When President Biden came to the Senate in 1973, the cumulative gross debt of the U.S. was a half-a-trillion dollars, and the debt held by the public was 26.5% of gross domestic product. By the end of 2008 the federal debt held by the public was 39.2% of GDP. In the subsequent 14 years, the debt ceiling has ballooned to over $30 trillion from $10 trillion, and the debt held by the public has reached 100% of GDP. Since 2008 economic growth has slowed, government spending has exploded and for every additional dollar of income produced by the economy the federal government has borrowed an astonishing $3.16.
During the pandemic, the federal government spent more in two years than it had ever spent in three. Though the pandemic has been over for more than a year, inflation-adjusted 2023 nondefense discretionary spending is still $155 billion above the prepandemic level while real defense spending is down by $6 billion. Not surprisingly, the Treasury has notified Congress that it must raise the debt ceiling to continue spending at that level.
The proposed debt increase will take the level of publicly held federal debt significantly above GDP and put the nation in a position where, if the real interest rate on government debt exceeds the real growth rate in GDP, just paying the annual interest on the national debt will cost more than that year’s growth of all real wages, interest and profits in the American economy.
The Biden administration and the Democratic Congressional leadership admonish Republicans to do the “responsible” thing by raising the debt ceiling to continue the post-pandemic spending surge. President Biden has called Republican efforts to use the debt ceiling to rein in spending “fiscally demented.” In holding the “debt limit hostage,” Treasury Secretary Janet Yellen says Republicans could do “irreparable harm to the U.S. economy.” But at what point does not raising the debt ceiling become less irresponsible than continuing current policy and allowing the country to go broke?
Despite outcries from Democrats and the media, using the debt ceiling to try to rein in spending is hardly a new idea. Since 1985 when Sen. Biden joined a bipartisan effort to adopt Gramm-Rudman-Hollings as a rider to the debt ceiling, the debt ceiling has been raised 50 times, and riders have been adopted as part of raising the debt ceiling 48% of the time. Many of those riders, such as the 1993 Clinton tax hike, the Balanced Budget Act of 1997 and the Pelosi PAYGO Act, were offered by Democrats.
The logic of using the debt ceiling to respond to the growth in the national debt is inherently appealing to most Americans. What better time to call the family together, sit down around the kitchen table, get out the butcher knife and cut up the credit cards than when the bill collector has just knocked on the door demanding payment?
The upcoming debt-ceiling vote poses the first real test of the new but small Republican majority in the House. The Biden administration and Democrats will have little incentive to negotiate on the debt ceiling unless House Republicans are capable of passing a debt ceiling that contains reforms that the general public views as being reasonable and responsible. Simply casting an easy “no” vote on the debt ceiling will spawn a crisis that puts Democrats back in control of spending as Republicans are ultimately forced to break ranks and join the Democrats in raising the debt ceiling. Republicans can govern or protest, but if they protest, the Democrats will govern, the spending spree will continue and the debt will keep ballooning.
The challenge now for Republicans in the House is to put together 218 Republican votes to pass a debt ceiling with spending constraints that will be popular enough with the American public to force Mr. Biden and the Democrats to negotiate or acquiesce. There is a clear target for spending retrenchment that is timely, reasonable and appealing.
The Covid health emergency, like a war, enabled the government to vastly expand its power and spending. Now that the “war” is over, government resists receding to its pre-pandemic level. The debt-limit amendment should not only claw back unspent funds from the $6 trillion pandemic spending orgy, which would save $255 billion in 2023-24 alone, it should legislatively end the pandemic emergency and guarantee that all executive and administrative orders issued under powers derived from the emergency declaration be lifted and all emergency spending be ended. All emergency declarations in the future that produce $100 billion or more of federal outlays should be made subject to congressional approval.
By repeatedly extending the pandemic emergency every 90 days, the Biden administration has expanded the number of households eligible for food stamps and dramatically increased average benefits, more than doubling food-stamp spending. The administration has used the Covid emergency to add 20 million people to the Medicaid and State Children’s Health Insurance Program rolls, sending costs up by $135 billion. The administrative deadline for the moratorium on student-debt payments has been extended eight times, at a cost approaching $275 billion. The pandemic emergency declaration was even used to justify the outright forgiveness of $400 billion of outstanding student loans. Even in the midst of a critical labor shortage, work requirements as a condition for receiving welfare benefits remain suspended for a third year, adding to inflationary pressures in the economy. No president should ever again have such unilateral powers of the purse.
Most of the claimed future savings contained in previous debt-ceiling amendments have failed to materialize. By way of comparison with past efforts to use the debt ceiling to control spending, these savings are not promised as a result of process reform that may produce spending reductions in the sweet by and by. Officially ending the pandemic emergency, clawing back unspent emergency funds and eliminating eligibility expansions that were part of the pandemic will save money in the here and now.
Mr. Gramm is a former chairman of the Senate Banking Committee and a nonresident senior fellow at American Enterprise Institute. Mr. Solon is a partner of US Policy Metrics.