After eight years in office, President Obama left the nation a legacy of debt and deficits. The budget deficit he left for 2017, projected to exceed a half trillion dollars, nearly triples over the ensuing decade. Looking even further ahead, the Congressional Budget Office projects the debt-to-GDP ratio will surpass 100% in less than 20 years. Such an outcome would likely bring substantially higher interest rates, fewer job prospects, and slower economic growth. It would also raise the likelihood of a dangerous fiscal crisis.
This fiscal outlook must be addressed sooner rather than later. Policymakers, however, should not confuse vigilance against fiscal excess with an increase in the debt limit. For some reason a part of the Congress insists on conflating these two issues, but they could not be more different.
Although the debt limit has been increased around 100 times since Congress began voting on it, routine votes to raise the limit have become particularly contentious in the past few years. They shouldn’t be.
In the fiscal year 2017 budget resolution, which passed in January, Congress voted to enact a blueprint calling for a large budget deficit in 2017 and therefore a large issuance of additional debt. When Congress considers its fiscal year 2018 budget resolution in the coming months, it will almost certainly include substantial budget deficits over the next decade and thus large additional issuance of federal debt. Implicit in these budget resolutions passed by this Congress will be a call to raise or suspend the debt limit—probably repeatedly. Having clearly voted to raise the debt ceiling implicitly, Congress should do as it intended—raise the debt ceiling explicitly.
Congress has, in the past, used the timing of the debt limit to review fiscal policy, reconsider the congressional budget process, and revisit other budget matters as appropriate. It would certainly be reasonable for Congress to do so again. Yet, ultimately, it should address the debt ceiling properly and in a timely manner, consistent with the actions it had already set in motion through the earlier budget resolutions.
Failure to raise the debt limit would truly be a wasted opportunity. The pace of GDP growth appears poised to accelerate, business confidence is improving, and the stock market continues to break new records. With these positive developments, it is important not to add unnecessary uncertainty and harm to the economy. As a result of the Bipartisan Budget Act of 2015, the debt limit was suspended until the middle of March 2017. The Treasury Department can postpone default through its use of “extraordinary measures” until this fall, but action will have to be taken eventually.
President Trump has an ambitious agenda to jump-start the economy, and while policy specifics remain incomplete, the proposals do not appear to be inexpensive. The president and Congress will have to balance the need for stronger growth with increasingly severe budget constraints. Defaulting on the debt would send the economy into chaos and impede our ability to enact important and meaningful reforms across a whole set of policy areas.
Raising or suspending the debt limit is sure to be an enormous political challenge, but President Trump and Congress must rise to the challenge or risk potentially sinking the economy.