Boyle, Yarmuth Call for Treasury Dept. to Be Given Debt Ceiling Authority
WASHINGTON — With the nation once again hovering ever closer to defaulting on its debts, the chair and vice chair of the powerful House Budget Committee say it’s time to take the “arbitrary and reckless” politics out of raising the debt ceiling.
The Debt Ceiling Reform Act introduced this week by Rep. John Yarmuth, D-Ky., chairman of the committee, and Rep. Brendan Boyle, D-Pa., the panel’s vice chair, would eliminate the debt limit as we now know it and transfer the duty of raising the debt limit from Congress to the Secretary of the Treasury.
To understand what that could mean, one needs first to get a firmer understanding of the debt limit and the consequences of it not being raised on a regular basis.
The Congressional Research Service defines the debt limit simply as a statutory constraint on the amount of money that the U.S. Treasury may borrow to fund federal operations.
In theory, the debt limit is a mechanism through which Congress exercises its Constitutionally-granted “power of the purse.” However, a binding debt limit combined with continued budget deficits would leave the Treasury in a very bad way.
“As with any borrower, the government is obliged to pay its bills, and yet a binding debt would prevent the Treasury from doing so in a timely fashion,” wrote Grant Driessen, specialist in public finance at the Congressional Research Service.
Possible consequences of a binding debt limit include, but are not limited to:
- Reduced ability of Treasury to borrow funds on advantageous terms, thereby further increasing federal debt;
- Substantial negative outcomes in global economies and financial markets caused by anticipated default on Treasury securities or failure to meet other legal obligations;
- Acquisition of interest penalties from delay on certain federal payments and transfers; and
- Downgrades of U.S. credit ratings, which could negatively impact capital markets.
Possible economic and fiscal consequences of the debt limit are not confined to scenarios where the debt limit is binding.
Protracted deliberation over raising the debt limit may also affect the U.S. financial outlook if it changes household and business behavior. Some research suggests that debate over the debt limit in August 2011 reduced economic expansion in the second half of that year, Driessen wrote.
Both Boyle and Yarmuth voted two weeks ago in support of H.R. 5305, which would have raised the debt ceiling and avoided a government shutdown. The bill was subsequently blocked in the Senate by a Republican filibuster.
Congress passed a slimmed down version of the bill on Thursday, funding the government through Dec. 3, but leaving the raising of the debt ceiling for another day as the entire federal government is preoccupied with the passage of the bipartisan infrastructure bill and the budget reconciliation package.
Congress now has a little over two weeks to raise the debt ceiling or have the Treasury run out of money on Oct. 18.
Moody’s Analytics predicts that a default would result in a loss of six million jobs, an unemployment rate of nearly 9%, the elimination of $15 trillion in household wealth and a decline in real GDP of about 4%.
Yarmuth and Boyle argue granting the authority to raise the debt ceiling to the Treasury would not only ward off such a catastrophe this year, but would also stop the political brinkmanship that has long been part of the process, and bring an end to an era of self-inflicted crises.
“With the Treasury on the verge of running out of money within the next month, we once again find ourselves barreling toward financial calamity,” Boyle said in a written statement.
“It’s quite clear that this measure, which was first introduced in 1917, has outlived its effectiveness,” he said. “Simply put, the debt ceiling is incapable of accomplishing what it sets out to do—to control how much the government borrows—as the bills Congress passes are legally binding and cannot be inhibited by such a limit.”
“After everything the American people have been through over the last 19 months and all the progress we have made in our recovery, the last thing we need is a dangerous game of political brinkmanship that will devastate our economy and plunge us into another recession,” said Rep. Yarmuth in a statement.
“It’s time for Republicans to pull the ripcord and support our legislation to implement the McConnell Rule, giving the Treasury Secretary the authority to raise the debt ceiling. We need to get past this politically manufactured crisis and get on with the business of addressing the needs and priorities of the American people,” Yarmuth concluded.
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