Debt ceiling politics imperil U.S. economy

Opinion editor's note: Editorials represent the opinions of the Star Tribune Editorial Board, which operates independently from the newsroom.

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It is possible that within weeks, the unthinkable could happen — the United States could default on its debt.

Think about the implications of that for a moment. That means the wealthiest nation in the world would not pay the money it owes for our collective expenses — spending approved by Congress.

U.S. Rep. Dean Phillips, D-Minn., compared that scenario to "dine and ditch" in an interview with an editorial writer. The nation, he said, "simply cannot allow this to happen. U.S. debt is never questioned. That's what makes it the safest investment in the world."

The reason it's never questioned, said Louis Johnston, an economist and professor at the College of St. Benedict and St. John's University, is because of the 14th Amendment. That legislation was passed in the wake of the Civil War and was intended, among other things, to ensure that the U.S. would never default on its obligations.

"That has made us the foundation for the entire global financial system," Johnston said. "We are the benchmark for everybody around the world. If that goes, it throws a wrench into the entire international financial system." Because it's never happened before, the consequences are hard to predict. But, he said, "Interest rates would shoot up dramatically. The gains made on inflation could be wiped out. There would be a big slowdown in business and consumer spending, leading to certain recession, to say nothing of the worldwide impact."

This time looks to be different. Biden could, Johnston said, say he would follow the Constitution and continue issuing debt. That, he said, would undoubtedly draw a court challenge. Johnston believes the Constitution would win out but cautioned, "Nobody should be willing to go that far. This is not a game."

It must be noted that when Republicans controlled Congress during the presidency of Donald Trump, they willingly suspended the debt ceiling not once but three times, despite mounting debt. In fact, one-fourth of all U.S. debt, $7.8 trillion, was incurred in the Trump administration.

At no time then did Republicans issue an ultimatum like the one Sen. Mike Lee, R-Utah, made recently, saying that "we will not be voting for cloture on any bill that raises the debt ceiling without substantial spending and budget reforms." The difference? This time instead of a Republican president, there is a Democrat in the White House. The economic stability of this nation, and by extension, the world, should not turn on such petty partisanship.

Regrettably, a decision Democrats made in the waning days of the 2022 lame-duck session has returned to haunt them. The Star Tribune Editorial Board wrote in December about the missed opportunity they had when they still had nominal control of both bodies.

Many, including this board, urged them to raise the debt ceiling while they still could. Admittedly, they faced an agonizing choice: pass a comprehensive budget agreement, pass vital electoral reforms, or try to fit in the divisive debt ceiling measure. Sen. Amy Klobuchar, D-Minn., head of the powerful Rules Committee, told an editorial writer then that the debt ceiling "is something I would love to get done before the end of the year." The closely divided Senate passed two out of the three.

Biden, for his part, has insisted on a "clean" debt ceiling suspension, as was done under Trump. Republicans have tried to pin the blame on him for a refusal to negotiate under the crisis they precipitated.

Phillips said two truths are at work: "We cannot default on our debt, and we must become more fiscally responsible. It's got to be 'and' not 'either or.' " Phillips said the Problem Solvers Caucus, of which he is a member, introduced a framework that involves suspending the debt ceiling and creating a bipartisan fiscal commission to negotiate a thoughtful solution to the debt crisis, along with interim debt stabilization controls. To ensure the report doesn't get shelved, he said, adoption would require the work product to be put to a floor vote in the House and Senate.

That's a sensible approach involving both spending cuts and revenue increases that could reverse elements of the tax-cut spree in the previous administration.

Better still would be to follow that by rescinding the debt ceiling law itself and forever taking off the table a tool capable of crippling financial stability here and abroad. Congress should be able to negotiate its way to agreements without such gun-to-the-head strategies, no matter which party is in control.