The Debt Ceiling Debate: Lower the Heat, Pay the Bill, Deal with the Deficit

Attorney and Scarsdale resident David M. Brodsky is part of the No Labels organization which is seeking to conduct and encourage rational dialogue, not extremist labeling, about important issues in our country, including dealing with the deficit and debt. One of the founders and leaders of No Labels is former U.S. Comptroller General David Walker who wrote the column below that originally appeared in The Connecticut Post on Sunday April 24th, is reprinted here on Brodsky’s request with Walker’s permission.

Now that the level of federal funding for the 2011 fiscal year has been resolved, there has been an increasing amount of attention on Congress’ upcoming vote to increase the federal debt ceiling limit. The debt ceiling is the legal limit that is set, and periodically re-set, on how much public and intra-governmental (e.g. Social Security and Medicare) debt the U.S. government can incur. It is critically important for Americans to understand the facts behind this debate in order to ensure a sensible solution.

While federal law provides for the continuation of essential government operations even if the government has not decided on a budget or funding levels for a fiscal year, such a provision does not exist in connection with the debt ceiling limit. Therefore, if the federal government hits the debt ceiling limit during a time of large deficits, which is the case today, dramatic and draconian actions will have to be taken in order to ensure that additional debt is not incurred. This would likely include a suspension of payments to government contractors, delays in tax refunds, and massive furloughs of government employees. In addition, since the Social Security program is now paying out more than it takes in, it could even mean delaying payment of Social Security benefits to tens of millions of Americans.

In essence, raising the debt ceiling is simply recognizing the federal government’s past fiscally irresponsible practices. But while failure to raise the debt ceiling is not a viable option given our current fiscal state, we must take concrete steps to address the government’s lack of fiscal responsibility. We must also do so in a manner that avoids triggering a massive disruption and a possible loss of confidence by investors in the ability of the federal government to manage its own finances. Such a loss of confidence could spur a dramatic rise in interest rates that would further increase our nation's fiscal, economic, unemployment and other challenges.

The recent decision by S&P to downgrade the long-term outlook on U.S .debt is just another market signal that elected officials must begin to work together to put our federal finances in order before the markets force it to. Other recent signals have included the reduced appetite of foreign investors for longer-term U.S. debt and PIMCO's decision to divest its U.S. debt holdings. In fact, the only player with any real appetite for longer-term U.S. debt in recent months has been the Federal Reserve – and such involvement on their part essentially amounts to government self-dealing. Such self-dealing serves to help the economy in the short-term while increasing longer-term risks and potentially delaying needed fiscal reforms.

In order to begin to restore fiscal sanity, Congress should increase the debt ceiling limit in exchange for one or more specific steps designed to send a signal to the markets, and the American people, that a new day in federal finance is dawning. To be credible, any such action must go beyond short-term spending cuts for the 2012 fiscal year.

One possible step could include agreeing on a set of statutory budget controls that would come into effect in fiscal 2013. Such controls should include specific annual debt/GDP targets with automatic spending cuts and temporary revenue increases in the event the annual target is not met. In my view, a ratio of three parts spending cuts, excluding interest savings, to one part revenue would make sense.

This debt/GDP target concept, which I have been advocating both publicly and privately in recent months, gained additional momentum last week when President Obama endorsed it in his April 13 fiscal speech. It also seems to be gaining some momentum in Congress. It just may be a nonpartisan approach that can gain bipartisan support in order to help ensure that our elected officials do not play "chicken" with the nation's debt ceiling limit as they did in resolving federal funding levels for fiscal 2011. After all, playing "chicken" with the debt ceiling would be like playing with a tactical nuclear weapon. If it explodes, it would come with a huge amount of collateral damage, including harming U.S. credibility.

As we all know, both political parties bear some responsibility for our current fiscal state. As a result, Congressional leaders from both political parties and the President should work together to do what is right for America. In doing so, they should refrain from inflammatory partisan and personal attacks that could taint the water for a political compromise.

Hopefully, Congress and the President will agree on an appropriate basis for extending the debt ceiling limit before we approach the 11th hour. How they resolve this issue will likely be the most important fiscal decision they make before the 2012 elections. For the sake of our future and our families, let us hope that they choose prudence over politics.

By: Hononorable David M. Walker, No Labels Co-Founder and former U.S. Comptroller General of the United States (1998-2008)