Keith Hennessey explains the most logically consistent approach I’ve seen to the USA’s federal debt limit for fiscal conservatives at the National Review:
A parent gives his irresponsible child a credit card. That child maxes out the card by paying only the first month’s installment of an incredibly expensive annual subscription.
The parent confiscates the credit card to prevent new irresponsible spending. He must still, however, pay the existing credit-card debt. He must also honor the remainder of the contract his child has signed, even if doing so means he must incur more credit-card debt and ask for an increase in his credit-card limit. Unless he is willing to risk bankruptcy or a lawsuit, he must honor the financial obligations his family member incurred.
The parent has control only over new spending commitments, and he must now severely cut back on those. He places his child on a strict allowance and cuts spending throughout the family budget.
Congress must raise the debt limit. Not doing so would eventually lead to defaulting on Treasury bonds, a potentially catastrophic event. Along with that debt limit, Congress should impose a statutory cap on all non-interest spending.
The president and his allies will demand a clean bill or weaker reforms. Republicans should allow them to try to pass such a bill. They should vote no but not filibuster. When it becomes clear that such a bill lacks even the simple majority needed to pass the House and the Senate, Republicans will have a stronger hand in negotiations.
— Keith Hennessey has served as senior White House economic adviser and deputy director of the National Economic Council. He is a research fellow at the Hoover Institution and blogs at KeithHennessey.com.
Of course a government often has the option that many families do not (at least in the short term). A government can increase it’s income by raising taxes. But there is a limit to maximum tax revenue that can be collected over any period of time. It is also likely more efficient to limit tax revenues below that maximum limit. So Hennessey’s argument is also valid for anyone less concerned about the federal budget’s size and the national debt and projected deficits.
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