The Illogic of the McConnell Debt Limit Rule

By :: October 23rd, 2013

In the aftermath of the recent government shutdown and the painful negotiations that brought the country perilously close to defaulting on government debt, policy experts are searching for a way to avoid a replay of this crisis.

After all, the recent congressional agreement only delays the next potential shutdown till January 15 and lifts the debt ceiling only until February 7.

While many Republican officials were willing to breach the debt limit, most economists and policymakers agreed that deliberately defaulting on the government debt would be an historic mistake, with long-lasting negative consequences. Even cutting other spending while paying bondholders would have carried significant downside risks.

What should be done to avoid another flirtation with default? (Let’s leave avoiding a shutdown for another day.) Some commentators, most recently the New York Times have proposed making the so-called “McConnell rule” the law of the land. The idea, named after Senate GOP Leader Mitch McConnell (R-KY), would allow the President to raise the debt ceiling unilaterally. Congress’s role would be limited to voting its disapproval of that increase. (McConnell’s suggestion to do this this was made originally in the context of a broader discussion that linked spending cuts to debt limit increases, but now his name has been applied to this part of his overall proposal.) This is essentially how debt ceiling issues were resolved earlier this year.

But making the McConnell rule law would be a mistake. It would enshrine the irresponsibility of all of those elected officials who have said they would never raise the debt limit to continue avoiding the responsibility for their actions. And it is based on a misunderstanding of why the debt ceiling has to be raised periodically.

Congress does not raise the debt ceiling periodically because the President likes the idea. Congress must increase it in response to actions (such as spending authorizations and tax laws) it has already taken. Allowing the president to raise the debt ceiling (because Congressional actions made it necessary) so Congress can then vote its disapproval makes no more sense than having Congress require the President to order a pizza and then vote to object that it has too many calories.

Forget about the animosity and mistrust between House Republicans and Obama. Just think about the Congress and the executive branch of government. The Constitution indicates that the government can not spend money, raise revenues or borrow funds without prior congressional approval. But when Congress OKs a budget where revenues are not sufficient to pay for spending (which it has done year after year for decades—with just a few exceptions) it does not concurrently approve the debt measures needed to fill the gap.

So, for example, Congress can legislate $100 in spending and $60 in taxes, but this does not automatically enable government to borrow the $40 difference. It can only do that by raising the debt ceiling. Implementing the McConnell rule would be asymmetric in that it would let the President authorize borrowing independently of Congress, but not revenues or spending.

A better solution would be to stipulate that when Congress authorizes spending, it is also authorizing the borrowing needed to finance that spending should tax revenues be insufficient. Like the McConnell rule, this would avoid showdowns over the debt limit. Unlike the McConnell rule, it would be consistent with the constitutional authority given to the Congress and it would require members of Congress to actually take responsibility for their actions and acknowledge that whatever spending they authorize does in fact have to be financed.

5Comments

  1. AMTbuff  ::  4:37 pm on October 23rd, 2013:

    “A better solution would be to stipulate that when Congress authorizes spending, it is also authorizing the borrowing needed to finance that spending should tax revenues be insufficient.”

    How would that work with a law like ACA, for which everyone knew that the actual cost would likely far exceed the official estimates? Which Congress would have to explicitly acknowledge the higher cost in the form of a debt limit increase? The original enacting Congress, a subsequent Congress, or neither?

  2. Michael Bindner  ::  6:35 pm on October 23rd, 2013:

    We should instead recognize the fact that the 14th Amendment requires that the debt be honored, with or without Congressional opposition. It is time to squash this political football. As for the passage of appropriations bills, appropriations data should only be transmitted to Congress after a joint budget resolution is signed – and in the Budget Control Act years a budget resolution should be deemed signed for the rest of the BCA period. In such years, if appropriations legislation is not passed by the begining of the fiscal year, the current services spending levels shall be deemed as passed as an appropriation for that year – with any further passage being listed as a supplemental appropriation. That kind of enactment would force Congress to act to maintain its influence, whether the Tea Party wishes to be part of government or not. In the end, it is as much about the age and skin color of the President and the Tea Party’s feelings about these things as anything else.

  3. Tax Roundup, 10/24/13: Payroll tax grief in Cedar Rapids. Also: suits, geeks, and Obamacare. « Roth & Company, P.C  ::  10:09 am on October 24th, 2013:

    […] Gale,  The Illogic of the McConnell Debt Limit Rule […]

  4. Vivian Darkbloom  ::  11:32 am on October 24th, 2013:

    Good point. More directly, how much of the federal government spending is non-fixed spending? Social security, Medicare, Medicaid, ACA subsidies and many other “entitlements” (as well as interest on the federal debt) are not fixed spending items. If the “estimate is exceeded” spending just continues subject only to the debt limit. Presumably, Mr. Gale means that when Congress passes legislation like the ACA they’ve not simply agreed to authorize “spending”; they’ve agreed to issue a blank check.

    A more responsible way to deal with this is for Congress to annually appropriate X amount for these entitlements and for any new legislation they would authorize spending in a fixed amount. If the appropriated amount is exceeded, it would be up to Congress to appropriate more in “spending legislation.”

    Of course, that’s not what Gale wants because under such a system Congress would have to go back to the well much more often than they do under the existing debt limit rules. What Bill Gale really wants is for Congress to keep issuing those blank checks without any budget restraints at all. The CBO’s estimates are very inaccurate as it is and the system Gale proposes would put CBO under some terrific political pressure.

  5. Michael Bindner  ::  3:44 am on October 26th, 2013:

    Much of the mandatory spending also has dedicated revenue. The problem is the net interest cost projections – which can only be solved by increasing revenue by taxing the middle, upper middle and upper classes more.