An idea for solving the Debt Ceiling Impasse

Frankly, nothing that is currently on the table sounds like a good idea to me.  Here is my idea for solving the Debt Ceiling impasse.  It is a completely different approach than anything currently under discussion.

Step 1 - fix the problem for the current fiscal year.  We actually hit the debt ceiling a couple of months ago.  Treasury has been using work arounds to delay default.  The ceiling needs to be raised enough to undo these work arounds.  I don't know what the amount is but the Treasury Department should.  It should be roughly the amount of the deficit for the last couple of months.  We also need to cover the additional deficit that will be run up in the next two months (August and September) of the current fiscal year.  These two figures should total to a few hundred billion dollars.  We immediately raise the debt ceiling by this total amount.  So we are now covered until the end of September.

Step 2 - fix the next fiscal year.  The debt ceiling would be automatically raised as of October 1, 2011.  The amount would be equal to the projected deficit for the new fiscal year that starts on October 1.  I expect that this figure will be contentious.  It will need to be negotiated between the Democrats, Republicans, and the White House.  Note to deficit hawks:  Don't worry if the agreed on figure is a little high.  See below.  Call this number "X" dollars as we will be using this number in the rest of our calculations.

Step 3 - fix the fiscal year starting October 1, 2012.  On October 1 2012 automatically raise the debt Ceiling again.  Raise it by 90% of "X" dollars.

Step 4 - fix additional fiscal years.  Every year the debt ceiling would be automatically raised.  But each year the amount of the increase would be reduced by 10% of "X".  So on October 1, 2013 the debt ceiling would be raised by 80% of "X".  Repeat this process where every year the debt ceiling gets raised but by 10% of "X" less than the previous year.  This would continue until one year we are raising the debt ceiling by 10% of "X".  In the next and subsequent years the debt ceiling would not be raised.

All of these dates and amounts would be put explicitly into the debt ceiling law.  Changing the debt ceiling on a certain date to a certain amount has been done before, typically to allow for temporary extensions.  So we know how to do this.  Why is this a good idea?  Because it meets the important objectives of all parties.  Specifically:

• It is easily doable in the short time we have left.  It is simple enough that it is easy to analyze and understand.  It should require a bill of only one or two pages in length to implement.  It is simple enough that it should not have any unexpected consequences.  Many proposals currently being discussed are complicated and difficult to understand.  As such, they are likely to have serious unintended consequences.  Since they are complex and rushed they have a large chance of containing serious drafting flaws that we will only find about later.

• It meets President Obama's objective of solving the problem through the 2012 election.  In general, it provides the "certainty and predictability" so desired by many.

• It gets us to a balanced budget in about 10 years.  Getting to a balanced budget is a key demand of the Tea Party.

• It gets us to a balanced budget before the "Ryan Plan" budget would and before the Obama budget forecasts would.

• The time line for achieving a balanced budget is similar to the time line in the House Progressive Caucus budget so progressives should like it.

• It shows fiscal responsibility, a key concern of Wall Street, the business community, the International business/finance community, and others concerned about the long term U.S. fiscal situation.

• It is gradual enough to avoid doing major harm to the recovery, a key concern of Paul Krugman and many others.

• It is a simpler and more effective "trigger mechanism" than any of the proposals I have seen.

• It is undoubtedly constitutional.  As I said, date triggered changes to the debt ceiling have been done before.

• It retains Congressional prerogatives.  If something unexpected and drastic should happen, Congress could amend the law.  But it would change the traditional view of the debt ceiling.  After all this it no longer be viewed as a "routine housekeeping matter".  As such it would become politically much more difficult to raise the debt ceiling in the future.  It also gives Congress and the White House explicit targets for deficits in future years.  But it retains complete flexibility as to the means, how the deficit targets would be met each year.

There are certainly objections that can and will be raised to this idea.  But I think it is politically doable and almost everything currently out there is likely to be vetoed by someone.  It represents a good compromise that gives pretty much everyone almost all of what they want.

If my idea is implemented it would let Congress get back to the business of passing a budget.  We only have two months as it needs to be in place before October 1, 2011.