Yesterday evening, the Obama administration handed the Republicans its opening bid in the ongoing bargaining over the “fiscal cliff” — the combination of tax increases, expiring stimulus measures, and spending cuts set to begin in January. The headline number in the proposal is $1.6 trillion in new revenue, along with mortgage relief, new stimulus measures, an extension of unemployment insurance, and an extension of the payroll tax holiday.
But perhaps the most striking piece of the package is a permanent end to Washington’s cyclical stand-offs over the debt ceiling. Via Joe Weisenthal, The New York Times has a good summary of the proposal Treasury Secretary Timothy Geithner reportedly handed to House Speaker John Boehner (R-OH):
To ensure that there are no more crises like the debt ceiling impasse last year, Mr. Geithner proposed permanently ending Congressional purview over the federal borrowing limit, Republican aides said. He said that Congress could be allowed to pass a resolution blocking an increase in the debt limit, but that the president would be able to veto that resolution. Congress could block a higher borrowing limit only if two-thirds of lawmakers overrode the veto.
The ceiling is a statutory limit on the amount of debt Treasury may issue, and currently Congress must pass legislation to raise it. Historically, this has been a routine matter as the country’s debt load has increased. Majorities of both parties have dutifully passed it, while minorities of both parties have symbolically demagogued against it.
But with the GOP takeover of the House in 2010, it became an opportunity for potentially catastrophic brinksmanship. Actually breaching the debt ceiling could lead to a whole host of dire economic consequences. Estimates put the cost of last year’s stand-off — which merely approached the possibility of a breach — at $18.9 billion in increased interest payments over ten years, one million lost jobs, and hamstrung economic growth. Standard & Poors explicitly cited the debt ceiling impasse, and Republican intransigence over tax increases, in its reasons for downgrading the United States’ credit rating.
It’s important to note the White House’s proposition would not mean all bets are off when it comes to reining in the debt. While the New York Times correctly described the White House’s proposal as “a permanent end to Congressional control over statutory borrowing limits,” the Washington Post’s Lori Montgomery went with the utterly wrong-headed characterization of “an effective end to congressional control over the size of the national debt.” The distinction is crucial. Congress will retain all its constitutional authority over spending and taxation, which by definition decides the size of the debt. What Congress would lose is the ability to contradict itself by refusing to allow Treasury to borrow the money required by Congress’ own spending and taxing decisions.
When Speaker of the House John Boehner (R-OH) calls the debt ceiling an “action-forcing” opportunity, what he means is its a chance for economic blackmail.