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A Proper Debt Limit Would Cause Pain In D.C., Not Debt Default

Great news arrived Thursday that the Republicans have finally stopped meeting with Vice President Biden on the debt limit. They should use this opportunity to change the whole debate, offering to replace the current debt limit with a requirement that the president spend less.

Republicans have been trying to force spending reductions on the president, who has been playing rope-a-dope. It was never clear what the talks with the vice president could accomplish. 

The administration didn’t accept the premise that the country wants and needs less federal spending -- that was evident in the president’s disastrous February budget proposing a staggering $46 trillion in spending over ten years and the repeated dodge of calling for tax increases.

So there wasn’t much for Republicans to talk about with the V.P., and the delay in facing the debt crisis was dangerous both politically and economically. 

After a similar stalling process in the spring, Republicans had to go along with a mega-trillion-dollar spending bill after the president’s advisors threatened to shut government. Both sides declared progress, but CBO didn’t lower its deficit or debt estimates, the economy weakened and Washington house prices kept going up while the rest of the nation’s went down. The same dynamics are happening again over the debt limit.

Talking to the V.P. won’t work, but neither will the evolving Republican plan to refuse to vote for a debt limit increase. The current debt limit is a sham, and Republicans shouldn’t get boxed in by an artificial choice between defaulting, voting for a debt increase, or letting the president shut the public’s favorite programs. No one wants any of those, yet that’s all that’s on the menu right now.

The Republican goal should be to engage the public in replacing the current debt limit -- which is built on the idle threat of a default -- with a debt or spending ceiling that applies an escalating set of realistic penalties on Washington when over the debt limit. 

For example, the president should be required to meet weekly in public with his cabinet when over the debt limit and to freeze all federal and congressional salaries until excess spending is reduced. He should be given extra power to propose emergency spending cuts and to under-spend the budget. Congress should give itself a fast-track procedure allowing it to cut spending and eliminate programs when over the debt ceiling.

The ideal is for the president to move front and center in proposing spending reductions. His staff has the detailed knowledge to find hundreds of billions of dollars in reductions every year. Congress won’t like it, but that’s the point. Washington won’t ever voluntarily downsize. Only the public can force this issue.

We’ll know if they are on the right track. Washington will be mad. CBO will begin to lower its deficit estimates substantially. And home prices in the Washington metro area will start lagging the rest of the nation for a change.

David Malpass, who worked on debt, tax and growth issues as a deputy assistant secretary of the Treasury in the Reagan administration, is president of Encima Global LLC, which provides economic research for institutional clients.