Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
 
   
 
     
 

The Sacramento Bee

 

Head to Head: Is it Important That the United States Honor Its Debt?

July 13, 2011

By Ben Boychuk

THE ISSUE: The United States reached its debt ceiling of $14.3 trillion on May 16. Since then, the U.S. Treasury has taken “extraordinary measures” to keep the country out of default until Aug. 2. Congress has not raised the debt ceiling since February 2010.

Is it important that the United States honor its debt?

Pia Lopez: Extremely

Imagine going to the grocery store, filling the cart, getting the tab, bagging the goods — and then declaring that you won’t pay until the store changes policies on X and Y.

The debt ceiling debacle is this and more.

Congress voted to spend money in the past, but now Republicans are balking at paying the bill.

This is squarely a congressional responsibility. Under our Constitution, only Congress has the power to raise taxes and borrow on the credit of the United States.

Congress cannot constitutionally repudiate the public debt. “The validity of the public debt of the United States, authorized by law,” reads the 14th Amendment, “shall not be questioned.”

The aim of that post-Civil War provision, explains legal scholar Jack Balkin of Yale Law School, was to prevent lawmakers from holding the public debt hostage “as part of a political threat or in order to exact political revenge.”

But what can anybody do if Congress shirks its constitutional duty and chooses not to honor the U.S. debt — something it is only days from doing?

Some argue that President Barack Obama ought not to allow the nation’s finances to go over the cliff. For example, Bruce Bartlett, who worked for the Reagan and George W. Bush administrations, has written: “In the event that congressional irresponsibility makes default impossible to avoid, he should order the secretary of the Treasury to simply disregard the debt limit and sell whatever securities are necessary to raise cash to pay the nation’s debts.”

Rather than provoke a constitutional crisis, the Obama administration would do better to exercise options for “prioritizing” payments.

He could follow Treasury Secretary Robert Rubin’s 1995 playbook when House Speaker Newt Gingrich provoked a similar debt ceiling crisis — by informing Congress that their failure to act means Social Security checks will not go out.

Oh, and stop paying congressional salaries. My prediction: end of this manufactured crisis.

This is only happening because House Republicans changed the rules on debt ceiling votes. Since 1979, when the House set spending levels in the budget, it also set the debt limit.

In January they repealed that. So when House Republicans in April passed the “Ryan budget” for the 2012 fiscal year, calling for debt of $16.2 trillion, they did not at the same time vote to raise the $14.3 trillion debt limit to pay for it — as in previous Congresses. Dishonesty and hypocrisy reign.

End this charade and pay the bills. The public integrity and creditworthiness of the United States are at stake.

 

Ben Boychuk: Yes, but...

Refusing to raise the statutory debt limit will not — repeat, will not — lead to the United States defaulting on its debt. Not if President Barack Obama and Treasury Secretary Timothy Geithner do their jobs.

If the Republicans in Congress hold the line on the debt limit, it means after the government meets its obligations to bondholders, spending will need to be cut across the board.

That’s why Pia’s grocery store analogy is inapt. Here’s a better one. Imagine you inherited a large house with a lot of land and a platoon of groundskeepers. Imagine refinancing your house to buy a pickup, a toy hauler and a cool speedboat. Now suppose in order to keep up with the payments on your house, truck, RV and boat, you take out another loan.

And suppose in order to keep paying the staff at your house, you decide to make the minimum monthly payment on your Bank of Japan MasterCard by taking cash advances from your Bank of China Visa. Don’t worry, you can always fall back on American Express in emergencies.

At some point, your spouse will come to you and say this is a crazy arrangement. Maybe you should part with the truck, the RV and the boat. And do you really need all of those groundskeepers?

My analogy may be convoluted, and it’s far from perfect. I might have mentioned that our householder makes a pretty good income, even if he is overextended.

Turns out, the U.S. Treasury currently collects enough each month in taxes and fees to meet its interest obligations. But not all expenditures are an equally high priority. In other words, the government can easily pay Visa, MasterCard and AmEx bills, but might need to delay paying some groundskeepers for a few days.

The real question facing Congress today is not whether to default. And it’s not whether to raise the debt ceiling. The question is how.

Obama, who added $3 trillion to the debt in his first two years, wants to raise taxes by $1 trillion or more based in part on the demagogic claim that a tiny tax break for corporate jet owners no Republican voted for may kill children.

Oh, and he also promises spending cuts spread out over the next several years.

Accepting tax increases today in exchange for the promise of spending cuts 10 years down the road is folly. Cut more spending this year, and the years ahead.

Resist new programs. Reform entitlements. But first, pay the bills.

Original Source: http://www.sacbee.com/2011/07/13/3765547/is-it-important-that-the-united.html

 

 
PRINTER FRIENDLY
 
LATEST FROM OUR SCHOLARS

5 Reasons Janet Yellen Shouldn’t Focus On Income Inequality
Diana Furchtgott-Roth, 10-20-14

Why The Comptroller Race Matters
Nicole Gelinas, 10-20-14

Obama Should Have Picked “Ebola Czar” With Public-Health Experience
Paul Howard, 10-18-14

Success Of Parent Trigger Is Unclear­—Just As Foes Want
Ben Boychuk, 10-18-14

On Obamacare's Second Birthday, Whither The HSA?
Paul Howard, 10-16-14

You Can Repeal Obamacare And Keep Kentucky's Insurance Exchange
Avik Roy, 10-15-14

Are Private Exchanges The Future Of Health Insurance?
Yevgeniy Feyman, 10-15-14

This Nobel Prize-Worthy Economist Figured Out How To Destroy Terrorism
Diana Furchtgott-Roth, 10-15-14

 
 
 

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494