What the GOP Should Seek In the Debt-Ceiling Fight
The U.S. government has been unable to borrow more money for months. The Obama Administration has been keeping the government open by using accounting gimmicks and stealing the pension contributions of federal employees (they will pay it back later). However, all the financial shenanigans will have run their course by next week and on November 3 the Treasury estimates that the government will have run out of maneuvering room. In exchange for raising the debt limit, thereby keeping the government operating and the national debt growing, the Republicans should demand something in return. Here is what they should ask for.
The debt ceiling is a legislative limit on how much the federal government may borrow. The Constitution requires Congress to authorize all government borrowing. Because Congress does not want to vote on every bond offering, it instead authorizes borrowing up to some total amount or until some future date. At the moment we have reached the borrowing limit, or debt ceiling.
If the debt ceiling is not raised by November 3, what happens next is uncertain. The Constitution also requires the government to pay its bills, so it cannot just default on its debts. The problem is that we currently spend a little more than one billion dollars per day more than we receive in revenue. Something has to give, but what? The government must balance its spending to equal its revenue, but how is uncertain. Treasury claims to have no instructions and (implausibly) no ability to prioritize which bills to pay. Answering that question is where Republicans should start.
Congressional Republicans should immediately pass a bill making clear the order in which bills should be paid. An obvious ordering would be: debt payments, entitlements (Social Security, Medicare, Medicaid, food stamps, etc.), defense spending, and then other discretionary spending, but they can specify whatever order they wish as long as one is made clear. The money will run out before paying the bills for most of the other discretionary spending, but at least establishing a system of priorities will calm financial markets by assuring the world that our bonds are still the safest in the world and wound calm seniors and others who depend on government safety nets that they will continue to receive those payments. Having that cleared up will allow negotiations over the debt ceiling to proceed in a more orderly and studied manner.
Second, Republicans should insist that any bill to raise the debt ceiling should include a guarantee of entitlement reform. According to the current Congressional Budget Office projections, discretionary spending is set to increase over the next ten years by 23 percent, from $1.1 trillion to $1.4 trillion, but total spending is set to rise from $3.7 to $6.0 trillion over the same period, a gain of 63 percent. In other words, entitlement spending is projected to rise by 81 percent in the next decade.
Entitlement reform could be actually enforcing the Medicare cuts that have been promised for years but always postponed, a faster increase in the retirement age, or any other change in the current programs that reduces spending on these programs. The exact shape of the reforms is less important than some binding law describing how much will be saved in each future year. If annual entitlement spending can be cut by $1 trillion per year by 2025, the nation's financial future will be much improved and future increases in the debt ceiling will be much rarer. This would be some version of the sequestration agreement, but for mandatory spending programs.
As a bonus, to ease future budget showdowns and encourage Democrats not to create government shutdowns secure in the knowledge that Republicans will get the blame, Republicans should look for opportunities to pass two additional pieces of legislation.
First, the law should be changed to block government employees from receiving back pay after any government shutdown for work they never performed. Right now, employees sent home are simply getting extra paid vacation days meaning that government employee unions don't mind government shutdowns. Change that practice and suddenly the unions will encourage Democrats to negotiate future budgets in good faith.
To complete that change in footing, Republicans should pass a law tightening up on how many federal employees can be declared "essential" so that they continue to work (and get paid) during government shutdowns. The most recent government shutdown had more than half of all federal government employees still working. That's not a shutdown, it's only a slowdown.
With these changes, Republicans can raise the debt ceiling while assuring their supporters that they received significant concessions in exchange. Nothing suggested here involves immediate spending cuts but each of these changes will shift the balance of power so that fiscal conservatives will have an easier time moving forward in restraining spending and restoring fiscal sanity.
The budget status quo is fine with Democrats. Under current law everything stays in their favor if compromise is not reached, so they have no reason to actually negotiate. Republicans must first change the rules of the game so that good faith negotiations over spending and the size of government actually take place. It's hard to win a debate when the other side can win by just running out the clock.
