Our Final Debt Ceiling Offer Is This: Nothing

Congress should not be bargaining over the debt ceiling.

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House Speaker John Boehner gets a failing grade in history for his recent claim that "every major deficit reduction plan over the last 30 years has been tied to the debt limit." Moreover, as the Center on Budget and Policy Priorities' president Robert Greenstein has written, this year's debt limit fight is frighteningly different from past ones, with potentially catastrophic consequences depending on how it plays out.     

Just to be clear, the debt limit fight is over whether Congress will pass legislation that allows the federal government to pay the bills it has already incurred as a result of past budget decisions. It's distinct from the other big budget fight of the moment, which is over whether Congress will pass legislation authorizing the government to spend money in the fiscal year that begins Monday. 

Congress's failure to provide funding going forward shuts downs agencies and programs and could damage the economic recovery. Congress's failure to let Treasury pay the bills that are now coming due – which is the practical meaning of default – would rock financial markets and cause irreversible damage to the country's credit rating, and it could completely derail the recovery.

[ See a collection of political cartoons on Congress.]

We've seen government shutdowns before, but we've never seen an intentional default on the nation's financial obligations. That's because the consequences of default are so dire, that, contrary to Boehner's assertion, we've never seen lawmakers use the debt limit as a bargaining chip in budget negotiations until the tea party era. 

Here are the facts, as reported by my CBPP colleague and budget expert Richard Kogan.  First, since President Reagan took office, Congress has enacted 45 different pieces of legislation to raise the debt limit. The vast majority of them were not connected to major budget deals.

Boehner mentioned seven debt limit increases in the fact sheet that he issued to support his claim that linking budget deals to debt ceiling increases is routine. But only the 1997 Balanced Budget Act both received bipartisan support and included significant deficit reduction. And subsequent congresses largely undid it by abandoning discretionary spending caps in 2001 and 2002 and enacting tax cuts in 2001 that violated the 1997 agreement's pay-as-you-go rules requiring that policymakers offset the costs of specific tax cuts or entitlement increases with other compensating tax increases or entitlement cuts.

[ See a collection of political cartoons on the budget and deficit.]

Second, policymakers have enacted 14 deficit reduction packages starting in the Reagan era. Eleven were bipartisan to some degree because the same party didn't control the House, Senate and presidency. Only four of the 11 included debt limit increases. In the four bipartisan deficit reduction packages that also raised the debt limit, the deficit reduction provisions were negotiated first and then the debt limit increases were attached.

In other words, as Kogan states:

[T]he evidence shows that Congress hasn't used the debt limit to extort presidential concessions in a deficit-reduction package. Rather, it was the debt limit that hitched a ride on a bipartisan deficit agreement.

[ See a collection of political cartoons on the economy.]

As Greenstein says, however, this time is different. In the past, lawmakers have tried to attach unrelated proposals to debt-ceiling legislation that they knew Congress would ultimately pass because a default was unthinkable. Now, however, House Republicans are trying to make default look manageable by proposing exemptions for interest and Social Security payments and trying to portray bargaining over whether to raise the debt ceiling as just business-as-usual politics. 

Allowing borrowing to fund some government expenses does not change the fact that there won't be enough funds to pay everyone with a legitimate claim, including veterans, doctors and hospitals who treat Medicare patients, soldiers, state and local governments, private contractors, and recipients of unemployment insurance, the Supplemental Nutrition Assistance Program and Supplemental Security Income. 

That's default, and if the immediate shock to financial markets is not enough to derail the recovery, then the sheer magnitude and arbitrariness of the spending cuts required to keep spending to a level that revenue flows could support in a prolonged impasse surely would.

Chad Stone is chief economist at the Center on Budget and Policy Priorities.