Abolish the Debt Limit

House Budget:Why Congress Needs to Abolish the Debt Limit, February 16, 2022

The debt limit is almost never an issue when one party holds the White House and both Chambers, although the lack of comity between the parties in both chambers with a slim majority in the Senate provides us with an exception. In periods of divided government, the debt limit almost always comes up, especially with Democrats in the White House. When the issue is raised, it is usually done so in an attempt to restrict discretionary spending or build support for cutting entitlements.

The best way out of this is to have more unanimous consent agreements, ending the use of Senate holds for purposes of grandstanding and a return to OPEN RULES in the House, especially on fiscal issues. As an aside, 55 is a nice number for cloture - although any limit can be misused by members of the majority with both eyes on the TV cameras.

I hope for comity, but do not expect it for now. Many have hopes for it once filing deadlines for the November election have passed, although it may take as decisive result in November to achieve that. Think 1974 rather than 2010.

Many constitutional and budgetary scholars believe that the debt limit is unconstitutional under the provisions of the 14th Amendment. This is likely correct. It is also likely seen as a political question - and testing it as a legal matter involves the likelihood of lawsuits after bonds are issued without regard to the limit in an effort to prevent default. No thank you.

The constitutional issue is best settled in bipartisan legislation to further define 14th Amendment procedures regarding insurrectionist candidates for congress and the presidency (and specify provisions to cure such disability as part of electoral vote counting). Such legislation should also include rules for how constitutional convention calls are received. 

Currently, the lack of rules is the main obstacle to the process. Specifically, must convention calls focus on a single issue or call for a general convention and must all petitions, like other legislation, be received anew at the commencement of each Congress. The proposed provisions of a balanced budget amendment, which effectively stop action by the majority and prevent tax increases, will never get 2/3rds support of both houses. Settling convention call rules is relevant to the issue at hand (the debt) and offers conservatives an olive branch.

The one situation where leaving debt limits in place is justified is when the budget process is reformed to allow for automatic budget allocations under the Budget Control Act and automatic appropriations under either Budget Control Act or Joint Budget Resolution marks. We have detailed such reforms many times over the past decade. A summary of these is attached to these comments.

Enacting such reforms would require realistic, rather than punitive, budget allocations. Budget Act markups would also include automatic debt limit extentions.  The threat of an automatic process may assure it is never used, although I never thought I would see Americans storming the Capitol building to overturn an election either. If such toxicity continues, automatic provisions may be needed to keep the lights on without grandstanding.

In most cases under this proposal, a debt limit challenge would simply not happen unless the economy and government spending are truly out of control, resulting in hyper-inflation. In such cases, an emergency brake may be useful.

What is not useful is tapping the brakes constantly and in such a way that the car can never get out of second gear - which is where the nation now finds itself.

Let us also take this opportunity to address our current debt explosion. The end of the pandemic and the eventual return to normalcy is the surest way out of our short term problem. The long-term solution is adequate tax revenue. The best way to not need a Debt Limit is to balance the budget by taxing those who hold most of the assets which hold Treasury Notes and Securities.  Any other path will reduce economic growth and result in more, not less, debt.

It is important to understand who owns and owes the debt. We are currently revising our previous study: Settling (and Squaring) Accounts: Who Really Owes the National Debt? Who Owns It? available from Amazon at https://www.amazon.com/dp/B08FRQFF8S  I can provide free copies of the prior version upon request and will distribute the latest edition once it is completed. The most recent bottom line estimates can be found in the second attachment. This shows who is on the hook for the debt and who benefits from it.

Note well that the top 22,000 households break even on debt owned and owed. Everyone else is in hock. Such an unbalance cannot continue.

A main conclusion of our analyses is that the national debt is the leverage for capitalism to the extent that debt securities allow Wall Street to offer riskier assets, such as mortgage backed securities embedded in Exchange Traded Funds, as well as more traditional offerings. Wealth held by the few (and the attachment shows how very few we mean), provides management absolute control of most workplaces. Employee-owned firms would not need such an unbalanced economy leveraged by American Treasury holdings.

Our third attachment details a series of tax reforms which will encourage a more balanced economy (and therefore broader based taxation), an end to deficit spending and an unwinding of both public debt and concentrated wealth.

The past few centuries have shown that “the masses” will never vote out capitalism and inequality. Economic progress is evolutionary, not revolutionary. Indeed, for taxes to go up, people with high incomes and wealth (and especially their children) need to benefit from such reforms. The same truism applies to the climate crisis as well.

To get there, calm discussion, rather than grandstanding - particularly over the Debt Limit, is absolutely essential.

Comments Video

Attachment – The Budget and Appropriations Process Video

Attachment - Debt Ownership as Class Warfare Video

Attachment - Tax Reform with videos