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Debt Be Not Proud

Jan 17, 2011, Vol. 16, No. 17 • By YUVAL LEVIN AND WILLIAM KRISTOL
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As the 112th Congress begins its work this month, it must take up some unavoidable unfinished business left behind by its predecessor. In their frantic, sloppy struggle to advance big-ticket items on the liberal agenda, the Democratic leaders of the 111th Congress not only failed to produce a budget for the current fiscal year, they also failed to address the fact that the federal borrowing necessary to fund their spending binge was quickly nearing the legal debt limit.

Debt Be Not Proud

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That means the new Congress, with a Republican House and a narrowly Democratic Senate, must pass an appropriations measure for the rest of the fiscal year by early March, when the temporary continuing resolution now in effect runs out. And it means the new Congress must raise the debt ceiling—to allow for federal borrowing necessary to cover expenses already incurred by President Obama and the last Congress, regardless of what the new Congress does about spending.

On their face, these hardly seem like ideal conditions in which to begin reining in government. But if Republicans resist the urge to deny the reality of these circumstances, and instead seek ways to turn them into opportunities to advance their agenda, they might find that they have quite a strong hand after all.

If Republicans are not careful, both the budget and debt-limit debates threaten to devolve into games of chicken in which each side tries to blame the other for failing to avert a government shutdown (if not a default on America’s debt). In such a confrontation, President Obama would have the advantage. He and his party have nothing to lose from a government shutdown. The public knows that the Democrats, as the party of big government, do not desire a shutdown, and so would blame the impasse on Republicans. Concern over absent government services and benefits, undoubtedly magnified by the press, would create pressure that, over time, would divide the Republicans but unite the Democrats. Obama could let such an impasse continue indefinitely, and would gain from every passing day, as Bill Clinton did in 1995. 

Furthermore, if the debt ceiling, and not just the budget, is at the heart of the showdown, the costs will be not just political but economic. The Treasury could, for a time, move money around the various government trust funds to avoid actually hitting the debt limit—though such moves, especially if they involve Social Security or Medicare, would be politically unpopular. But within a few months at most, the government would be unable to repay existing debt and interest and would confront default.

The exact implications of this are hard to predict. But none of them are good. The Treasury probably would have to prioritize debt repayment and entitlement checks and arbitrarily slash other spending, all while turning away potential lenders, unnerving the bond markets, and sending interest rates upward—thereby increasing the cost of our debt even more.

None of this is what our ailing economy needs as it struggles to recover, and none of it is what the voting public wants to see. It would all inevitably end with Congress raising the debt ceiling (as Republican and Democratic Congresses have done ten times in just the last decade), but on terms far less friendly to Republicans, who will have used up a great deal of political momentum and capital for naught.

It is easy to understand the frustration of Republicans confronted with the task of cleaning up after the Democrats’ orgy of spending. They want to get right into the work of restraining government excess and unleashing growth. A vote for raising the debt limit—however inescapable the necessity—feels too much like acquiescence in the binge they were elected to end.

But it need not be. Rather than revolt against the circumstances they have been handed, Republicans in Congress should turn these Democratic loose ends into opportunities to begin changing the spending culture of Washington, and to strengthen their position in the bigger fights to come this year.

The 2010 election has given Republicans a stronger bargaining position, but it has not made them supreme in Washington. They have the power to stand athwart any further lurches toward European-style social democracy, and they will surely do so. The hyperactive period of the Obama presidency is over. The question for Republicans is whether their situation—controlling the House but not the Senate or the White House—also allows them to advance a positive agenda of their own, while persuading the public to give them the power to do more in 2012. The answer is surely yes, if Republicans use their improved bargaining position wisely and reinforce rather than deflate the public mood that got them here.

That means picking fights they can win rather than forcing confrontations they are sure to lose. It means offering serious reforms and spending reductions that the public will deem reasonable and the Democrats will find difficult to reject, and so creating the conditions for further improvement.

The Democrats’ unfinished business offers Republicans the opportunity to do this early, if they act quickly to define the budget and debt-ceiling debates, and if they recognize that the decisive battle of this Congress will be the fight over the 2012 budget—which begins with the president’s State of the Union address next month and the Republican budget resolution in March. The remnants of the previous Congress, therefore, should be dispatched quickly, and in a way that sets the stage for the main event.

Early in the winter, perhaps even before the president’s State of the Union address, the House should pass a single measure that enacts the unavoidable increase in the debt limit (attaching to it strict spending discipline measures, as proposed below, to make sure that future increases can be avoided) and puts in place a continuing resolution for the remainder of the 2011 budget year. That resolution should disburse domestic discretionary spending for the rest of fiscal 2011 at 2008 levels, thereby reducing such spending by more than $50 billion over the rest of this year and paving the way for even more significant reductions in 2012.

The bill should also require that all unused stimulus money, unused prior-year earmark money, unobligated balances in agency budgets, and repayments of TARP and bailout funds be directed immediately and exclusively to debt reduction. And it should require every agency of the executive branch to report to Congress by May 1 on exactly how it will adjust its operations—line item by line item—to return to its full-year 2008 spending levels next year and to even lower levels over the rest of the decade.

President Obama and the Democrats would of course recoil from such cuts. But legislation like this would be difficult for them to oppose. It would represent a modest spending freeze at levels deemed adequate just three years ago, in the midst of the Great Recession, and it would only be a temporary measure as the 2012 budget debate begins. Obama and the Democrats would find it difficult to paint such a measure as reckless or unreasonable. For Republicans, this measure would offer many advantages beyond its sheer spending reductions. It would tie the increase in the debt limit made necessary by the reckless spending of the past few years to concrete efforts to reverse that spending and reduce the debt. It would send a clear message that spending is going down, not up. It would take the possibility of a government shutdown off the table.

It would, in other words, move the debate onto ground that favors Republicans rather than Democrats. Following the debt-ceiling/continuing resolution legislation, Republicans could introduce a series of rescission measures that make further cuts in 2011 spending—for instance, enacting a hiring freeze for the federal workforce and reducing or terminating funding for public broadcasting, various corporate subsidies, Amtrak subsidies, and the like. Some of these will make it through the Senate, others will not. Some will be vetoed, while some might be enacted. No matter the outcome, Republicans will be fighting on friendly turf—championing the sort of sensible spending restraint they were elected to advance even as the 2012 budget fight proceeds, and keeping the president and Senate Democrats on the defensive all year, rather than engaging in dramatic standoffs that favor the White House.

If Republicans resist getting caught up in the heat of the moment, if they understand that the 2012 budget fight must be the real focus of their energies, they have a chance to make a virtue of necessity, and to begin the new Congress by scoring some serious gains and building momentum for more.

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