Wednesday, July 13, 2011

End The Insanity—Repeal The Public Debt Limit

Loyal reader, you know that over the years of my mavenhood I have written repeatedly about the dangers of our national addiction to deficit spending. Also, I have explained that the actual debt of the United States Government is created by the tax and appropriation legislation that the Congress enacts and the President signs. Further, the “public debt limit” contained in section 3101(b) of title 31 of the United States Code is a limit on the amount of securities that the Secretary of the Treasury can issue in borrowing funds to pay the obligations of the government. It is not a limit on the actual debt.

Unless you have been in a Rip Van Winkle nap for the past six months you know that we are going through a public debt limit crisis. The Republican majority in the House of Representatives is refusing to raise the limit on borrowing unless the President agrees to its demands for severe spending cuts. This has forced the Secretary of the Treasury to do some artful dodging to make sure that the obligations of the United States are paid when they come due. However, the Secretary has indicated that after August 2, 2011, he will run out of other options and will be unable to pay some of the government’s obligations. In other words, the United States will be forced to default on the debt it owes.

This is the third major public debt limit crisis I can remember. The first two occurred during my previous career as an attorney for the Federal Government. During the second of these, in 1995, I spent many weeks monitoring the operations of the Treasury Department to assure that the Secretary did not violate the statutory borrowing limit. Although it was fun, this second crisis convinced me that the whole thing was madness. These debt limit crises are created by the Congress and political leaders in the Congress use them to try to force their opponents to agree to changes they don’t want. Everybody assumes that eventually somebody will blink and the crisis will be resolved. No responsible person really wants to see what would happen if the United States actually defaulted.

I assume that there was a time when the “public debt limit” made sense. For most of its existence the United States Government lived within its means. Revenues resulting from customs and other excise taxes and land sales were adequate to cover the normal costs of government. It was only during exceptional periods like wars that the government needed to rely on borrowing to cover its costs. During those times, the Congress exercised its exclusive constitutional power to borrow on the credit of the United States by granting to the Secretary of the Treasury authority to borrow by issuing securities. It was reasonable to limit the amount of securities to be issued by the Secretary to an amount commensurate with the anticipated deficits.

It is only during the last forty to fifty years that operation of the government on a deficit basis has become the norm rather than an occasional practice. Because of the unwillingness of the Congress and the President to make the politically tough decisions to either reduce spending to meet our revenue or increase revenue to meet our spending there have been very few years during this time when the federal budget was balanced or had a surplus. The result of this out-of-control spending spree is that the amount owed by the United States Government has increased from about 3/10 of a trillion dollars in 1965 to over 13 trillion dollars today. During this entire period, the Congress has had to repeatedly increase the “public debt ceiling” to match the amount of debt it has already authorized by appropriating more funds than were taken in by taxes.

Trusted reader, the “public debt ceiling” makes no sense in a time of perpetual deficit government. The debt of the United States is controlled by the appropriation and tax legislation that the Congress has enacted with the President’s approval. The statutory limit changes nothing. Technically it is merely a formality because the Congress has already authorized an increase in our national debt. The borrowing limit serves no purpose other than allowing hypocrites in the Congress to play the “debt crisis game.”

The Republican leadership in the Congress is portraying itself as being fiscally responsible by resisting the required increase in the statutory “public debt ceiling.” However, these leaders know that the borrowing ceiling has no effect on the actual national debt. They know that they agreed to a national debt far in excess of the current “public debt ceiling” when they voted to extend the Bush Administration tax cuts and to fund the government for the rest of fiscal year 2011 six months ago. If they really cared about the national debt, they could have done something about it back then. Instead, they have tried to hold the government hostage for the past four months by threatening to allow the government to go belly up if they don’t get their way over spending cuts. All but the craziest of them are responsible enough to know that they would never actually allow government default. It is only the statutory “public debt ceiling” that allows them to play this game.

The statutory borrowing authority really serves no purpose. It also gets us into these crazy crises on a too frequent basis. It is time to repeal the “public debt ceiling.” Section 3101(b) of title 31, United States Code, should be amended to provide that the Secretary of the Treasury may issue public debt securities in an amount necessary to pay all the obligations of the government. We need to free ourselves from the insanity of debt crises.

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