During last year’s debt limit debate, many pundits and politicians – including President Obama – demanded that Congress authorize immediately and unconditionally an increase in America’s borrowing authority.
They argued that because time of was the essence, Congress need only guarantee more debt, but not necessarily make any real spending cuts or structural changes to Washington’s poor fiscal habits. If Washington did not act, they confidently asserted, America would default on its obligations.
But the greater focus should have been on the threat of a credit downgrade. After all, in April 2011, Standard & Poor’s warned Washington of an upcoming downgrade if Congress did not make necessary structural changes to the budget.
The debt ceiling was raised – and the credit downgrade came anyway. In fact, S&P wasted little time in following through on its warning by downgrading America’s long-term rating just a few days later. For the first time in American history, the U.S. credit rating was no longer the envy of the world.
And the threatened default? Well, despite the Administration’s claim otherwise, Vice President Joseph Biden confirmed a few weeks after the agreement what we knew all along: The U.S. was not going to default. In a speech to a group in China, he confirmed fearful warnings of an impending default were a ruse all along.
He told them not to worry about the U.S.’s follow-through. After all, he argued, we owe more to ourselves than to the Chinese, and no politician wants to deny a voting lender the payment he is due.
As America approaches exhaustion of its borrowing authority yet again, Washington should not make the same mistakes as 10 months ago.
First, no politician or pundit should fall for the Obama Administration’s dire warnings about default. Biden said it himself: America will fulfill its obligations, if only for the reason that politicians are self-serving.
Rather than fret about something that will not happen, let us fret over something that did happen and which could happen again: further downgrade of the U.S.’s creditworthiness.
As recently reported in The Hill, “rating agencies are warning that the federal government risks another downgrade of its creditworthiness if it fails to come up with a credible plan this year to lower the federal deficit.”
Second, any one-for-one match on debt and cuts must occur in the first year, not over a ten-year window. It is impossible to tie the hands of future Congresses.
We need only look at the fallout of the Budget Control Act to realize how fruitless it can be to bind the current Congress to its own deals. The Super Committee is now a relic of the past, and the sequestration it agreed to is likely to be undone before the year ends.
Although Obama says he would veto efforts to undo the automatic cuts, his budget office instructed the Department of Defense to ignore the sequestration. All that is left of the agreement is nearly $2.1 trillion more in debt, non-binding promises of cuts by some future Congress, and public disgust with a false façade of fiscal responsibility.
Washington must also learn one other lesson from the downgrade: Structural changes are an absolute necessity to solve our fiscal challenges. Sure, the Budget Control Act required Congress to hold a vote on a balanced budget amendment – woo, hoo! – but it obviously provided no mandate for it to pass.
Instead, Congress should have simply told Obama that there would no debt ceiling increase without structural changes. Cut, Cap, Balance was the only serious mechanism to achieve this – and it should have been enacted.
More likely than not, Obama will max out America’s credit card before the end of 2012 – before any of the promised cuts are even scheduled to take place on January 2, 2013. Hopefully, the distractions and inside-the-Beltway mentality that prompted Republicans and Democrats to forge a bad bipartisan deal in 2011 will be put aside in 2012, and the lessons of the 2011 downgrade will lead to true fiscal reform.
Rep. Tim Huelskamp, R-Kan., serves on the House Budget, Agriculture, and Veterans’ Affairs Committees. He is a member of the Republican Study Committee.