The U.S. Senate may vote on a plan to increase the debt ceiling before going on vacation, party leaders stated.
U.S. Senate Republican staffers were told to expect a vote on the federal debt limit in August, Politico.com reported on June 20.
Legal limits on the total amount of federal government debt went back into effect in March when a temporary waiver on the government’s credit limit expired. In November 2015, Congress and President Barack Obama waived the debt ceiling, a legal limit on how much debt the federal government could take on, until March 15, 2017. On March 16, the ceiling returned, capping the debt at $19.9 trillion, or about $60,954.31 of borrowing per person.
That same day, the U.S. Treasury announced the beginning of “extraordinary measures,” such as suspending payments to federal pension programs, to buy time for lawmakers to approve increased borrowing.
Treasury’s accounting maneuvers are expected to delay an actual default until September, at which point the government will have to begin prioritizing some payments over others, if spending is not reduced or the debt ceiling raised.
Potential Economic Catastrophe?
Persistently high federal debt will eventually lead to disastrous economic problems, says Mark Thornton, a senior fellow at the Mises Institute.
“Interest on the national debt, especially as interest rates start to rise, is going to be completely catastrophic,” Thornton said. “When we get to the point where we can’t pay the interest, we can’t pay off the national debt, and we resort to the Federal Reserve monetizing government debt—which we have doing been lately—that will cause hyperinflation.”
Let’s Make a Deal
Thornton says lawmakers should demand spending cuts to go with any debt ceiling hike.
“Passing a debt ceiling increase in a clean manner gives the green light to government spending, and we’ve basically been on that green light, with a couple of stalls, for the past several decades. That trend cannot continue forever.”
Spending reductions should be a condition of any increase in the debt ceiling, Thornton says.
“At a bare minimum, they should pass a debt ceiling increase that expires in the short run and has a lot of conditions that have to be met, which would include various controls on spending and cuts in spending, both immediate cuts and cuts that would go into effect if other conditions weren’t met,” Thornton said.
Decreasing the Increases
David Henderson, a research fellow at the Hoover Institution, says slowing the growth of spending would solve the debt problem over the long term.
“I support an increase in the debt ceiling with large budget cuts,” Henderson said. “Slowing the growth of spending would be enough to balance the budget, if the growth of spending were low enough.
“My ideal proposal is to end most federal programs and cut taxes 80 cents for every one dollar in budget cuts,” Henderson said.
Selling extra federal assets, such as unneeded land, is another way to reduce the debt, Thornton says.
“The federal government owns land, which has obvious and known resources, such as timber, coal, oil, and natural gas,” he said. “That would increase revenues, decrease operating costs, and put more resources into the private sector. There are real and obvious benefits that come to the economy from cutting the government’s budget.”
Entitlement Growth Spurt
Another crucial step is to slow down the cost increases in entitlement programs, Henderson says.
“More and more people are qualifying for Social Security and Medicare,” Henderson said. “To keep the growth of overall Social Security and Medicare spending below the growth of tax revenue, nominal Social Security benefits and nominal Medicare expenditures per person would probably have to be held constant or allowed to rise by only about 1 percent per year.”
‘A Tremendous Signal’
Paying down the national debt would help assure taxpayers and investors of the federal government’s long-term stability, Thornton says.
“If the government began to pay down the national debt, you would be sending a tremendous signal to taxpayers, investors, and entrepreneurs that we don’t have to worry about the future,” he said. “College students are very worried about the future of entitlement programs. The numbers show that the direction we are going in is completely unsustainable.”