It hasn’t gotten much attention, but two big budget showdowns are looming in Washington in the weeks ahead. The first is what to do about raising the $18 trillion debt ceiling. And the second is whether to retain the spending caps/sequester cuts in the 2016 budget. Treasury Secretary Jack Lew announced last week that Congress will bump up against the debt ceiling in November.
These fights take on special salience now because voters are rightfully angry about the fiscal mismanagement in Washington over the past several years. In 2015 the U.S. government ran up one of the largest budget deficits in history — borrowing more than $1 billion a day seven days a week and twice on Sunday.
President Obama has made his demands clear. He wants to bust the spending caps this year and he wants a debt ceiling extension from Congress with no strings attached. Outgoing House Speaker John Boehner says he will “clean the stables” on this issue before he leaves office, and some are interpreting this as a sign that he will avoid a conflict and agree to Mr. Obama’s demands.
If Republicans don’t get this right, it could so demoralize conservatives that it would doom their chances of winning the White House in 2016 no matter who the candidate is.
So here is a two-step process for victory. First, on the budget law, the GOP must, must, must not allow Mr. Obama and big spenders in both parties in Congress to blow through the spending caps or cancel the sequester. If Republicans can’t even hold to their own self-imposed budget constraints the first year they have control of both houses of Congress, why would any voter believe that they will get serious about budget control later? I sure wouldn’t. Capitulating now could add up to $1 trillion in new spending over the next decade. The only condition for raising the caps is if Mr. Obama agrees to a dollar for dollar level of entitlement spending cuts, which alas, is highly unlikely.
The debt ceiling is trickier. House Speaker John Boehner says he wants to get this raised by the time he leaves, but this may mean merely agreeing to a no-conditions $1 or $2 trillion debt hike to get us past the election.
Some on the left argue that we should not even have a federal debt ceiling — that the government should have a rubber stamp to borrow at will. For the big spenders in both parties, this would conveniently eliminate one of the last checks and balances against runaway spending.
So the answer is no. Fiscal conservatives should demand reasonable conditions to reduce future borrowing in the future.
The debt limit is a time for fiscal reckoning — a way to hit the pause button on Washington and for lawmakers to figure out how they can discipline themselves in the years to come. It’s a blunt tool, but it’s about the only one left in Washington. It helped implement the Gramm-Rudman spending cuts in the 1980s and then the budget caps and sequester in 2011 — two of the few useful restraints on government in recent decades.
As Congress faces this latest presidential request for a huge increase in debt, it is worth pointing out two fiscal facts. First, the 2015 fiscal year, the U.S. government collected more tax revenue than any government in history, an incredible $3.3 trillion. That’s 18.5 percent of national output going to Uncle Sam, above the 40-year average even though the economy is running well below average. The government’s cash inflow is clearly not the problem here, the outflow is the problem.
Second, the debt has already grown by $7 trillion under Mr. Obama.
David Malpass, the respected New York-based economist at Encima Global, and I have drafted a plan that would provide reasonable restraints this time around. Currently the publicly held debt to GDP ratio stands at a 74 percent of annual GDP. It is expected to drift up to closer to 100 percent of GDP over the next 24 years. That’s a danger zone for sure.
The Malpass/Moore plan would move the debt in the opposite direction. It would require Congress to reduce the debt to GDP ratio by one percentage point per year for the next 24 years to get our debt burden down to 50 percent — a safe zone. This would reduce deficit spending by trillions of dollars over the next two decades. See chart.
To enforce this target, an automatic sequester cut to all programs other than Social Security would be triggered whenever the publicly held debt-to-GDP limit comes in above the target. A three-fifths vote of both houses of Congress would needed to modify the reductions.
Because this target is tied to economic performance, it would give Congress and the White House an incentive to grow the economy with job-creating tax reforms and so on. If GDP grows faster, federal spending could rise faster.
What if Mr. Obama refuses to go along with these new budget rules? We are not recommending a government shutdown. Conservatives should simply push this debt cap formula as a condition for their votes to raise the debt ceiling. If team Obama/Pelosi/Reid say no, Republicans should place the responsibility for raising the debt limit squarely on the shoulders of the president and House and Senate Democrats. Just a handful of moderate Republicans would vote for a temporary increase to supply the necessary votes.
Every three months, this process should be repeated until the Democrats agree on a new debt limit law that restrains spending or they have to explain to voters why they have voted repeatedly to raise the debt. The presidential candidates in both parties should weigh in too. At the very least, this will raise the political visibility of our debt crisis in Washington.
The White House and many on Wall Street, who care only about their own profits, will whine that this is fiscally irresponsible. Actually, borrowing $500 billion to $1 trillion a year is what is dangerous and irresponsible. If Republicans won’t fix the borrowing behavior of a runaway government, they are enablers and deserve at least half the blame.
• Stephen Moore is an economic consultant with Freedom Works and a Fox News contributor.