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Debt Ceiling Debate: Deal or Default?

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The debt limit (aka “debt ceiling”), Treasury Secretary Jacob Lew announced Wednesday, will be reached “no later than October 17.” A new debt crisis may result after that date, as the federal treasury could have insufficient funds to pay the nation’s bills, risking government default for the first time in history.

Bill Gale says “it’s groundhog day over the debt ceiling,” a reference to the 2011 political fight in Washington over raising the debt limit. He puts the consequences of not raising the debt limit into sharp focus, because we know how much it cost last time: “The debt ceiling showdown of 2011 has been estimated to have cost taxpayers $1.3 billion for that fiscal year and $18.9 billion over 10 years.” In the end, Gale argues, “the debt ceiling should simply be raised to pay for spending that Congress has already authorized and not used as a tactic that could hurt the United States, with no apparent gains.”


Isabel Sawhill, Gary Burtless and Bill Frenzel also offered their views on the debt limit standoff. Sawhill says default could cause a depression; Burtless wonders why a sizeable percentage of American adults favor an action that would “inflict serious economic harm”; and Frenzel says a default would be “catastrophic, both to the U.S. and the world.”


In his history of the debt ceiling and recommendations for alternatives, Philip Wallach, a fellow in Governance Studies, highlights this view from another Brookings expert, Marshall Robinson:

The case against the debt ceiling is formidable. The record of recent years shows that it has:

 • Jeopardized long-run defense policy;
 • Interfered with compensatory measures during recession;
 • Hampered proper debt management policy;
 • Fostered budgetary subterfuge;
 • Increased the cost of financing the government.

The debt ceiling is a disorderly defense against government spending.

Robinson wrote these words in 1959. Wallach explains why the debt ceiling is “the wrong weapon to fight government spending” and offers a number of policy alternatives, concluding that:

There may well be other, better alternatives. But simply holding on to our peculiarly evolved debt ceiling because it is there is unlikely to lead to better results in the future than it has in the past. To take a stand for effective spending restraint, rather than merely scoring some rhetorical points, fiscal conservatives should trade in the debt ceiling for something better.


Senior Fellow Sarah Binder, an expert on congressional history and procedure, takes the view that despite a lack of any apparent policy agreement—or “zone of agreement”—between Republicans and Democrats, there are other factors that may lead to a legislative deal.

How party leaders and their rank and file come to judge the political costs of failure (here, shutting down government or defaulting on the nation’s debt) ultimately shapes the chances for a deal. To be sure, such calculations do not inexorably lead to legislative deals, as the uncertain fate of immigration reform suggests. Still, the politics of blame might prove more important than shared policy ground in guiding the parties to a debt ceiling agreement this fall.


In the summer of 2011, another debt ceiling crisis and a government spending debate that was connected to it gripped Washington. Brookings scholars wrote frequently about the intertwined issues:

• Alice Rivlin hoped that “the debt deal could provide the first three steps on the road to a sensible, sustainable federal budget and the restoration of confidence in American democracy, at home and abroad.”
• Bill Galston said that President Obama diminished his negotiating position with Republicans over federal spending levels—a crucial component of the debt limit issue—when he failed to endorse the December 2010 recommendations of his fiscal reform commission.
• Bill Gale wrote that the debt default “could have been averted much more easily” but it was still good news that a deficit reduction plan was enacted. “The bad news,” he wrote, “is that the plan imposes the full cost of deficit reduction on low- and middle-income households, gives the wealthy a free pass, and bodes poorly for future negotiations, which, like it or not, will require tax increases or draconian cuts in entitlements.”