Obama rewrites debt limit history

Reuters

Article Highlights

  • The debt limit has been a powerful negotiating tool in the last several decades @aeiecon

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  • Of 53 debt limit votes, 29 were in Dem-led Congress, 17 in a split, seven under GOP

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  • Dems have been responsible for 60% of "dirty" increases tying the debt limit to other legislative items

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As the government shutdown continues, the nation gets closer and closer to the day—probably Oct. 17—when Washington hits the debt limit, and with it the specter of default. President Obama may be getting nervous about what will happen to his negotiating position as that day approaches.

He keeps asserting that the debt limit has never been used "to extort a president or a government party." Treasury Secretary Jack Lew is selling the same story, saying "until very recently, Congress typically raised the debt ceiling on a routine basis . . . the threat of default was not a bargaining chip in the negotiations."

This is simply untrue. Consider the shenanigans of congressional Democrats in 1989 over Medicare's catastrophic health coverage provision.

In this case, the problem was political infighting within the Democratic Party between the House and the Senate. "Weeks of political maneuvering brought the government to the brink of financial default," the New York Times wrote on Nov. 8 of that year. The debt limit was raised just hours before all extraordinary measures to avoid default were exhausted. The final bill dropped any action on Medicare but included a measure to repeal 1986 tax rules barring discrimination in employer-paid health insurance plans.

The Obama administration's campaign to make the debt limit appear non-negotiable might reflect concern that Republican congressional strategy might actually work. Six out of 10 Americans say "it is right to require spending cuts when the debt ceiling is raised, even if it risks default," according to a Sept. 26 Bloomberg poll. (Only 28% say "the debt ceiling should be raised when necessary, with no conditions.")

One thing is certain: The debt limit has been a powerful negotiating tool in the last several decades. It has enabled the passage of important additional legislation.

"The debt limit has been a powerful negotiating tool in the last several decades. It has enabled the passage of important additional legislation." -- Kevin Hassett, Abby McCloskey

According to the Congressional Research Service, Congress voted 53 times from 1978 to 2013 to change the debt ceiling. The debt ceiling has increased to about $16 trillion from $752 billion. Of these 53 votes, 29 occurred in a Congress run by Democrats, 17 in a split Congress, and seven in a Republican-controlled Congress.

While large increases that give the U.S. Treasury a healthy amount of borrowing space happen occasionally, small short-term increases are common. In 1990 alone, while Republican George H.W. Bush was in the White House, a Democratic-controlled Congress voted to increase the debt limit seven times.

Congressional Republicans who want legislative conditions in exchange for a debt-limit increase are following a strategy that has been pursued by both parties the majority of the time. Of the 53 increases in the debt limit, 26 were "clean"—that is, stand-alone, no strings-attached statutes. The remaining debt-limit increases were part of an omnibus package of other legislative bills or a continuing resolution. Other times, the limit was paired with reforms, only some of which were related to the budget.

In 1979, a Democratic Congress increased the debt limit but required Congress and the president to present balanced budgets for fiscal years 1981 and 1982. In 1980 the debt limit, again increased by a Democratic Congress, included repeal of an oil-import fee. In 1985, the debt limit that was raised by a divided Congress included a cigarette tax and a provision requiring Congress to pursue an alternative minimum corporate tax in the next year.

Most recently, a divided Congress that passed the 2011 debt-limit increase included the Budget Control Act which aimed to reduce the deficit by $2.4 trillion over 10 years and included the automatic budget sequester that kicked in on Jan. 1.

As the finger pointing begins, it is important to keep this history in mind. All told, congressional Democrats have been responsible for 60% of the "dirty" increases when the debt limit was raised alongside other legislative items. Republicans were responsible for 15%. The remaining 25% occurred during divided Congresses.

Of the Democratic dirties, six occurred when Democrats also controlled the White House, and 10 occurred when a Republican controlled the White House. For Republicans, all four occurred while a Democrat held the presidency.

Debt-limit votes often have been contentious, but on the whole they serve an important function. First, they force painful votes by legislators who would prefer to offer supporters free lunches through unfunded spending programs. Without these votes, politicians of both parties would have a significantly easier time ignoring fiscal discipline.

Second, debt-limit votes have provided a regular vehicle for legislation. Divided governments have a difficult time passing anything. Since the consequences of government default are so severe, debt-limit legislation has always passed in the end, and it has often included important additional legislative accomplishments.

Third, the debt limit has provided significant leverage to the minority party and has been a check on the power of the presidency.

Republicans today are playing a role that has been played many times. While the debt-limit kabuki inevitably roils markets as deadlines approach, the alternative absence of fiscal discipline would make government insolvency more probable in the fullness of time.

Trying to separate Obamacare from the debt limit, President Obama has asserted that his health law has "nothing to do with the budget." His argument is eagerly echoed by an at-best ignorant media. The Affordable Care Act was passed under "reconciliation"—a legislative process that is used only for budget measures and which limits congressional debate.

The notion that legislation passed as part of a budget might be reconsidered as part of subsequent budget legislation should be uncontroversial. Perhaps that is why the administration has staked so much on its misrepresentation of history.

Mr. Hassett is director of economic policy studies at the American Enterprise Institute, where Ms. McCloskey is a program director.

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About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
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    Name: Emma Bennett
    Phone: 202-862-5862
    Email: emma.bennett@aei.org

 

Abby
McCloskey
  • Abby M. McCloskey is the program director of economic policy at the American Enterprise Institute (AEI) where she disseminates the work of AEI’s economic policy team. McCloskey also studies and writes about various financial services policy issues.

    Immediately before joining AEI, McCloskey was director of research at the Financial Services Roundtable where she worked on financial regulatory reform, including Dodd-Frank and Basel III. McCloskey has also worked for US Senator Richard Shelby, and for the Mercatus Center as a Charles Koch Institute associate. While at Mercatus, she created and hosted a video series on financial markets issues.

    McCloskey has a B.A. in economics from Wheaton College.


    Follow McCloskey on Twitter: @abbyeconomics

  • Phone: 202.862.5819
    Email: abby.mccloskey@aei.org

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