President Joe Biden’s administration and its Republican opponents in the House of Representatives are stuck in another debt-ceiling impasse. To avoid the calamity of an outright default, this reckless ritual usually demands a last-minute deal or capitulation. This time, taking such a benign outcome for granted might be a mistake — and the buck will stop with the president, whether he recognizes it or not.
So far, neither side looks interested in shaping an agreement that the other could conceivably accept. The administration is flatly refusing to negotiate, insisting on an increase in the debt ceiling with no strings attached. Republicans led by Speaker Kevin McCarthy have at least made a proposal — across-the-board cuts in discretionary spending. They know Biden will reject it, and don’t much care. The one thing both sides agree on seals this contract of mutually assured paralysis: Social Security and Medicare (both rapidly approaching technical insolvency) can’t be touched.
This latest stand-off is especially dangerous because both sides think the other will get the blame if a default actually happens. The U.S. wrecks its standing in global capital markets, the economy pays an enormous price, and it’s a win for our team, the thinking goes. It’s as cynical as it sounds.
Attempts to find a compromise by a handful of moderates in the bipartisan Problem Solvers Caucus have gone nowhere. Party leaders actually oppose such talks, calling them counterproductive. To break this agreement to disagree, the president needs to step forward and lead the effort to strike a deal. Given the stakes for the economy, he could call on Commerce Secretary Gina Raimondo, an experienced negotiator, to take the lead.
True, the debt-ceiling mechanism is flawed. No sane country would routinely toy with default in this way, and rising debt is in any event a consequence of fiscal decisions that have already been legislated. Yet nearly two-thirds of the federal budget is consumed by so-called mandatory outlays, which simply rise on auto-pilot; a periodic review of prior spending decisions isn’t crazy either.
Those facts argue for a better method of debt control. Ideally, Congress would place limits on the ratio of public debt to gross domestic product (rather than the dollar amount of debt) and would require that any violations trigger orderly changes to taxes and spending (not an abrupt halt to debt-service payments). Some such reform ought to be part of what Biden proposes to break the stalemate.
But the president also needs to acknowledge that current rates of tax and spending are unsustainable, that his recent budget plan fails to put this right, and that the big two entitlement programs do indeed need reform. To avoid an immediate crisis, he should commit to finding a judicious mix of higher taxes and lower spending in exchange for a reasonable extension of the debt limit as talks progress.
Longer term, he should empanel a bipartisan commission to review the options and make recommendations. The last such effort was the Simpson-Bowles Commission established in 2010. It did excellent work and shifted the terms of the fiscal debate. In the end its recommendations weren’t adopted, yet such endeavors aren’t doomed to fail and always should be weighed against the alternatives. Compromise may be distasteful in some partisan circles these days, but the heightened risk of default makes it indispensable.
In seeking such a deal, Biden should make the case for better government to both sides in Congress and to the country’s voters. What’s needed most in this impasse is leadership — and right now, that means negotiating.
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The Editors are members of the Bloomberg Opinion editorial board.
