Reblogged: The Debt Ceiling is a good thing

[Practice Good Theory Blog]

Two laws that disagree: The U.S. government budget has a deficit. This deficit adds to the debt. By approving the budget, Congress implicitly approves an increase in debt. However, the U.S. also has a debt-ceiling. Debt cannot go beyond this without Congressional approval, even if Congress has already approved a budget that pushes the debt higher.

Why have two laws that can conflict? Secretary Lew says this does not make sense; but, he's wrong. The budget is only an approximate forecast, and that's all it can be. A budget might set some tax at 33% of income, but how much taxable income will people have? If it is less than forecast, the tax inflows will be less than forecast, and the deficit will be higher.

Personal budget ceilings: Analogously, I might plan on buying ice-cream for the kids once a month, but the number of kids at practice varies. Across all sorts of expenditures, in some months I might blow my budget. So, I might have a second control: e.g. I will not let my bank account go below $X , or I won't let my credit card balance go above $Y. If I suddenly have an expensive car-repair, ice-cream may take a hit: the budget bows to the ceiling. The ceiling rules because it is the simpler rule about net-impact. I budget all these things, but will not break my ceiling. If I am likely to, I must start to cut.

Ideally, the government would not run deficits and government debt would be ZERO. We should cut government expenses, including social-security, student-loan subsidies, and so on. Meanwhile, from where we are now, we should start by strengthening the debt ceiling.

A stronger debt-ceiling: For instance, we could have a law that says this: when CBO scores a budget, the projected debt should end up at least 5% below the debt-ceiling. If it does not, the budget needs to be re-worked. If Congress cannot agree to re-work, all government expenditures, including expenditures on "entitlements" like Social security should be reduced by x%, in order that the projection comes back to 95%. Then, each quarter, the CBO should be asked for a revised estimate, and if the debt is projected to be over 95%, the same thing should take place.

Today, the debt ceiling is a stumbling block that forces congressional negotiation. That can be a good thing, but I'd rather see it strengthened, have it work to reduce the budget automatically, and also -- most importantly -- impact "entitlements". That could be a debt-ceiling worth fighting for.

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