in the retirement age.

One piece of legislation that could be paired with a debt ceiling increase is the TRUST Act, sponsored by Sens. Mitt Romney (R., Utah) and Joe Manchin (D., W.Va.) in the Senate and Reps. Mike Gallagher (R., Wis.) and Abigail Spanberger (D., Va.) in the House. It would create “rescue committees” for the various government trust funds whose recommendations would be fast-tracked in Congress. Meanwhile, Riedl’s colleague Chris Pope offers the helpful suggestion that Republicans merely commit to Medicare’s current payment trajectory, generating hundreds of billions in savings as doctors and seniors continue to sign up for Medicare Advantage.

The strength of this approach is that it wards off defenders of the status quo. The maximalist proposals found in some quarters of the House GOP supply material to Democrats eager to dust off the entitlement-protection playbook that has worked for them in the past. The “contingency plan” House Republicans are drawing up that would instruct the Treasury to prioritize payments so as not to breach the debt ceiling has serious flaws, as well. Bondholders would be at the head of the line — and many of them are foreigners. The spectacle of the “America First” party ensuring that Chinese banks are paid before air traffic controllers would be an embarrassment. It ought to be avoided.

A freeze in discretionary spending is vulnerable to criticism by defense hawks, like me, who believe that if anything America needs to spend much more, not less, on defense (and on defense-related research and development). Rather than marching under the banner of “Freeze Discretionary Spending,” the GOP may want to adopt as its motto “Freeze Non-Defense Discretionary Spending Now!”

Yes, it’s hard to fit on a poster. It won’t produce the savings many Republicans profess to desire. But it would be a start.

Which is what we need. Since the New Deal, Progressives have built up the welfare state gradually, by supplying benefits that create constituencies over time. Why can’t advocates of limited government adopt a similar logic?

Through homeschooling, school choice, individual retirement accounts, college savings accounts, and Health Savings Accounts, conservatives have created their own constituencies that are less dependent on, and therefore less susceptible to, government control. Republicans and conservatives could use the debt ceiling debate to put Biden on defense by taking small but firm steps toward smaller government, with the knowledge that nothing breeds success like success.

The only obstacles are political romanticism, sectarianism, and a utopian demand for radical change — enduring attributes of the Left that today are found far too often on the Right.

Matthew Continetti is a senior fellow at the American Enterprise Institute and the founding editor of The Washington Free Beacon. For more from the Free Beacon, sign up free of charge for the Morning Beacon email.

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