Regulatory Reform’s Role In Addressing The Debt Limit

Spring is here, the first quarter is over, and the federal debt limit is back in play. Again.

The cap was last raised in December 2021 by $2.5 trillion, to $31.4 trillion.

The national debt stands at $31.5 trillion. If you think that’s enough you’d be wrong since the intent is to increase the limit still further to avoid default. In the meantime, as has occurred in the past, the Treasury Department prioritizes spending with a series of “extraordinary measures” to keep things flowing with the taxes and fees flooding in, which in a normal world would already be more than adequate to maintain surplus.

The federal debt is now greater than our GDP ($23 trillion), and several times the level of 2023 federal discretionary, entitlement, and interest spending, which, as the Congressional Budget Office (CBO) reported in January, stood at $6.272 trillion. CBO projects spending to pass $7 trillion in 2026 and to reach almost $10 trillion by 2033.

The 2023 deficit topped $1.375 trillion; that’s an amount greater than the entire nominal federal budget was before the early 1990s.

Biden contests nothing, since his new fiscal 2024 budget proposes spending $6.8 trillion on all the legacy stuff plus an array of top-down industrial-policy and social engineering projects. Even as he claims responsibility for the largest deficit reductions in history, Biden’s new budget proposal unashamedly leaves behind deficit droppings of $1.8 trillion despite the debt situation.

That’s the House of Mirrors we live in. Republicans are at least rejecting Biden’s “clean” debt limit increases and calling for spending cuts. Not that their presence is all that apparent in 2023, spending cuts and budgetary controls have a long history of being combined with debt limit increases, as the Republican Study Committee’s (RSC) January Debt Limit Playbook notes.

The RSC’s proposals for negotiation with Biden include discretionary spending cuts; annual limitations on spending increases accompained with offsetting recissions; pegging debt to a percentage of the economy; energy policy reforms on capacity and permitting; and the typical foray at duplication and “waste, fraud and abuse.” (Heads up; while necessary, the latter didn’t work even under Trump) Most interesting is the subtantial attention RSC is paying to the pivotal role of regulatory reform in the broader government streamlining effort.

As it stands, Joe Biden and House Majority Leader Kevin McCarthy (R-California) are butting heads, with House Republicans now saying they may pass their own debt limit bill in the wake of McCarthy’s letter to Biden proposing discretionary spending restraint, work requirements for aid programs, and raclaiming unspent COVID money. McCarthy might get a few Democratic votes on such a move, but the Senate and Biden himself are in control here.

Here are a a few observations that ought to influence debt limit deliberations:

• One, for some, $31 trillion is plenty debt, and far more of the focus should be entirely on spending cuts, including entittlement reform—particularly for the unborn who could have other options besides Social Security and Medicare enrollment if we did not bind them ahead of time;
• Two, the debt limit is among the few remaining governmental institutional constraints capable of shrinking the size of government. That bears serious consideration;
• Three, there are vast unfunded liabilities far greater than the acknowledged debt that ought to drive urgency or spending reforms. Yet Biden and much of the GOP talk of not allowing entitlement cuts;
• Four, today’s toxic spending on infrastructure and “investment” is highly regulatory in nature in and of itself, and increasingly crowds out ever more private activity;
• Regulatory reform is underappreciated, and can play a pivotal role in getting government heft under control, which in turn can ease spending and boost economic health.

Despite the manta of “paying for prior obligations” to guilt the GOP into voting for an irresponsible level of debt-limit increase, politicians unfurled trillions in new spending very recently in the form of the CARES Act, the American Rescue Plan, Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Infltation Act. Some but not all of that was bipartisan; meanwhile both sides do increase Defense spending in lockstep, with the GOP saying its never enough.

Once upon a time, a balanced budget was said to be a prerequisite for an increase in the debt limit, but the debt ceiling was downplayed in the Trump era in ways not imaginable during the divided government of the Obama administration. The escalation of debt, though, would seen to make today’s battle a different ball game.

Given the reluctance to control spending we need a stronger emphasis this time on getting control of regulatory overreach to help do the job indirectly. The aforementioned RSC Debt Limit Playbook noted several of the longstanding regulatory reform ideas that can play a role, such as:

• A regulatory budget to cap compliance costs, enhance accountability and foster economic growth;
• Offsetting new rules with the removal of old ones;
• A regulatory sunsetting commission;
• Requiring congressional approval of major agency rulemakings;
• Reducing court deference to agencies’ sometimes ambitions and self-serving interpretations of law in rulemaking (the legal doctrine called “Chevron Deference”);
• Revoking independent agencies’ exemptions from the Paperwork Reduction Act, the Unfunded Mandates Reform Act, and the Data Quality Act;
• Report Cards on proposed agency actions and other roundup statistics;
• A portal for federal agency sub-regulatory guidance documents, bulletins, notices, circulars, memoranda, manuals and other materials agencies issue.
• Inflation assessments of Biden executive actions;
• Strengthening unfunded mandates oversight with the new Unfunded Mandates Information and Transparency Act;
• Enhanced small business regulatory flexibility;
• Requiring that a Senate-confrimed appointee rather than a carreerist sign off on final rules.

While Biden ditched the Trump era regulatory streamlining infrastructure, it remains the case that rolling back federal red tape and over-regulation can spur dynamic growth, which can lessen deficits (and future debt) indirectly.

Another regulatory streamling idea very much worth resurrecting that directly ties in to the debt ceiling was the Reducing Excessive Government (or REG Act) introduced back in the 115th Congress by Sen. Mike Lee (R-Utah) and former Sen. Cory Gardner (R-Colorado).

Sen. Lee already had by then spearheaded prominent “regulatory budgeting” proposals to limit what agencies could compel the private sector to spend on rule compliance (in the current 118^th Congress, see the Article I Regulatory Budget Act from Rep. Bob Good (R-Virginia).

First-best is lowering, not raising, the debt limit and slashing spending to something the Framers would recognize as normalcy. Second-best is freezing the debt limit and cutting spending to keep government contained where it is. Third best is what’s in play now—the current debate parameters of raising the debt limit with some spending cuts.

But with either option policymakers pursue, regulatory reforms are the best possible accompaniment.

The REG Act, which ought to be reintroduced, would make increases in the debt ceiling contingent upon proportional cuts in spending by regulatory agencies. In the bill, the “direct cost of Federal regulation” would need to be cut by at least 15 percent over the following ten-year period.

For example, according to a one-page REG Act summary at the time, if “Congress raises the debt limit by $1 trillion, the REG Act would require a reduction in regulatory costs of $150 billion.”

Regulatory costs in this respect refer to federal agency costs of “issuing and enforcing federal regulations, rules, statements and legislation.” Savings to the private sector and ripple affects lightening federal debt apart from direct cuts would be a bonus deriving from a healthier economy and business environment. They REG Act would be highly complementary with all the other regulatory streamlining showcased in the RSC Debt Limit Playbook.

Operationally, the REG Act would have had the Government Accountability Office (GAO) report on which rules cost the economy over $100 million. Congress would consider a package of cuts that would be privileged, and vote on it with an expedited process similar to that set up in the Congressional Review Act (CRA).

Under the REG Act framework, if the rule cuts do not materialize, a “snapback” occurs which tamps down the debt limit increase, freezing things and prohibiting the non-offset excess spending.

Addressing the debt limit is a necessity. As part of the response, we can recognize that fiscal health and regulatory restraint can operate hand in hand. Knowing which rules need rollback can help inform policymaker deliberations on which agency budgets to rethink, in turn bringing federal spending under better control.

At the moment of course, there’s no inclination on the part of Demcrats to incorporate regulatory reforms into budget deliberations. But as it happens, regulation spawned by the aforementioned post-COVID legislative edicts appears to be manifesting itself in the form of new mandates on state and local governments and as increases in small business burdens. Those were exactly the concerns that spurred major regulatory reforms they last time Congress passed them, which was back in the 1990s.

Big government has two major components; spending and regulation. Now is the moment to address the recent increases in both.