A modest debt limit strategy

A modest debt limit strategy

I agree with Speaker Boehner (in this excellent interview in today’s WSJ) that spending cutters’ principal legislative leverage comes from the March sequester and continuing resolution deadlines rather than from the upcoming need for a legislative debt limit increase. I disagree with those who argue that Congressional Republicans must therefore simply pass a clean debt limit increase as the President requests. I’d like to present an alternate debt limit strategy, one which is both responsible policy and potentially effective in making modest progress in cutting government spending.

My substantive view is that the debt limit must be legislatively increased. It is highly irresponsible to pursue a legislative strategy that places the full faith and credit of the U.S. government at risk. Failing to pay debt obligations is at least an order of magnitude more damaging than a “government shutdown” induced by failing to extend a continuing resolution. Having lived through the 1995 government shutdown, I wouldn’t want to wish that on anyone, but I’d happily risk another shutdown rather than roll the dice on the debt limit.

At the same time, despite President Obama’s jaw-dropping argument to the contrary, we have a government spending problem that must be addressed. If your teenager breaks the borrowing limit on a credit card you gave him, you don’t fix the problem by refusing to pay the bill. But you also don’t let him keep spending at such an irresponsible rate. You pay the prior obligations and you simultaneously force him to change his spending habits.

President Obama and his team are working overtime to frame a “clean” debt limit extension, without any accompanying spending cuts, as the responsible policy path. That is an outrageous argument. Look to Europe: Germany and its northern European neighbors repeatedly loan Greece enough cash to make it through the next few quarters and they require policy reforms as a condition of that loan. They then repeat the process frequently. Sure, Greece would like a large long-term loan with no conditions, but their creditors know that path would lead to no reform and ever-increasing debt.

The responsible policy path is to increase the debt limit and to cut government spending. It is not to increase the debt limit, with vague promises about maybe cutting spending in the future, if it is done the right way and only if it is accompanied by even more tax increases.

But if a debt limit must be enacted, if we cannot risk a default, then how can Republican spending cutters exert leverage on a President who doesn’t want to cut spending?

Most observers mistakenly assume that the only way to force the President to change his spending habits is to threaten to block a debt limit increase. But in addition to other, better levers like the impending spending sequester and the expiring continuing resolution, there are smaller levers that can change how a debt limit law is enacted without killing the necessary increase. These levers are not strong enough to force the President to accept a fundamental shift in spending trends, but they can be leveraged to enact significant incremental spending cuts.

There are three key tactical levers.

  1. All Members of Congress hate voting to increase the debt limit. It is one of the most politically painful votes a member can cast.
  2. Traditionally the majority party in each House delivers the bulk of the aye votes for a debt limit increase. The minority party free rides and most vote nay.
  3. When there’s a legislative disagreement over the size and duration of a debt limit increase, the smaller/shorter increase always wins.

It’s hard to overstate how much Members hate voting for a debt limit increase and how entitled House Democrats feel about not having any obligation to do so because they’re in the minority. That is the soft spot we’re going to exploit—catching the President between his policy goals and the political self-interest of his partisan allies, especially in the House.

I’ll propose this alternate strategy in the form of a hypothetical joint public statement by Speaker Boehner and Senate Minority Leader McConnell.  The 50 vote number below can, of course, be dialed up or down.

Hypothetical press statement by Speaker Boehner and Leader McConnell

SIM-SPEAKER BOEHNER: I want to begin by assuring you that we will not allow the government to default on its obligations. The debt limit will be increased. The questions we must resolve are first, whether we will simultaneously cut government spending and second, who will cast the votes for the debt increase.

The President says he wants a clean debt limit increase without any accompanying spending cuts. I am prepared to bring such a bill to the floor and deliver 50 Republican votes for a three-month clean extension. If they wish to avoid spending cuts, the President and Leader Pelosi simply have to deliver the other 168 votes from House Democrats for a short-term clean extension. I will not block such a bill, and will even deliver up to 50 Republican votes needed to put it over the top. But if the President chooses this path, his party will have to deliver the overwhelming majority of the House votes, and he’ll get only a short-term extension. Then we’ll repeat this exercise three months from now and three months after that.

SIM-LEADER MCCONNELL: If the House were to pass such a bill, Senate Republicans would not filibuster it, but they also would not vote for it. It would have to pass the Senate entirely with Democratic votes.

SIM-SPEAKER BOEHNER:  If the President and Democratic leaders want a longer extension than three months, or if they want more than 50 House Republicans and no Senate Republicans to vote aye (so they don’t have to twist as many Democratic arms to cast a very unpopular vote) then we need to cut government spending as well. If we match one dollar of spending cuts for each dollar of debt limit increase, then I’m prepared to deliver the bulk of the needed votes on the Republican side and do an increase that lasts up to a full year. Under this principle bigger spending cuts lead to a longer debt limit extension. Tomorrow the House majority will pass just such a bill, a responsible bill that both increases the debt limit and cuts government spending. We will pay our bills and we will take a significant step toward solving our underlying government spending problem. [Remember, this is all hypothetical.]

We Republicans see ourselves as representing the government’s creditors, the taxpayers who finance government spending. We will make sure the government does not default.  But we’re not going to provide the votes for a long-term credit extension without reforms and regular checkpoints. If the President wants more borrowing without taking responsible action to cut spending, his party will have to deliver most of the votes in the House for such a bill, and they can explain to their constituents why they think we should keep borrowing without solving the underlying fiscal problem. And they can do this every three months for the foreseeable future.

In the House we’d be willing to increase the debt limit for longer than a year if it is matched dollar-for-dollar with spending cuts, but only with a verifiable commitment from Senate Majority Leader Reid and Senate Budget Committee Chairman Murray that the Senate will pass a budget resolution this year and next.

Repeating myself, the House will not allow the government to default. Tomorrow the House majority will pass a bill that raises the debt limit and cuts government spending. If the Senate instead raises the debt limit without cutting spending, then I will bring the bill to the House floor and deliver 50 Republican votes for it, as long as it’s not more than a three-month extension.  If the Senate sends us a clean long-term extension, we’ll just send it right back to them.

The President and his party have a choice. They can have clean short-term debt limit increases without spending cuts, passed every three months almost entirely by Congressional Democrats. Or they can have a longer-term debt limit increase simply by cutting government spending and passing budgets in the Senate.

Either way, the President will get his debt limit increase, and the U.S. government will meet its financial obligations. But if he and his party are not going to cut spending, then they will have to carry the responsibility of unrestrained additional borrowing, and they will have to repeat this exercise every few months.  It’s the President and his party’s call.

The above strategy requires significant tactical and message coordination among House Republicans, possibly more than they are currently able to execute. But if they had such coordination they could create modest leverage on the debt limit bill while pursuing responsible policy. They could combine this with far greater leverage from threatening to kill a continuing resolution and to allow the spending sequester to bite.

Rather than threatening enactment of a debt limit increase, this strategy attacks the President’s tactical political weakness. The President wants a debt limit increase, but his Democratic colleagues (especially in the House) expect they won’t have to vote for it. By turning this assumption on its head, this strategy would tell the President, “Hey, if you want your terrible policy, you’re going to have to deliver House Democratic votes for it. Good luck with that.” Either the President accepts and Republicans pound on the “Democratic debt limit increase” message every three months, or he agrees to cut spending. Either way, default risk is eliminated. Republicans will look responsible because they will be acting responsibly, and the markets couldn’t care less about which Members take political heat for casting these unpopular votes.

But the Members care. A lot.

(photo credit: Aaron Smith)

28 responses

  1. Pingback: Keith Hennessey: Debt Limit Strategy – DUVALL REPORT

  2. “The above strategy requires significant tactical and message coordination among House Republicans, possibly more than they are currently able to execute”

    Possibly? Har, har.

    Anyway, why promise to deliver 50 votes? Just promise that 35 Republicans will vote “Present” – that way there will only be 199 GOP “no” votes, and there are 201 Democrats.

  3. “If your teenager breaks the borrowing limit on a credit card you gave him, you don’t fix the problem by refusing to pay the bill.” I think your analogy here misses badly. No one is suggesting you don’t pay the bill, they are suggesting you don’t increase the credit limit or get the kid another credit card.

    • That isn’t how the debt limit works. Not raising the debt limit is refusing to pay obligations, like social security benefits and interest on our national debt, that we already owe. Its the same thing as not paying your credit card bill after already having bought things.

      I wish more people understood this.

      • Not quite. Not raising the debt limit is not continuing to spend on credit. We would still have obligations to meet. Social security is not an obligation we have to meet. We have decided to pay social security benefits, but if we needed the money, Congress could decide to not pay social security benefits without breaching any obligations. There is a lot of stuff that could not be paid without the us breaching any obligations. Not saying that’s a good idea. And it would be messy constitutionally b/c other than the fact that we’re obligated to pay our creditors, it’s not clear under what authority the remaining spending would be prioritized and it’s not clear who would be authorized to continue incurring obligations. But as bad of an idea as it might be, in the short term, not raising the debt limit is not refusing to pay obligations.

  4. Can anyone point to any evidence that congressional Republicans are interested in actually cutting spending (as opposed to saying they’re interested)? The last 12 years experience doesn’t convince me.

  5. Keith,

    With what evidence can you support that the sequester and the CR are better levers for spending restraint than the debt limit? We just kicked the can on the sequester and CRs are so routine that they might as well be a formal part of the Budget Act.

    While the debt ceiling debate of 2011 at least brought about the locked in $1.2 trillion in reductions and set up the $1.5 trillion of the sequester. There isn’t any contest regarding which brought more spending restraint.

    Don’t get me wrong, the downgrade and most else surrounding that fight is an embarrassment. But it’s an embarrassment without consequence. So far, interest rates the market charges the government have only gone down, so there isn’t a case to be made for any harm (I recognize that without the Fed, it would be a different world). And, I don’t think the public could think any less of Congress, so that’s not an issue.

    So either you think this time will be different and the Congress won’t wait until the 11th hour or kick the can further or you hold on to hope that I’ve long abandoned. I can’t at all see why you think the sequester / CR holds hope for better outcomes.

    In addition, in your example of the teenager with the spending problem, you say “you also don’t let him keep spending at such an irresponsible rate” but that “You pay the prior obligations and you simultaneously force him to change his spending habits.” OK, but do you call Visa and ask them to increase the card limit? If not, why increase the debt limit?

    Despite the President’s assertion and the logic you seem to be supporting, the increased limit makes way for new spending that exceeds the new net borrowing. Without the increase, the current debt of 16 plus trillion dollars isn’t taken away and the government has every capacity to meet the needed legal obligation of paying the interest on that principle amount.

    Beyond paying it, there is another 2 trillion dollars from which we can set priorities and fund services. So let’s be clear, the ceiling increase isn’t about paying what is currently due or any existing obligations, it is fully about being able to spend yet more than our means.

    Sure, maybe the teenager will have to do certain new things, but not only are they keeping the stuff they’ve already bought, they are also buying new things – and not just new things, but new things beyond what their considerable income supports.
    I’d be grateful for your reactions.

  6. Keith, I think you are overestmating the political pain Democrats will feel about voting to increase the debt limit, givent the standoff of last year and almost universal press coverage stating that not raising the limit is deeply irresponsible. This is especially true since your plan will require Republicans to break their recent pledge, thus making the narative that once again, the President stood his ground and the Republcians caved, with leadership shown to be out of touch with their base (actually, I suppose that last part is a silver lining).

  7. “We Republicans see ourselves as representing the government’s creditors, the taxpayers who finance government spending.”

    One should always be on the lookout for statements that have the potential to be distorted by your political opponents, particularly with a sound bite zinger. (If the attack is legitimate, you need rather to rethink your policy and not just your phrasing).

    The above-quoted sentence is an example of dangerous phrasing. Currently, of the debt held by the public, about 48 percent is owned by foreign investors–not “taxpayers”. The percentage is growing rapidly and the public seems to grasp this in a very general way. The numbers change in the taxpayers “favor” if one includes intra-government debt, i.e., the Social Security Trust Fund, but try explaining that to voters. Of course, the line makes sense if one considers that “taxpayers” will pay eventually, through higher taxes, higher interest rates, higher inflation, a lower dollar, etc., even if foreign investors continue to finance us, but trying to explain that is even harder.

    I do, however, envision someone like Jon Stewart responding to that sentence for both comedic and political purposes with the line “Um, I thought the government’s creditors were the Chinese. So, you mean to tell me Republicans are now representing the Chinese?”. This requires a sophisticated response that the general public is not likely to as easily understand—once they stop their “knowing” laughter.

    • The refinement is to specify that the Republicans wish to protect those who finance the new debt (for which the increase is being passed). Will that be mostly US taxpayers, or are large numbers of foreigners still lining up to buy US debt?

  8. I recently read a very good article entitled “In Defense of the Debt Limit Statute” by Professor Anita Krishnakumar that appeared in the Harvard Journal on Legislation (2005). I’m not sure that this site accepts hyper-links in its comments, but if one does a search of that title, it is available free on-line.

    In addition to a very good historical overview of Congress’ powers and responsibilities in relation to the debt, the author makes cogent arguments in favor of the statute. She also makes the same observation that Mr. Hennessey does here about the reluctance of elected officials to vote for debt increases:

    “More specifically, there are a number of ways in which the debt limit increase process motivates members of Congress to behave in a more fiscally responsible manner than they do in annual budget and appropriations context. First, debt limit increase legislation serves a scolding and “make amends” function. Even if members of Congress do not themselves care about deficits or the growth of the debt, they perceive that the public does care and pays at least some attention to debt limit increase votes, as evinced by Congress members’ reluctance to vote in favor of such legislation and the fact that congressional challengers often use an incumbent’s “yes” vote against the incumbent in election campaigns. This fear, or attention to public perception, in turn makes members of Congress more likely to think in terms of and vote along with debt reform measures introduced by their more fiscally conservative colleagues, in part as reparations for their prior uncontrolled spending” (footnote omitted).

  9. Pingback: How to win the debt ceiling fight

  10. “Most observers mistakenly assume that the only way to force the President to change his spending habits is to threaten to block a debt limit increase.”

    Tell me again what spending the President can do without Congressional authorization. I can’t seem to find that in the Constitution.

    And just as an exercise, tell me how the United States isn’t the same as Greece regarding deficits and debt. I know you know this, but you “accidentally” left it out of your post.

    • Honeyboy – although you are of course correct for annual appropriations bills, the items on auto pilot, such as SS, Medicare, and Medicaid are the 800 pound spending gorillas and they WILL continue apace without any further action by Congress. These are the so-called mandatory items. Worse, the President can frustrate the traditional will of Congress on these items because he can veto any bill to change the reckless status-quo, which means serious change will need a 2/3rd majority to happen over the President’s will.

      • “…which means serious change will need a 2/3rd majority to happen over the President’s will…”

        Nonsense. “Serious change” — by which I take it you refer to substantial cuts in safety net programs — merely requires a GOP presidential victory coupled with control of congress. The Republican Party is perfectly free to campaign on such a program. Good luck with that.

  11. Pingback: The Politics of the Platinum Coin - NYTimes.com

  12. I don’t see how refusing to vote for the debt ceiling and demanding someone else does it instead is at all responsible. It might be a political solution for the GOP, though a good Democratic message (ha!) would be “these guys won’t even vote to pay their own bills, so we had to do it for them,” could pretty effectively counter any GOP claims not to raise the ceiling.

    And of course, there’s no strategic reason Democrats would agree to provide the majority of the votes in the House. If Boehner brings it to the floor, even thinking he has a deal to deliver 30 GOP votes and Pelosi will do the rest, it’s in House Democrats’ strategic interest to reneg on that deal and make Boehner look as he did when Plan B failed.

  13. This is a sensible plan though i have a lot to disagree with what you wrote.

    1. GOP is not a fiscally conservative party: Of the $16T debt, the first $1T came in the pre-reagan era. Of the remaining $15T, the policies of the GOP presidents have costed $10T. While it might shock you, even in this year’s budget, you will see fingerprint of GW Bush spending. For eg: Medicare Part D spending – which was not paid for, is an expense that this year, next and every year going forward has to pay with ZERO offsetting revenues. Thanks GW Bush and GOP

    2. Pres Obama has always been clear. He started the negotiations with $1.6T revenue, $1T in additional tax cuts over and above implementation of $1.5T budget cut act in 2011. This deal is sweeter than the Simpson-Bowles commission report. So, it is the GOP that speaks spending cuts but doesn’t specify them

    3. Obama has been clear that future deals has to have equal part revenue and cuts. So, brace for a fight there.

    I would personally be happy with SS Tax going upto $450K from current $106K limit; chained CPI; Medicare Part D being allowed negotiating power; federal govt reducing 2% headcount and 20% contractors by 2015; sequester cuts being propotianate over 10 years rather than equal every year; reduction in overseas military bases (why do we need bases in Germany anymore?); elimination of the debt ceiling as a starting point of the reforms.

  14. Pingback: Old Click » The Politics of the Platinum Coin

  15. It is a great idea in theory. Since traditionally the debt ceiling debate has been used to embarrass the president’s party, it makes sense that his party should be made to do the heavy lifting to get the bill passed. But, practically speaking, there is no way that Boehner would be able to pull it off. Here’s why:

    1) Did you see how “Plan B” turned out? Republicans have shown that they are unwilling to make personally distasteful votes that help their own party; there is no way they will make a personally distasteful vote to help out the Democrats.

    2) Related to #1, there is no evidence that Boehner has enough control over his party to deliver 50 votes.

    3) And who will the lucky 50 Republican House members who get to vote for the debt ceiling be? Just getting the 50 votes is a huge exercise in game theory. Even if the overall strategy is sound, no Republican House member wants to be the one who votes for the debt ceiling increase. At least if every other Republican House member does it, there is some safety in the fact that “everyone did it”, but if you are one of only 50 who voted “aye”… well, I’d love to be that House member’s next primary opponent. And then to have the opportunity to do it again and again…

    4) There is also the “majority of the majority” rule. Boehner caught some slack for waiving it in the last impasse; Dennis Hastert already spoke out against it. If he broke the rule every three months, it would become meaningless.

    Bottom line, I think there are some challenges in the execution. Boehner would have to become a good cat herder to get it to work, and there is no evidence that he is.

  16. Pingback: USW Blog » Blog Archive » Republicans Hilariously Floundering, Trying To Avoid Debt Limit Debacle

  17. Pingback: Old Click » How To Lose At American Politics

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