Ryan budget and debt limit, ctd.

On March 22, 2012, the House of Representatives adopted the budget resolution that was reported out of the House budget committee (aka The Ryan budget). In doing so, House Republicans committed to increasing the public debt over the next decade, meaning the so-called debt limit will have to be raised continuously, even if the Ryan budget is implemented exactly. The debt limit implied by implementing this budget will be $17,072,810,000,000 in 2013, rising to $21,627,396,000,000 in 2022. I wrote about this a few weeks ago, but forgot until today to go back and update the necessary increases in the debt limit contained in the budget passed by the House of Representatives.

Here is page 6, lines 3-14 of the budget resolution, as passed by the full House:

DEBT SUBJECT TO LIMIT.—The appropriate
levels of the public debt are as follows:

p 6. top (start with line 1) [my comment]
Fiscal year 2013: $17,072,810,000,000.
Fiscal year 2014: $17,769,762,000,000.
Fiscal year 2015: $18,277,348,000,000.
Fiscal year 2016: $18,752,806,000,000.
Fiscal year 2017: $19,216,661,000,000.
Fiscal year 2018: $19,676,545,000,000.
Fiscal year 2019: $20,168,534,000,000.
Fiscal year 2020: $20,657,588,000,000.
Fiscal year 2021: $21,121,620,000,000.
Fiscal year 2022: $21,627,396,000,000.

Any budget that is not balanced will require an increase in the debt limit. Just remember that when we get to the absurd theater of the debt limit increase sometime from November 2012-January 2013 and remember that when we do, the question at hand will be whether we will pay for the spending we have already agreed to undertake.

The debt limit and the Ryan budget

The debt ceiling debate and discussion as a secondary step outside of the federal budget should be abolished.

Today, the House Budget Committee will mark up, or revise the Chairman’s mark of the Fiscal Year 2013 budget (aka the Ryan budget). This means they will go through and set the high level budget figures for the Fiscal Year 2013 budget, and set targets for the federal budget through 2022. Revenues, taxes, etc. One of the items they will be filling in is the debt limit, or how much borrowing authority will be required to implement THIS budget. The figures can be found on pages 5 and 6 of the Chairman’s mark (concurrent budget resolution that was adopted on March 22, 2012):

p. 5 bottom (start line 25) [my comment]

DEBT SUBJECT TO LIMIT.—The appropriate
levels of the public debt are as follows:

p 6. top (start with line 1) [my comment]
Fiscal year 2013: $17,072,810,000,000.
Fiscal year 2014: $17,769,762,000,000.
Fiscal year 2015: $18,277,348,000,000.
Fiscal year 2016: $18,752,806,000,000.
Fiscal year 2017: $19,216,661,000,000.
Fiscal year 2018: $19,676,545,000,000.
Fiscal year 2019: $20,168,534,000,000.
Fiscal year 2020: $20,657,588,000,000.
Fiscal year 2021: $21,121,620,000,000.
Fiscal year 2022: $21,627,396,000,000.

The numbers are now blank because the House Budget Committee has to decide these amounts today. The numbers above are what was passed by the House of Representatives on March 22, 2012. Sometime next December, or January, the U.S. government will hit the currently approved debt limit, and there will be a circus discussion in Congress about whether Congress will grant approval for the U.S. Treasury to borrow more money to pay the bills that Congress has told the Treasury to incur. Keep in mind when we do that in the future that the budget resolution being passed out of the House Budget Committee today has already laid out what they say the debt limit will have to be through 2022 to pay the bills for the budget authority they today will vote to grant (many details of how to implement the budget will be carried out by the Ways and Means and Appropriations committees). However, the big picture is set in the budget resolution.

Because the debt limit is denominated in nominal dollars (not indexed for inflation or the size of the economy in any way) we will have to increase the borrowing authority of the U.S. government for a long time to come, even if the Ryan budget became law; later today after they set these figures, I will fill in the blanks above. Success from a fiscal standpoint would mean the debt-to-GDP ratio would decline; even if this happens the debt ceiling will have to be raised. The only way to not raise the debt ceiling is to only have balanced budgets going forward.

The time to debate the debt ceiling is today, not later, after we have already agreed to spend the money.

Have House Republicans Already Voted for a $10 Trillion Debt Increase?

My Duke colleague David Schanzer says yes.

Calling the Republicans’ bluff on Medicare

Bruce Bartlett says this was what he was doing in his recent call in Economix blog to allow the scheduled Medicare Part B physician cuts to take place, as part of a budget/debt ceiling negotiation strategy:

Space prevented me from explaining my proposal more thoroughly. I was trying to do two things. First, I wanted to call the Republicans’ bluff. They keep saying that deep Medicare cuts are their price for raising the debt limit – as if they would be doing Obama and the Democrats a favor by preventing a default on the debt – by laying a specific Medicare cut on the table. Since it’s already in law, it’s going to happen unless Congress takes positive action to prevent it. So Republicans will have to either allow doctors’ fees to be slashed or come up with a pay-for to do another doc-fix and put the problem off for another year.
As long as Republicans are allowed to pretend that they can effectively abolish Medicare, as the Ryan plan does, while asserting that no one will be worse off they are going to have their cake and eat it too – appearing to take entitlement spending seriously, thus earning them undeserved respect from Washington’s community of really serious people (RSP), while avoiding a tsunami of protest from the nation’s elderly if they really understood what the Republicans are proposing or thought it might actually take effect.
If it is the case that Medicare reform that lowers its future costs over projected levels must be agreed to as part of raising the debt ceiling between now and the first of August or so, here are the general options that seem plausible in policy terms in that time frame:
  • Raise the eligibility age
  • Increase the Medicare payroll tax rate
  • Increase means testing (raise Part B premium and/or add a Part A premium for some beneficiaries, presumably high income)
  • Allow the planned cuts to Part B to go into force as Bartlett suggests, or create a new ‘doc fix’ that still cuts payments by a lesser amount
  • Implement and beef up the IPAB
  • Agree to some sort of a cap on future Medicare growth with or without enforcement mechanisms of some sort

Obviously, all of these will be plenty hard for Republicans and Democrats alike, and the political plausibility of such options in that time frame seem questionable, at best. Democrats and Republicans have been talking about health reform for around two years now. Will the debt limit actually be the incentive they need to cut some sort of health reform deal?

 

update: cleaned up a few messy places

Dump the debt ceiling

Andrew Pavelyev makes the perfectly sensible suggestion of simply doing away with the debt ceiling.

The federal debt ceiling is utterly redundant, since Congress already has the sole constitutional power to authorize any federal spending. Even if Congress were concerned about the remote possibility of the Treasury borrowing a lot of cash just for the fun of it and piling it in the White House basement (since there’s no way it can be spent on anything without explicit permission from Congress), there would be ways to prevent that without any debt ceiling — by authorizing the Treasury to issue new debt only as long as the amount of cash on hand does not exceed the current federal budget. The mere fact that the debt ceiling serves no useful function should be more than sufficient reason to repeal it.

Annie Lowery agrees. Bruce Bartlett has said the President should simply act independently and continue selling Treasury securities. It seems that doing away with the debt limit is the most straightforward approach, with the least uncertainty.

A balanced budget means the ins match the outs. Congress can already achieve this or at least move toward it via the budgetary process. We don’t need superfluous steps in an already (seemingly) impossible situation of political gridlock that keeps us from addressing our fiscal problems.

Can the President ignore the debt limit?

Bruce Bartlett argues that President Obama can ignore the debt limit and instruct the Treasury Secretary to sell whatever securities necessary to keep the federal government open for business, regardless of the actions (or lack thereof) of Congress later in May.

He argues this is necessary because not doing so would have such dire consequences:

The president would be justified in taking extreme actions to protect against a debt default. In the event that congressional irresponsibility makes default impossible to avoid, he should order the secretary of the Treasury to simply disregard the debt limit and sell whatever securities are necessary to raise cash to pay the nation’s debts. They are protected by the full faith and credit of the United States and preventing default is no less justified than using American military power to protect against an armed invasion without a congressional declaration of war.

Claims the President has Constitutional powers that trump statutory law in this case:

Furthermore, it’s worth remembering that the debt limit is statutory law, which is trumped by the Constitution which has a little known provision that relates to this issue. Section 4 of the 14th Amendment says, “The validity of the public debt of the United States…shall not be questioned.” This could easily justify the sort of extraordinary presidential action to avoid default that I am suggesting.

And that the use of 3 month securities mean investors will be repaid long before the Supreme Court decides the case, meaning interest rates will not likely rise too much under this option:

Some will raise a concern that potential buyers of Treasury securities may be scared off by a fear that bonds sold over the debt limit may not be backed by the full faith and credit of the United States. However, given that the vast bulk of Treasury securities are 3-month bills that will turn over many, many times before this issue ever reaches the Supreme Court, it is doubtful than anyone will be concerned about that. And the Federal Reserve could assure investors that it will always be a buyer for such securities.

Count me as not being a constitutional scholar, so I have no idea if this is an option. It would certainly be an interesting wrinkle.

Update: interesting post from the Atlantic on debt limit maneuvers, including a link from GAO on history of debt limit.