Leveraging the Debt Ceiling

Pat Toomey is proposing a way to ensure that freezing the debt ceiling will not result in a default on government obligations. I like the way he is thinking, because the debt ceiling is one of the best levers the Republicans in the House have of forcing a real debate on spending cuts. Here is a part of his proposal:

In fact, if Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt. Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?

To make absolutely sure, I intend to introduce legislation that would require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised. This would not only ensure the continued confidence of investors at home and abroad, but would enable us to have an honest debate about the consequences of our eventual decision about the debt ceiling.

The Tea Party should get behind this legislation. It takes straight aim at our most important assertion, that the never ending expansion of government debt is a threat to the foundations of the Republic.

On the same page of today's WSJ, Dick Armey and Matt Kibbe, of FreedomWorks, propose a series of spending cuts that could be accomplished with the leverage that a frozen debt ceiling might bring. They also remind us of the wisdom of the late, great Milton Friedman:

Milton Friedman correctly argued in 1999 that the "real cost of government—the total tax burden—equals what government spends plus the cost to the public of complying with government mandates and regulations and of calculating, paying, and taking measures to avoid taxes." He added, "Anything that reduces that real cost—lower government spending, elimination of costly regulations on individuals or businesses, simplification of explicit taxes—is a tax reform."

On to the savings. I like the way they are thinking, here are some I can endorse:

• Stop stimulus spending, $177 billion per year.
• Repealing Obamacare, $898 billion over 10 years.
  
• End the bailouts of Fannie Mae and Freddie Mac. $389 billion.
• End ethanol subsidies. $170 billion over 10 years.
• Scrap Commerce and HUD, $550 billion over 10 years. (Although I would keep NIST and "weights and measures" as constitutionally allowable.)
• End Amtrak subsidies, $38 billion.
• Defense spending cuts of $145 billion over 5 years as Secretary Gates proposes.

Read the whole thing here.

They also make the argument that the entitlement mess is the biggest problem in the federal budget. With respect to the health care spending, they are arguing in favor of Paul Ryan's approach to convert medicare spending into capped contributions to individuals. Perhaps more on that in another article.

One area where I disagree is to convert some portion of Social Security into optional personal accounts. I once liked this idea, but now believe it will result in mischief, because the government will be too tempted to regulate or raid those accounts. Better to ween the public off social security by steadily eroding its benefits, in order to "save" it. For example, slowly raising the retirement age, capping increases below the rate of inflation, and means testing benefits by taxing them reduce the benefits. As the country inevitably grows richer, social security will eventually be seen as anachronism. Forty years from now, if I live that long, we won't be having this debate.