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A battle royal is brewing between the Republican-controlled House of Representatives and the Obama administration over increasing the debt ceiling. The House recently rejected a “clean” bill to raise the debt ceiling that did not include any spending reforms. With the economy lagging and voters rejecting the notion of spending our way to prosperity, the debate over spending is now front and center on the domestic policy agenda. Unfortunately, Democrats have failed to address the issue. While voting for massive stimulus spending and federal bailouts, they have failed to pass a budget for more than two years.
The administration claims that if the debt ceiling is not raised, the United States will ignite a crisis in global markets and may not be able to meet its payment obligations, causing a further downturn in the American economy. But it is not evident that voting to increase our indebtedness to record highs benefits the economy or ingratiates the United States with investors around the globe. Many are already are starting to question the U.S. government's borrowing levels, including Standard and Poor's, which recently downgraded its outlook on the U.S. economy to “negative.” More fundamentally, the debt ceiling is emblematic of a much larger problem that does worry investors: excessive government spending at levels that are unsustainable and threaten the nation‟s economic performance.
The vote on the debt ceiling can no longer be viewed simply as a piece of pro forma housekeeping by Congress, as was the case so often in the past. Instead, Congress must seize this opportunity to fundamentally reform the federal government's spending policies in order to restore fiscal balance. Congress should not even consider raising the debt ceiling without immediate and significant spending cuts, new institutional constraints to restrain spending, and a plan to address entitlement spending.
Federal Budget Deficits/Surpluses 1901-2010
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