The Mielke Way: What is the Most Important Priority for Congress?
Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University
Congress returned to Washington on September 5th. They have just 12 days scheduled to be in session during the month—a month filled with work to be accomplished by September 30th. The list of must-dos include passing a budget for next year that starts October 1st, raising the debt ceiling which already hit the maximum in March, renewing the national flood insurance law that expires September 30, renewing the “Children’s’ Health Insurance Program, or CHIP, that also expires September 30, determining whether or not to continue payments to insurance companies to subsidize Obamacare before the September 27th deadline for insurance companies to finalize rates for next year and to begin discussions on tax reform. You probably can throw in flood relief for Texas and Louisiana as a result of the hurricane. All this to do and only 12 days to do it. It seems unlikely that Congress can accomplish all of these must-dos in 12 days, so what should be first priority? Many would point to raising the debt ceiling because without an increase there is the threat of a government shutdown and even the possibility of defaulting on government debt payments and other obligations. It is important to note that the government will still be collecting tax receipts and therefore, unlike the scare tactics being promoted, have the money to pay the most important bills such as social security and veterans’ benefits. But what are the options available to raise the debt ceiling? Will the ceiling be complicated by tying it to the budget for next year? Will special deals be tacked on to raising it? What is the “Right Thing to do?” Let’s look at some issues:
- The Treasury Department is permitted to borrow funds needed to pay for government operations up to the debt ceiling. The debt results from the government spending more than it receives in tax and other revenues. The current debt ceiling is $19.84 trillion reached in March. Since then, the Treasury Department has been employing cash management measures to maintain the limit.
- The federal debt has doubled since 2008 to about 77% of GDP. The CBO has forecasted that the debt will continue to increase hitting 150% of GDP in 2047. Social Security, Medicare and Medicaid are the biggest drivers of higher government spending. The higher the debt, the higher the interest cost and bigger impact on the federal budget.
- The current debt ceiling amount was not specifically set, but rather was a function of suspending the debt ceiling on October 30, 2015 to March 2017. Suspension of the debt ceiling occurred for the first time in February 2013 until May 2013, again in October until February 2014, suspended then until March 2015 and finally in October 2015 to March 2017. As an option, Congress could once again suspend the debt ceiling for a period of time, without setting a specific dollar amount.
- In the past, conservative Republicans have sought to pair increases in the borrowing limit with spending cuts. This was done in 2011 when the Obama Administration and Congress reached a deal to cut $2.4 trillion in spending and raise the debt ceiling by $2.4 trillion. Some Republicans have even argued against raising the debt limit at all, but instead just cut spending.
- Another possibility is to include special deals tied to an increase in the debt ceiling or tie the debt ceiling to other legislation. The President has said he wants funding for the wall on the Mexican border. Democrats, reluctant to support the administration, might not agree to any increase without getting something in return. Some are saying that tying the debt ceiling to providing aid for Hurricane Harvey would assure passage. Others have concerns that the impending fight over next year’s budget might entangle the two.
- US Treasury Secretary Mnuchin wants a clean increase in the debt ceiling, that is, to raise the ceiling by a specific amount without any strings attached. Both Paul Ryan and Mitch McConnell have promised that the ceiling will be raised and that it will be a clean deal.
- In January 2013, a survey of 38 highly regarded economists found that 84% agreed that, since Congress already approves spending and taxation, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and should be eliminated entirely. We don’t need a debt ceiling.
- Threats of a shutdown of the government resulting from not raising the ceiling are already creeping into the financial markets. Fitch Ratings said a failure to raise the debt limit in a timely manner would prompt a review of the country’s AAA credit rating. S&P removed the US’s AAA rating in 2011 when the government shutdown for a short period of time. Forecasters in a WSJ survey of economists saw on average a 22% chance of the government shutting down and a 17% chance that the US Treasury, at least temporarily, skip making payments on its obligations.
Will Congress pass an increase in the debt ceiling or will there be at least a temporary government shutdown? Will it be a clean deal? Will the Democrats tack on a special deal to agree to an increase? Will some Republicans demand cuts in spending? Will the legislation be attached to other legislation, such as hurricane relief? Will Congress kick the can down the road and merely suspend the ceiling for a period of time without setting a specific dollar amount? Should we even have a debt ceiling? What is the “Right Thing to do?” At worst, any increase in the debt ceiling should be a clean deal, setting a dollar amount. It is a mistake to add other conditions that would otherwise not pass in Congress by themselves. Any hurricane relief bill should stand on its own merits as should any debt ceiling legislation. Merely suspending the date kicks the can down the road. However, the best option is to eliminate the need for a debt ceiling all together. Congress already sets the budget and is certainly aware of the possible impact on the debt. Congress always eventually increases it anyhow so why have the drama associated with a possible shutdown? Congress has little time to get a lot done in September, the debt ceiling is first priority, it can be done in a few hours, eliminate the ceiling and get on to other priorities.