Everybody’s got an idea about how to resolve the debt limit impasse. I do too. My solution is to scare the shit out of Kevin McCarthy.
Before I proceed, let’s review the circumstances.
Congress routinely spends more money than it raises through taxes. The difference is debt. For much of American history, Congress assumed responsibility for this debt by authorizing bond issues, and there was no debt ceiling at all. Let me repeat that. Before 1917, there was no debt ceiling. America did not go bankrupt.
When the United States entered World War I, it had to raise money, fast, through Liberty Bonds. After a disappointing first issue, Congress delegated this power to the Treasury. (It also commissioned this propaganda short from Charlie Chaplin.) To maintain some control—over Treasury, not Chaplin—Congress set a war-debt ceiling of $11.5 billion. Such statutory limits were gradually extended to other types of debt, and in 1939 Congress extended the debt limit to virtually all government debt, with an initial aggregate limit of $45 billion.
From the very start, debt limits were demonstrably ineffective at curbing government spending. If you want to reduce consumption, you don’t do it by refusing to pay for the stuff you already bought, and Congress buys a lot of stuff. By 1945, wartime production had required Congress to push the debt limit all the way to $300 billion. Thereafter, the debt limit stabilized at about $275 billion, but in the early 1960s it started climbing again. It’s been climbing ever since. Today the debt limit stands at $34.1 trillion.
The Treasury reached the $34.1 trillion limit on January 19. Nothing happened, but that’s only because there are legally sanctioned “extraordinary measures” Treasury can take to keep borrowing past the debt limit, up to a point. The Congressional Budget Office guessed in February that these gimmicks would extend the deadline to sometime between July and September. But that was based on an estimate of tax receipts that turned out to be too high; the slowing economy shrank tax revenues more than CBO expected. As a consequence, Treasury Secretary Janet Yellen wrote House Speaker Kevin McCarthy on May 1, the drop-dead date for raising the debt ceiling above $34.1 trillion is “potentially as early as June 1.”
The president has now scheduled a meeting with congressional leaders on May 9.
At the meeting, McCarthy will tell Biden that the House will raise the debt limit only if Biden accepts the unacceptable terms laid out in his debt ceiling bill, which requires cutting agency budgets by as much as 27 percent, assuming, as everyone does, that the Pentagon budget will be spared. McCarthy’s bill also requires the reversal of various Biden policies, including much of Biden’s landmark climate law.
Biden will tell McCarthy no deal. He may point out that even McCarthy’s own caucus would never have voted for the debt limit bill without McCarthy’s assurances that it would never, ever become law. Biden will then say that he’s happy to negotiate over the 2024 budget that he submitted in March. He may add that if McCarthy needs Biden to demonstrate budget concessions to save face, the White House can provide some before the debt limit vote.
McCarthy will answer, “Hell no, the negotiating document is my debt limit bill.”
Impasse, right? Maybe not. Here’s what Biden should do next.
“Here are my budget concessions,” Biden should say, presenting a list of judicious spending cuts already prepared by the Office of Management and Budget. “Obviously these don’t conclude the appropriations process; there are more negotiations to come. But that’s all you’re going to get before you raise the debt limit.”
Biden should then continue: “If you don’t accept these concessions, I will schedule a prime-time speech tomorrow night blaming congressional Republicans for whatever economic calamity occurs in the coming weeks. The public has always blamed Republicans when these standoffs occur. You can set your watch by it. It will do so again.”
McCarthy will tell Biden to pound sand.
Here’s what Biden should do next. The following night, he should deliver the threatened prime-time speech. It should go something like this:
“Good evening, my fellow Americans. The House of Representatives is refusing to raise the debt limit. I’ve asked for a straight up-or-down vote on this because a debt-limit increase is an agreement by Congress to pay its own bills. Congress doesn’t want to pay them. It should have thought of that before it ran them up.
“Read your Constitution. I don’t have power of the purse; only Congress does. It says so right there in Article I. Congress voted to commit certain funds, and now it wants to stiff its creditors, just like the front-runner for the GOP nomination, Donald Trump, is always doing in his personal business dealings.
“For reasons I’ve never quite understood, Trump usually gets away with it. Congress doesn’t have that luxury. There’s another part of the Constitution, the Fourteenth Amendment, that forbids Congress to pull a Donald. Let me quote it: ‘The validity of the public debt of the United States, authorized by law … shall not be questioned.’ In plain English, when the government runs up a bill, it has to pay it.
“Maybe you don’t care whether Congress makes the United States a deadbeat. But you surely care about the economy. If Congress doesn’t act, then the United States will default, and the economy will go into a tailspin. Congressional Republicans delayed raising the debt ceiling in 2011, when I was vice president, and the result was a downgrading of this country’s credit rating by Standard & Poor’s. That delay reduced investment in the United States. That delay came out of your paycheck.
“Now they’re doing it again. The stock market is already starting to sink as a result. That means less money for your retirement. If they keep it up much longer, the market will crash.
“If the debt limit isn’t raised soon, we could go into default as soon as June 1. If that happens, Social Security checks will be delayed or stopped. So will disability benefits for the country’s veterans. Military deployments could be frozen. If we’re lucky, the economy will fall into recession. If we’re unlucky, the global economy will fall into a depression the likes of which we haven’t seen since the 1930s. All because congressional Republicans didn’t feel like paying their own damn bills.”
If Biden gives this speech, whatever mayhem Republican dithering on the debt ceiling is creating in the markets already will accelerate, fast. All Biden will have done is acknowledge what’s true, so he can hardly be blamed. We could see another downgrade of Treasury bonds. We could see all kinds of scary stuff. At some point McCarthy will realize, as The New Republic’s Alex Shephard has written, that he’s in way over his head, and he’ll back down.
If McCarthy holds firm, then Biden will have to explore unilateral options like the Fourteenth Amendment gambit or that silly business of minting a trillion-dollar coin. But uncertainty about how the Supreme Court will greet such maneuvers will only tank the markets further. My guess is that well before that happens, McCarthy will get spooked and cry uncle.
But if McCarthy caves to Biden, won’t he lose his speakership? Possibly. McCarthy only barely acquired it in the first place, and any stiff breeze could take it away. Still, causing a financial panic poses a much greater danger to McCarthy’s reputation than yielding to a president. Biden’s job is to show McCarthy that wrecking the economy would assign McCarthy to permanent infamy. Losing his speakership would be the least of it.