Jeffrey Miron
This article appeared on SubStack on May 12, 2023.
Unless Congress cuts spending or raises taxes in the near future, the federal government will hit its debt ceiling later this summer. At that point the United States will either default or pursue “extraordinary measures,” such as minting a trillion dollar coin.
President Biden wants a “clean” increase in the ceiling; Republicans want a substantial cut in spending in exchange for raising the limit. In all likelihood, the two sides will appear to make no progress until the last second before default; they will then jointly announce a compromise that both sides portray as victory.
My view is that the United States should eliminate the debt ceiling entirely.
The potential benefit of a ceiling is that it might restrain spending. The U.S. fiscal situation is on a path to insolvency, and slowing expenditure growth—not raising taxes—is the only effective way to address this issue.
Yet it seems unlikely that “process reforms” like debt limits will restrain spending. During recent negotiations, both sides ruled out cuts to Social Security or Medicare, even though these programs are the most important causes of excess expenditure growth.
The debt ceiling, moreover, has downsides. At a minimum, it generates unneeded uncertainty every few years whenever the debt gets close to the limit.
Worse, the ceiling distracts attention from the fundamental question: how can the United States reconcile its limited ability to pay for entitlement spending with the much greater promises it has made for such spending.
Until the nation grapples with that issue, the debt limit is a sideshow. And if the country adopts an affordable path for entitlements, a debt limit is unnecessary.