Obama’s hard sell on the debt ceiling

President Obama wasn’t kidding when he said last September that he’d make a lot more use of the bully pulpit if he were reelected. On Monday, he held a news conference to lecture House Republicans about fiscal responsibility and the debt ceiling, a lesson offered more for the general public’s ears than those on Capitol Hill.

“Raising the debt ceiling does not authorize more spending,” Obama said. “It simply allows the country to pay for spending that Congress has already committed to. These are bills that have already been racked up, and we need to pay them.”

That’s succinct and inarguable. He later amplified on this point, discussing the constitutional separation of powers at the heart of the matter:

“Congress authorizes spending. They order me to spend. They tell me, you need to fund our Defense Department at such and such a level; you need to send out Social Security checks; you need to make sure that you are paying to care for our veterans. They lay all this out for me because they have the spending power. And so I am required by law to go ahead and pay these bills. Separately, they also have to authorize the raising of the debt ceiling in order to make sure that those bills are paid. And so, what Congress can’t do is tell me to spend X, and then say, but we’re not going to give you the authority to go ahead and pay the bills.”

But here’s the thing: Congress can do that. And judging from this Politico piece, there are plenty of votes in the House to block the debt ceiling from increasing unless Obama agrees to significant cuts in spending beyond the $1.2 trillion already slated for the coming decade.

Obama apparently believes he has public opinion on his side, but he has two real problems. First, when he was a senator from Illinois in 2006, he voted against increasing the debt ceiling in protest of President George W. Bush’s supposed profligacy. He has since acknowledged that this was political posturing, but it speaks to a time-honored practice in Congress: When the budget numbers look bad, blame the president.

Second, a lot of Republicans simply don’t buy the argument that it would be a bad thing not to raise the debt limit. In fact, some conservatives argue that there isn’t any real risk of a damaging default.

Here’s the reasoning: Washington receives a considerable amount of tax revenue on a near daily basis, enough to cover about 60% of the monthly bills. The Treasury is required by the Constitution to make interest payments on the debt no matter what, so those bills would be paid first. Federal employees, contractors, beneficiaries and other claimants would be paid to the extent possible with the remaining cash flow. Presto, no default! Just a bunch of unhappy creditors, who’d keep the pressure on the White House until Obama agreed to a deal.

Joseph Kasputys, the founder of IHS Global Insight, offered an effective rebuttal to that argument on the Committee for Economic Development’s Back in the Black blog. Prioritizing payments to creditors would probably draw lawsuits from those whose claims were unilaterally subordinated by the Treasury, Kasputys wrote. Worse, the financial markets would still react badly if the feds didn’t have the funds to cover all the bills, even if bondholders were paid in full.

As much as Obama insists on not negotiating over the debt ceiling, it seems certain that he’ll have to unless he persuades the GOP to take a different hostage. One good candidate is the spending bill to keep the government operating after March, when its funding runs out. Failing to pass that bill wouldn’t threaten debt payments or federal entitlements; it would, however, force “nonessential” federal offices and services to shut down.

Granted, such a display of dysfunction might persuade credit ratings agencies to downgrade U.S. debt anyway. But at least Congress would be exercising its power of the purse in a rational way, rather than running up debt and then refusing to pay it.

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