End the debt ceiling games

The latest debt showdown is reaching a boil in Washington. This is the fifth such debt ceiling cliffhanger since 1995. Once again, a needless possibility of default looms as the ceiling imposed under a century-old federal law is tensely negotiated across the partisan divide.

The hard deadline for an agreement is June 1, according to the nonpartisan Congressional Budget Office. If the deadline is missed or put off, officials say, the fallout, while significant, might not be instantaneous. Different categories of funds could run out at different times including Medicaid reimbursements to states, Supplemental Nutrition Assistance Plan benefits, individual tax refunds, and federal salaries.

But finance professor Jeremy Siegel of the University of Pennsylvania's Wharton School this week staked his reputation on a prediction: “There is zero chance the debt issue will not get resolved even though there will be posturing and debate right up to the last minute before timelines are extended or the debt limit is raised." Even if Siegel and others who agree are wrong and the chance of default is greater than zero, the sensible advice here is the same — to pay attention, but not to panic.

Republican House Speaker Kevin McCarthy has held up approval of the latest round of federal borrowing as leverage to prod President Joe Biden into making spending concessions the GOP wants. Biden appears willing to compromise, to a point. Negotiations have been underway, but what should be a routine deal always has its twists. Only the leaders' irrational failure to come to terms would bring disaster.

The U.S. has never defaulted on paying its obligations, a fact that has long supported our strong international credit. But history has its gray areas. The Treasury Department in 1979, for example, briefly missed some T-bill payments due to tech issues earlier in the computer age. 

Behind the continual congressional debt standoffs is an outdated 1917 law that was, ironically, crafted to make federal borrowing easier. The Second Liberty Bond Act, enacted due to World War I, says the Treasury Department can issue bonds and take on other debt without specific congressional approval — as long as the total amount fell under a set statutory ceiling. Since 1960, Congress has raised, extended, or revised the debt limit 78 separate times, under presidents of both parties.

Unfortunately, the limit applies to the Treasury's payments for expenditures previously made by Congress. That makes for an unwieldy and arbitrary disconnect between the borrowing and spending functions. Why keep it? Can’t a more sensible approach be taken for modern debt practice? Past proposals to abolish the debt ceiling have failed, but Congress should craft a way to align the money it votes to spend with the borrowing it legally authorizes.

For now, America must remain in calm suspense as hardball talks proceed, hopefully to a quick resolution. Once it's over, or even before, a systemic change is worth discussing.