Failing to extend the debt limit would have been catastrophic, requiring an immediate 30 percent reduction in federal spending, defaulting on payments owed to countless businesses, and possibly even triggering a financial crisis by defaulting on the federal debt itself.
In the end, Congress and President Biden raised the debt limit at the eleventh hour by attaching legislation that set up modest future spending cuts, while admitting that they had no plans to follow through on them.
With Washington scheduled to do this again when the debt limit gets reimposed in early 2025, it's time to consider replacing the limit with a better mechanism for constraining debt.
The debt limit motivated deficit-reduction legislation in the 1980s and 1990s; but over the past decade, it has more commonly served as a vehicle for deficit-expanding legislation.
While the debt limit is a poor tool for reducing the deficit, it's also the only vote that Congress takes that cumulatively addresses all spending and taxes.
The U.S. should replace the debt limit with a law capping the size of the federal debt at the current level of 100 percent of potential GDP. With neutrality between tax increases and spending cuts, targeting federal debt levels can appeal to both liberals and conservatives.
With most economists agreeing that the federal debt is on a dangerously unsustainable path, even an imperfect fiscal rule would be an improvement on the debt limit.
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