What Republicans should demand in exchange for raising the debt ceiling

After a Trump-era bipartisan compromise expired at the end of July, the debt ceiling snapped back into force, potentially restricting the Treasury’s ability to pay expenses, including debt service on its outstanding bonds. While Treasury is using “extraordinary measures” to avoid a bond default and make timely payments to employees, contractors, grantees, and beneficiaries, it is likely to run out of options in October, raising the possibility of a payment crisis which could have serious implications for the global financial system.

Congressional Democrats could pass a debt ceiling increase or extension without Republican votes if they remain unified. However, party leadership has thus far expressed the view that Republicans should lend their votes to such a measure and should do so without any conditions. Thus far Republicans have not shown a willingness to cooperate.

It is reasonable for Republicans to demand some type of fiscal reform in exchange for their support. If they are going to support a debt ceiling increase, the GOP should at least demand reform that has a realistic prospect of improving the broken Congressional budget process and slowing the rapid accumulation of federal debt obligations now being imposed on future Americans.

While Democrats are correct to point out that Republicans piled up debt during the Trump years and that they provided no-strings-attached support for debt ceiling relief during their time in the Congressional minority, these facts do not oblige Republicans to unconditionally cooperate in 2021.

Republicans are supposedly the party of leaner, more fiscally sustainable government. The fact that the GOP failed to live up to this reputation under Trump (or under previous administrations) does not mean it is too late for congressional Republicans to become actual fiscal conservatives. In this era, if anyone beyond Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) are going to be guardians of the public purse, it will have to be Republicans, irrespective of their checkered past.

Further, if Congress is always expected to pass “clean” debt ceiling increases, what is the purpose of having a debt ceiling at all? It is worth noting that before the debt ceiling, Congress had to approve every single new Treasury bond offering. This was seen as part of Congress’s job of controlling government finance. In the modern era, setting conditions on a debt ceiling increase should be seen as a reasonable use of Congressional authority.

The last time a Republican seriously attempted to hold the debt ceiling hostage, the reaction was negative. In 2014, Sen. Ted Cruz (R-Texas) filibustered a debt ceiling hike, demanding an unspecified set of spending cuts to relent. Lacking sufficient support from fellow Republicans, his filibuster was not successful.

Today, there is little support for spending cuts: The main debate is over how much more to spend.

A more realistic alternative could be to demand process reform. The Congressional budget process, which was developed in the 1920s and refined in the 1970s, has clearly broken down. Annual budgets are almost never completed on time, and, as a result, we have recurring threats of government shutdowns as parties battle over the terms of continuing resolutions. At the end of this month, we will once again need a continuing resolution in addition to a debt ceiling bump.

The time has come to once again update our budget processes to fit today’s realities. Last year, the National Academy of Public Administration (NAPA) offered several reform proposals worth considering. One of NAPA’s suggestions is for the federal government to adopt a longer budget cycle such as the biennial budgeting now used in 16 states. Instead of passing (or failing to pass) a budget each year, Congress would get two years to do so. This would give committees more time to thoroughly review departmental budget proposals, potentially identifying and rooting out wasteful, redundant, and obsolete programs.

Each biennial budget could come with a debt ceiling increase sufficient to accommodate new deficits expected during the budget period. With the extra time, Congress could modify its rules to more aggressively enforce deadlines and address tardiness. Two ideas worth considering are suspending Congressional salaries and perks when a budget step is not completed on time, and automatically continuing all programs at 95 percent of their current spending level when a budget is not in place by the start of the fiscal year. A temporary 5 percent cut should be enough to motivate action without the disruption now caused by partial government shutdowns.

The biennial budgeting concept also appeared in S.2765 (2019), the Bipartisan Congressional Budget Reform Bill proposed the late Sen. Mike Enzi (R-Wyo.) and Sen. Sheldon Whitehouse (D-R.I.). That bill would have also implemented debt-to-GDP targeting, which could constrain future deficits, but did not advance beyond the Senate Budget Committee.

Of course, biennial budgeting and other process reforms cannot be fully fleshed out and debated in the current moment. To avoid a potential default, Congress will have to take action on the debt ceiling this fall — and it already has a loaded calendar. A more feasible alternative is to suspend the debt ceiling until March 2023, and in the interim, impanel a bipartisan commission to propose a new federal budget process. In March 2023, a new Congress should have the opportunity to vote yea or nay on the commission’s full proposal without amendments.

This approach is similar to the Simpson Bowles Commission that attempted to tackle the long-term federal debt back in 2010. Although Congress rejected the Simpson Bowles recommendations, the commission did produce a valuable policy document that has informed subsequent debate.

In this case, the hurdle is much lower because the commission would not be asked to propose spending cuts and tax increases. It would simply be asked to create a new set of Congressional procedures from which a greater degree of fiscal sanity might emerge.

Creation of a commission to propose new budget rules with an agreed up or down vote on its recommendations in 2023 is a small price to pay for raising the debt ceiling, and one that may yield some meaningful reforms.

Marc Joffe is a policy analyst at Reason Foundation, former senior director at Moody’s Analytics, and author of the study “Unfinished Business: Despite Dodd-Frank, Credit Rating Agencies Remain the Financial System’s Weakest Link.”