A new legislative proposal backed by some deficit reduction hawks aims for the middle ground in the upcoming fight over raising the nation’s debt ceiling by tying a borrowing increase to the nation’s economic growth.
Rep. Scott Peters, D-Calif., is preparing to introduce legislation Wednesday that would index the $16.669 trillion debt limit to economic growth, allowing the government’s borrowing ceiling to rise automatically as long as it does not rise faster than gross domestic product.
Modeled on a provision in an updated version of the Bowles-Simpson deficit reduction plan, Peters’ two related bills would remove the requirement for Congress to approve an increase in the debt limit unless the debt was projected to grow faster than the economy.
Some observers think the plan could become one of the options considered by lawmakers and the White House as they face an October deadline to raise the debt limit or risk default. Among the options being discussed is suspending the debt limit, or allowing debt to rise until a certain date, when a new debt limit would be established.
The Treasury has estimated that extraordinary measures being used to avoid exceeding the debt limit will be exhausted in mid-October. The White House is insisting on a clean debt limit increase, but Republicans have said they want spending cuts in exchange for more borrowing authority.
Under Peters’ plan, if debt were projected to grow faster than the economy, the legislation would require the president to submit a plan to Congress to constrain debt growth through spending cuts or revenue increases. If no action were taken, the debt limit could not rise beyond the rate of economic growth without Congress’ approval.
The legislation also would redefine the debt limit as applying only to debt held by the public, which makes up the bulk of federal debt, not to intragovernmental debt, or debt held by federal trust funds. Debt held by the public currently is just short of $12 trillion, while intragovernmental debt is almost $5 trillion.
Peters, a freshman who represents the San Diego area, said one of the reasons he ran for Congress last year was his disgust with what he called “this disastrous discussion that Congress had in 2011 about the debt limit that led to” the Standard & Poor’s downgrade of the government’s credit rating. “We really need a viable alternative to what we know doesn’t work,” he added.
The debt stabilization trigger in the legislation would require the president to submit legislative recommendations to Congress to stabilize debt growth if the Office of Management and Budget projected the debt would grow faster than the economy within five years.
If Congress did not then adopt a budget resolution to reduce the debt by June 15, the legislation would allow any member of the House or Senate to call for a vote on a deficit reduction plan that had at least 50 House sponsors or 10 Senate sponsors. Peters said the provision would allow lawmakers to bypass legislative leaders, who typically can prevent a measure from being considered on the floor.
Ed Lorenzen, executive director of the Moment of Truth Project, calls the proposal a potential “middle ground” between the White House and congressional Republicans. “Raising the debt limit has become a politically difficult issue for everyone involved, and trying to find a reasonable solution to it is getting harder and harder for everyone,” he said.
Erskine Bowles and Alan K. Simpson, who co-chaired President Obama’s National Commission on Fiscal Responsibility and Reform in 2010, updated the commission’s deficit reduction plan last April and included a debt-limit-indexing proposal in it. Moment of Truth, a project of the Committee for a Responsible Federal Budget, was formed to build on the commission’s plan and spark a discussion about deficit reduction.
If Peters’ legislation were enacted, its practical effect would be to remove the need for congressional approval of a debt limit increase until 2019, based on projections that the debt will fall as a share of the economy until 2018, when it will again begin growing faster than the economy, Lorenzen said. But under the legislation, the president would have to submit a proposal as part of next year’s budget process to curb the growth of the debt, since it is projected to grow faster than GDP beginning in 2019.
The Congressional Budget Office estimated that debt held by the public will shrink to 70.8 percent of GDP by 2018 before starting to rise again the next year.