In an ideal world, House Republicans would do their duty and lift the debt limit without exacting a ransom. This is about paying the money that Congress — in a largely bipartisan fashion — already committed to spend. This is also about reassuring a fragile world that the U.S. government can still do something as basic as pay its bills. A potential debt-limit catastrophe is lining up to hit just as the U.S. economy flatlines. The latest report on gross domestic product on Thursday showed a slowing economy in which businesses have already cut back sharply on spending in the face of high uncertainty. On top of that, China and Russia are making a push to get other nations to sign on to alternatives to the U.S. dollar. A U.S. default would enhance their cause.
It’s true that President Biden and Congress need to discuss spending. The nation is on a fiscally unsustainable course. Social Security and Medicare costs are rapidly escalating, along with interest expenses as the debt grows. But holding the debt limit hostage to impose blunt spending cuts would only backfire. A default — or even a near-default — would lead to higher borrowing costs. That’s exactly what happened in the 2011 debt-limit standoff.
counterpointGoing where we’ve gone before
It would be best if Republicans agreed to raise the debt limit and Mr. Biden and Congress launched a separate, parallel process to negotiate how to stabilize the budget. Mr. McCarthy likes to tout that his bill would save nearly $5 trillion over the next decade. But here’s the catch: House Republicans do not specify where $3 trillion of those cuts in discretionary spending would come from. It’s far easier to talk about general budget cuts than to spell out how much less funding they want for roads, schools and the military.
Mr. Biden’s insistence that House Republicans pass a clean debt-limit increase without any strings attached is the morally and economically correct course of action. But reality has to sink in. It would be wise for Mr. Biden to start talking seriously with Mr. McCarthy. Budget talks can remain on a separate path, but they need to commence.
It’s wrong to think there is plenty of time before a crisis would hit. Although the latest read on tax receipts indicates default would not occur until July, a few months is hardly any time in Congress, particularly to craft a compromise when the two sides are so far apart.
Republicans and Democrats have staked out their public talking points on the debt limit. Privately, they need to find a way forward. More lawmakers should emulate Rep. Jared Golden (D-Maine) and start laying out compromise proposals.
This is not 2011. Investors around the world, even allies, are quietly diversifying away from U.S. debt. Meanwhile, borrowing costs are already high, and many economists forecast a recession on the horizon. The consequences of default — to the economy and the United States’ standing in the world — are even greater now. Politics cannot triumph over common sense.
