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What if Trump Does Away With the Debt Ceiling?

ELIMINATE THE DEBT CEILING?

Trump wants to do away with the debt ceiling entirely.  Could this possibly be a good thing?  Certainly, there would be some comfort gleaned from ending the near constant threat of a government shutdown.  But if Trump thinks it’s a good idea, surely it couldn’t be a good idea.  Right?

Last Thursday Trump told reporters that “there are a lot of good reasons” to eliminate the debt ceiling.  Indeed, on a good note, the Washington Post reported that there is now an agreement between Trump and Senate Minority leader Chuck Schumer (D-N.Y.) to work toward that end together in the coming months.  The news there being Trump collaborates with a Democrat.

Trump said that the debt ceiling “complicates things, it’s really not necessary.”

Can that be true?  Turns out that, yes, it can.

THE DEBT CEILING EXPLAINED

The debt ceiling was enacted a hundred years ago exactly in 1917.  At the time it was to appease fiscal conservatives who were concerned about spending too much on WWI.  “It’s the limit on how much Congress can borrow to run the federal government,” said Ron Elving from Ron’s Office Hours on NPR.

Not raising the debt ceiling is quite like not paying your credit card bill.

Effectively the debt ceiling is not specifically a limitation on our spending. It’s just a limitation on the amount of outstanding debt we have. –  Shai Akabas, director of fiscal policy at the Bipartisan Policy Center.

Ron Elving wrote a post titled 9 Questions About the Debt Ceiling Answered and it is an excellent resource for further understanding the debt ceiling.

Since that is the case, maybe Trump is on to something.

That felt weird to say.

THE DEBT CEILING IS ARBITRARY

Almost no one is a fan of raising the debt ceiling until it comes time for a government shut down, then many more people come on board. The problem is, the debt ceiling is arbitrary.

Economists say that if they don’t raise the debt ceiling, it will lead to a “global financial catastrophe.”  So, not raising the ceiling isn’t an option. That is because the debt ceiling isn’t like getting the limit raised on your credit card so that you can spend more. The debt ceiling is determined AFTER the government has borrowed the money and allocated it to projects. So not raising the debt ceiling is like buying on credit and then telling the card company that you refuse to pay them everything you owe. That is why whenever discussion of the debt ceiling comes up, people talk about the U.S. defaulting on its loans.

According to a Senate report:

Congress has always restricted federal debt. The Second Liberty Bond Act of 1917 included an aggregate limit on federal debt as well as limits on specific debt issues. Through the 1920s and 1930s, Congress altered the form of those restrictions to give the U.S. Treasury more flexibility in debt management and to allow modernization of federal financing. In 1939, a general limit was placed on federal debt.

The downside to removing the debt ceiling is that there will no longer be a limit on how much the government can borrow.  That factor alone is enough to scare a lot of people away from the idea.  However, if it requires constant adjustments, what’s the point?  It all comes down to transparency.  It’s natural for us to balk at the idea of unchecked borrowing.

TRUMP AND SCHUMER WORKING TOGETHER?

Still, Schumer seems to have found some common ground with the president. It’s no secret that Trump listens to the people speaking to him at the moment, and right now that is Schumer.

The House voted 316-90 to pass legislation last Friday that extended the debt ceiling vote through December, as well as provide some of the funding for Harvey relief. Republicans didn’t want to pass another short term solution, and they are bristling at being forced to do so.

It remains to be seen if removing the debt ceiling could be beneficial. Surely it would make things less complicated.  Here’s hoping that Schumer and Trump continue to play nice either way.

 

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