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Ponnuru: Why a debt-ceiling fight is good for the country

Published: Thursday, Jan. 10, 2013 5:30 a.m. CST

Watch what he did, not what he says. President Barack Obama says he won’t agree to spending cuts in return for Republicans’ raising the debt ceiling. Yet he did exactly that in 2011. And he should do it again.

The debt ceiling ought to be raised because nobody has a plan to eliminate the deficit immediately, and there is no popular support for doing what that would take. A congressman who isn’t presenting and supporting a zero-deficit-now plan has an obligation to give the federal government the additional borrowing authority that continued deficits make necessary.

For liberals, that’s the end of the matter. The debt ceiling should be raised without any spending cuts attached, and ideally it should be raised to infinity. One common argument goes like this: Since Congress sets spending and tax levels, no good purpose is served by holding a separate vote making it possible for the government to follow Congress’s original instructions.

That argument would have more force if the federal budget were the result of a deliberate policy. Instead, more and more of our spending rises on autopilot because of decisions made long ago, and nobody is forced to take responsibility for the gap between revenue and commitments. Bills to raise the debt ceiling are the only occasions when congressmen and the president come close to doing so.

They are thus appropriate moments to attack the trends that are driving our rising debt.

Raising the debt limit requires Republican cooperation, and there is no obvious reason why Republicans should refrain on principle from saying that they will go along so long as spending is cut. For Democrats to say that no conditions should be attached to the bill is to attach a condition.

There are, of course, risks to the economy from a protracted fight over what the conditions will be, and it would behoove the parties to come to terms quickly.

Four steps would reduce those risks. First, Republicans should make the conditions reasonable, rather than, say, trying to use the leverage the debt-ceiling bill gives them to transform the welfare state. Second, Democrats should accede to reasonable requests rather than attacking them as though they amounted to terrorism.

Third, the Federal Reserve should pledge to hold nominal-income growth steady, since that would counteract any shock to consumer confidence. Fourth, and most important, all parties should pass a law stipulating that if the debt ceiling is breached the Treasury will still be allowed to make debt-service payments in full. Painful spending cuts would result, but not default.

A reasonable deal would involve spending cuts that are acceptable to both parties – cuts, in other words, that Democrats can accept without violating their core convictions or their campaign promises.

Jerry Brown, the Democratic governor of California, is no conservative; he just prevailed in raising taxes in his state. But he also thinks that Medicaid spending per person ought to be capped, which could generate significant savings for the federal government. Tom Daschle, the former leader of the Senate Democrats and Obama’s first choice for secretary of Health and Human Services, also supports the idea.

John Cogan, an economist at Stanford University, argues that Medicare should raise its co-payments. The savings wouldn’t come from the higher fees that beneficiaries pay – that money could be sent back to them in the form of lower premiums so that seniors are held harmless – but in the reduced use of medical services. Higher co-pays, Cogan points out, haven’t been associated with worse health outcomes in studies.

Increasing the use of means testing in Medicare would also save money without undermining care for the neediest. The program should offer fewer benefits to those with the highest lifetime incomes.

Democrats insist that any future deficit reduction be “balanced,” with tax increases as well as spending cuts. They see last week’s fiscal-cliff deal, in which Republicans agreed to let some tax increases take effect, as a precedent. Around the world, though, most successful deficit-reduction efforts in the past three decades have been unbalanced, tilting toward spending cuts rather than tax increases.

Sen. Pat Toomey, R-Pa., voted for the fiscal-cliff deal but denies it’s a precedent for future tax increases. With taxes having just risen, he told me in an interview, Republicans aren’t going to accept any further increase. “Tax increases are off the table,” he said. Instead, significant spending cuts are necessary, he argued, and they need to begin immediately.

So raise the debt limit, sure. But start bringing the debt under control at the same time. That’s a sensible position, and one that Republicans should have no trouble defending to voters.

• Ramesh Ponnuru is a Bloomberg View columnist and a senior editor at National Review.

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