The Debt Ceiling: Beware of Bogus Spending Cut Deals

Written by Keith's Blog For Freedom & Prosperity on July 08, 2011, 05:51 PM

This week we learned that the United States has hit its national debt limit. Republicans are demanding spending cuts before any agreement to raise the debt ceiling.

Like a credit card holder running up the charges, out-of-control Federal spending put us on a collision course with the debt limit – a whopping $14.294 trillion. The last increase in the limit was the result of a spending binge that saw a 60% increase in the debt between 2007 and 2010, from $8.7 trillion to $14 trillion. Unlike a credit card holder, who must pay down debt once his or her limit is reached, the Federal government has routinely rejected the option of cutting spending.

Congress and the Obama Administration need to make a dramatic shift in direction. Treasury Secretary Geithner has voiced, however, his preference for unrestricted spending (i.e., a “clean vote” on raising the debt limit) and has warned that failing to increase the debt limit will result in the United States defaulting on its debt obligations.

No one wants to see the United States default. Such a default would seriously damage the United States’ credibility and drive up interest rates. Recently, administration officials suggested that without a debt-limit increase, a default could occur by August 2.

Despite Secretary Geithner’s call for a “clean vote,” successive administrations and Congresses have demonstrated that our rulers cannot be trusted with an unrestricted increase in the debt limit.

As deals begin to form on spending cuts and raising the limit, a warning: the history of promised spending cuts warrants skepticism. In 1982, Democrats insisted that President Reagan raise taxes as part of a deal to cut spending. For every dollar in tax increases, Democrats agreed that they would cut spending by three dollars. The spending cuts never happened. The same thing occurred when President Bush the first, in 1990, infamously broke his “no new taxes” pledge and agreed to a deal to raise taxes if the Democrats cut spending. Again, the spending cuts never happened.

Any increase in the debt limit must include a path that takes us back from the cliff. That means real, not illusionary cuts, in budget outlays for the current fiscal year (yes, more cuts than the alleged $38 billion agreed to weeks ago), and cuts for fiscal years for which this Congress bears responsibility (2012 and 2013).

In addition, there must be debt-limiting mechanisms enforceable in future years. For starters, Congress must pass a balanced budget amendment. What will not work are plans that Congress can easily circumvent, such as the Gramm-Rudman framework of the 80s and 90s or today’s so-called Pay-Go rules that are constantly set aside.

Our elected leaders must make the hard decisions over the next several months to cut spending. Congress needs to act deliberately to ensure the continued solvency of the United States, and to protect future generations from free-falling standards of living that an unchecked spending and debt binge will produce.