House Republicans expect to vote on a plan to raise the debt ceiling this week. The Limit, Save, Grow Act put forth by Speaker McCarthy would raise the debt limit by $1.5 trillion or suspend it until March 31, 2024—whichever comes first. This is a modest proposal that would begin to put a dent in the fiscal challenge. The plan allows fiscal conservatives to assert themselves by clawing back spending driven by the Biden administration’s priorities and reining in the regulatory power of Washington bureaucrats. It would neither stabilize the debt nor address the main drivers of future spending growth. Importantly, legislators should strengthen new discretionary spending limits by closing commonly abused loopholes to secure the $3.2 trillion in 10-year savings as intended.
Shaves six percent off projected 10-year spending
The Limit, Save, Grow Act is moderate in terms of its fiscal impact because federal debt would still grow as a share of the economy. At $4.8 trillion in projected savings, the plan is similar in size to the Budget Control Act of 2011 in terms of its impact on projected 10-year spending. McCarthy’s debt limit plan would shave a little more than six percent off the 10-year federal spending total, estimated at $80 trillion between fiscal years 2024 and 2033.
If legislators instead aimed to stop the growth in the debt at no more than 100 percent of gross domestic product (GDP), they would need to double this proposal, reducing deficits by at least $8 trillion. While this GOP proposal will not succeed in stabilizing the debt, it might just garner enough support to responsibly raise the debt limit by making a down payment toward this bigger goal.
Establishes a new debt limit
Setting a new dollar-denominated debt limit in combination with a fallback date is a smart choice. When legislators suspended the debt limit through a certain date with no dollar limit, they learned the hard way that a suspension doesn’t actually limit the growth in the debt. To the contrary, a suspension with no dollar limit allows for unlimited borrowing through a certain date. By specifying that the bill would raise the debt limit by $1.5 trillion or suspend it until March 31, 2024, whichever comes first, legislators are honoring the intent of the debt limit law to both authorize and limit Treasury’s borrowing authority.
Read the rest of this post →