4 Ways to Fix the Debt Limit – Forever

How to end the hostage-taking on the federal budget.

In an all-too-familiar saga, the White House and the GOP reached an eleventh-hour deal this week to raise the debt ceiling – again. The agreement came just days before a threatened default on November 3 and, if passed, would set the federal budget through spring of 2017.

Hardline conservatives have justified these repeated bouts of brinksmanship under the guise of “fiscal responsibility.” As House Freedom Caucus co-founder Rep. Mick Mulvaney (R-S.C.) told The Hill, “The whole purpose to have a debt ceiling is to sit back and use it as an opportunity to figure out why you’re borrowing so much money.”

So it’s notable that among true budget hawks – fiscal policy experts who’ve championed reform for decades – this repeated hostage-taking on the debt limit is dismaying. In fact, many of the nation’s most respected budget and fiscal policy experts now want dramatic reforms to the debt limit – or to abolish it altogether.

“It’s a dangerous and hypocritical move to play games with the nation’s creditworthiness in the name of ‘fiscal responsibility,'” said Phil LaRue of the Concord Coalition, which has called for budget reform since the early 1990s.

Even the ultra-hawkish Committee for a Responsible Federal Budget (CRFB) has had enough. In a March 2015 report calling for debt limit reform, the group pronounced that “the current debt limit is perhaps too blunt and too dangerous a tool.”

The implications of this consensus are clear: Far from fiscally responsible, the Freedom Caucus’ tactics around the debt limit are in fact the height of fiscal recklessness.

While Congress has so far managed to avoid the catastrophe of a true default, every near-default has roiled the financial markets and jeopardized the nation’s economic stability – while at the same time failing to bring the nation any closer to long-term budgetary and fiscal reform.

One advantage of the latest budget agreement is that it gives Congress a slightly longer window to ponder how it can avoid déjà vu all over again on the debt. Here are a few of the options for reform that fiscal experts have proposed:

Eliminate stand-alone votes on the debt limit.

One reason the debt limit has been so easy to “weaponize” is that the votes to raise the limit occur in a vacuum – disassociated from the legislation where spending decisions are actually made. The vote “lacks any direct ties to spending and tax decisions or fiscal goals,” says the CRFB. By itself, the debt limit appears to be an impossibly large number – and irresistibly easy to politicize.

As former GOP presidential adviser Bruce Bartlett argued in the New York Times, “It is nothing but grandstanding for members of both parties to vote routinely for legislation that they know will create deficits and then profess shock and horror that the debt limit must be increased as a consequence.”

To make the debt limit more meaningful, some experts have proposed tying an increase in the debt limit to relevant fiscal legislation. For example, CRFB, among others, has proposed restoring the so-called “Gephardt Rule,” which was how Congress used to handle the debt limit until 2010. Under the Gephardt Rule, legislation to raise the debt limit was linked to the budget and deemed to automatically pass when a budget was approved. This rule not only eliminated a separate – and politically charged – vote on the debt limit, it took the debt limit figure out of abstraction and grounded it in fiscal reality.

Let the debt ceiling grow with the economy.

When Congress first imposed a debt limit in 1917, its intent was to limit the amount the Treasury could spend to finance America’s entry into World War I, not control overall government spending. While the authority granted to the Treasury has expanded over time, the basic structure of the debt limit hasn’t changed since 1940.

As a result, the debt limit is both arbitrary and static. It doesn’t take into account inflation or economic growth, and it has no relevance to the nation’s economic output or circumstances.

Many experts argue that the debt limit could be a more meaningful tool for fiscal discipline if it were “indexed” to an economic measure such as gross domestic product (GDP). Congress could, for example, set a “cap” on the debt-to-GDP ratio and allow the debt ceiling to grow along with the economy. So long as the share of debt stayed below the cap, the debt limit would increase automatically without Congressional action. And if the share of debt grew too large, Congress would be forced into action – either to increase the ceiling or limit spending.

Shift responsibility to the President.

In the summer of 2011, Congress enacted a temporary provision, known as the “McConnell Provision,” allowing Congress to disapprove debt limit increases requested by the President.

Under the McConnell Provision, the President managed the responsibility for the debt ceiling, while Congress reserved the right to say no. An extension of the McConnell Provision is the approach favored by the Obama Administration, and some experts have proposed variations that allow the President to suspend the debt limit if Congressionally-mandated fiscal goals are met. One advantage of this approach is that Congress would no longer be required to proactively increase the debt limit. As a consequence, the likelihood of a showdown drops significantly.

Get rid of it altogether.

A growing number of experts, such as former presidential adviser Bartlett, have proposed doing away with the debt limit altogether.

Such a move would not be without precedent. According to the Bipartisan Policy Center, Australia eliminated its debt limit in 2013 and replaced it with broader reforms to increase reporting and transparency.

Given how tainted the debt limit has become, it may in fact be impossible to reform it into a meaningful tool for budget discipline. But while this might be the most sensible option, it’s also the least likely – absent significant other reforms that present a more attractive alternative.

Nevertheless, the latest debacle over the debt limit shows that the drawbacks of this mechanism far outweigh any theoretical benefits. And if the members of the Freedom Caucus are sincere in their intentions for fiscal discipline, they should heed the growing chorus to end the debt limit debate once and for all.

Anne Kim

Anne Kim is Senior Writer at the Washington Monthly.