The Debt Ceiling: An Artificial Crisis

With the deadline for raising the debt ceiling rapidly approaching, both Democrats and Republicans continue to disagree about the numbers. House Republicans have offered a short-term plan that would cut spending by about $1 trillion while raising the debt limit for a few more months by the same amount, with more cuts to follow then. Senate Democrats have a different proposal that offers spending cuts and an increase in the debt ceiling of about $2 trillion dollars each. The debate is rife with acrimony says Senior Fellow Alice Rivlin, adding that neither plan is what the nation really needs to address the long-term problem.

TRANSCRIPT

The debt ceiling showdown: an artificial crisis?

“We got into the mess of the debt ceiling because in our polarized politics the newly-elected members of the House were very intent on changing the federal budget and on trying to make the federal government smaller, and the debt ceiling seemed to be an opportunity to hold the administration and the rest of the government hostage to their particular views. So we have an artificial crisis. We don’t need to have a debt ceiling. We shouldn’t have a debt ceiling. I think we are the only country that does have a debt ceiling. But it is being used as an artificial crisis to makes changes in the budget.

“It never occurred to me over all the years that I have worked on the budget that we could be seriously contemplating the possibility of default. The idea that the United States Government would not pay its obligations seemed to me unthinkable, and still does. I expect we will get past this at the last minute, but I never imagined that we could be contemplating not paying our bond holders, or not paying our other obligations.”

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What comes after the debt ceiling crisis?

“We don’t know exactly what the short-term solution will be, but if we get past this artificial debt ceiling crisis we will not have solved the real problem. The real problem is that as we look ahead, government spending is on track to grow faster than government revenues can. That creates an increasing need to borrow. That is unsustainable, and we are going to have to take measures over time to reduce the rate of growth of entitlements (that means Medicare, and Social Security, and Medicaid), and to reduce other spending growth, and to raise revenues. We can do that by reforming the tax code which might allow us to bring the rates down and raise more revenue, but we’ve got to do it!

“Both the commissions on which I served came out with plans that did all of those things. They reduced the rate of growth of Medicare and Social Security, putting Social Security on a firm foundation for the future; they restrained the growth of discretionary spending (the annual appropriations over time, both for defense and domestic spending); but they also raised more revenues from a reformed tax system. We need to do all those things if we are going to put our budget back on a sustainable track.”