WASHINGTON, November 25, 2012 — The “fiscal cliff” has become the most ubiquitous phrase in Washington. But it is not the only crisis facing the United States. In fact, the fiscal cliff is not a cliff. It is more like a steep slope. The real cliff is the debt ceiling, and the existence of a debt ceiling law in the United States is fundamentally useless.
The fiscal cliff refers to the expiration of temporary tax breaks - the 2001 and 2003 Bush tax-cuts, and the payroll tax cuts enacted in 2010 - and the across-the-board spending cuts in various social programs and defense.
Falling off the fiscal cliff suggests that if members of Congress do not reach a deal by the end of the year, the American economy will somehow plummet into the abyss. That is unlikely.
Warren Buffet, billionaire investor, in an interview with CNN said, “The fact they can’t get along for the month of January is not going to torpedo the economy.”
Regardless of when Congress reaches a deal to avoid the fiscal cliff, the United States will reach its debt limit sometime in the first quarter of 2013.
The debt ceiling is the maximum legal limit the U.S government can borrow at any given time. That limit is currently $16.4 trillion. The debt ceiling was established by the Second Liberty Bond Act of 1917, which helped finance the U.S entry into World War I. Since then, the debt ceiling has been raised almost 100 times.
So why have a “debt ceiling” at all if it has to be raised every year? Some argue that it forces lawmakers to focus on the national debt.
But Congress already has the power of the purse and can control how much the government can spend and receive in taxes. So having a statutory “debt ceiling” is pointless. It does nothing to control the national debt. If it did, it would not need to be raised every year.
It is also worth noting that raising the debt limit is not an authorization of new federal spending. It permits funding for the existing spending commitments that have already been agreed to by Congress.
The debt ceiling gives politicians in both parties the opportunity to score cheap political points and hypocritically claim the mantle of fiscal responsibility.
For example, in 2011, a total of 85 Republicans voted against raising the debt ceiling, many of whom also voted in favor of the wars in Iraq and Afghanistan, Bush tax-cuts, Medicare prescription drug program, and the Troubled Asset Relief Program (TARP), all of which contributed to the need to raise the debt limit.
Democrats engage in the same political grandstanding as well. In 2006, a little-known senator named Barack Obama voted against raising the debt ceiling. “Increasing America’s debt weakens us domestically and internationally,” he said.
But as president, he acknowledged in an interview with George Stephanopoulos that it was “an example of a new senator making what is a political vote as opposed to doing what was important for the country.”
Beyond the political drama the debt limit creates, it is dangerous to the American economy. If the United States defaults on its national debt, the impact on the economy will be devastating and the ripple effect would reach the global economy.
The U.S Treasury will not be able to issue new bonds, which means the country will not be able to pay its bills, including Social Security payments and interest on the national debt. Stock markets would plunge, interest rates would soar, the dollar would lose its value, and the economy would slip back into a recession.
That is a cliff the United States cannot afford to fall from.
The fear of a debt default is enough to jolt the financial markets. In August 2011, the debt ceiling fight between The White House and Congressional Republicans led to a downgrade in America’s credit rating. That could happen again in 2013.
Members of Congress understand the importance of raising the debt limit, yet they continue to engage in political gamesmanship. Why risk another unnecessary debt ceiling showdown that could roil the financial markets?
The debt ceiling is purposeless. The sooner it is abolished, the better off America will be.
Ayobami is graduate student in George Washington University’s Graduate School of Political Management.
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