It was a relief to hear Senate Republican Leader Mitch McConnell acknowledge that the ceiling on federal debt has to be raised.
"We're certainly not going to send a signal to the markets and to the American people that default is an option," McConnell said Tuesday in announcing his backup plan in the likely event that bipartisan negotiations fail to yield an agreement for trimming the deficit.
McConnell's idea of essentially letting President Barack Obama and Democrats in Congress raise the debt ceiling came on the same day that lawmakers received a letter signed by hundreds of business executives warning of dire economic consequences if the debt ceiling is not adjusted by Aug. 2.
"A great nation — like a great company — has to be relied upon to pay its debts when they become due," said the letter, which was also signed by the Business Roundtable and U.S. Chamber of Commerce. "This is a Main Street not Wall Street issue. Treasury securities influence the cost of financing not just for companies but more importantly for mortgages, auto loans, credit cards and student debt. A default would risk both disarray in those markets and a host of unintended consequences."
McConnell's proposal is convoluted and, as always, thoroughly political. He's proposing that between now and the 2012 elections, Obama come to Congress three times with requests to raise the borrowing limit.
If Congress issued a resolution of disapproval, Obama could veto it. Congress lacks the two-thirds majority to override the presidential veto, so the debt-ceiling increase could become law without any Republicans having to vote for it.
While something along the lines of McConnell's proposal may end up being the best alternative, Democrats should reject the charade of three separate votes.
Meanwhile, House Speaker John Boehner said the debt ceiling limit is Obama's problem, which conveniently forgets the country was running a surplus in 2001 until a Republican Congress and president cut taxes and borrowed money for two wars and a Medicare expansion.
As the accompanying chart by the Center for Budget and Policy Priorities shows, the bailouts and economic stimulus measures contribute far less to the deficit and need for federal borrowing than do the tax cuts which are set to expire next year. (The projected deficit is in trillions of dollars.)
Obama has been ready to agree to far more in spending cuts than he is demanding in tax increases, yet McConnell told the Senate a real solution is unattainable while Obama is president.
If McConnell's plan is adopted, Congress won't be enacting any spending cuts as part of raising the debt ceiling. That would produce a back-door victory for liberal economists and others who say that cutting government spending now while unemployment remains so high would doom an already fragile recovery.