Default must be ruled out, and sensible budget reforms are possible. As Washington hits the $31.4 trillion debt limit (and begins using accounting gimmicks to borrow until summer), the new Republican House majority is gearing up for a fight to extract budget savings. There's a saying that warns, Never take a hostage you are not willing to shoot. Achieving any success requires learning why similar past efforts failed, enforcing a more disciplined message, and being realistic about which reforms are achievable when holding a hostage that you won't shoot.

The debt picture should shake Congress out of its borrowing spree. The national debt has doubled over the past decade. Over the past three years, Washington has borrowed more than $7 trillion, and annual deficits are projected to soar past $2 trillion within a decade — or $3 trillion if interest rates continue rising. Within a few decades — under the Congressional Budget Office's rosy scenario — interest on the debt will become the largest federal expenditure and consume nearly half of all tax revenue. If interest rates continue rising, interest costs could consume 70 cents of every tax dollar within three decades. The total 30-year deficit projects to more than $100 trillion, pushing the debt to nearly double the size of the entire economy.

The economy may not yet seem weighed down by federal debt. However, debt crises do not announce themselves ahead of time. Increased federal borrowing strains the financial markets until one day they simply decide that Treasuries are no longer a safe place to park their liquidity, at least not at low interest rates. A financial crisis can begin overnight. No one knows precisely when such a crisis will occur, but unsustainable federal borrowing trends suggest that eventually something must give. At that point, the choice of substantial tax hikes, drastic spending cuts, or aggressive money-printing will not be pleasant.

All of this is to say that Congress and the White House should use the debt limit to negotiate a change in Washington's fiscal trajectory. At the same time, despite all these debt warnings, threatening to default on the debt limit is not a responsible course. Default would bring economic chaos and — even if one considers that as an acceptable price for fixing the long-term budget — bring a voter backlash that sabotages and ultimately fails to bring budget savings. Lawmakers should ensure the debt limit will be raised, yet seek modest budget reforms.

Both Parties Used to Attach Savings to Debt-Limit Hikes

For decades, the debt limit served as a legitimate tool for both Republicans and Democrats to address budget deficits. Debt-limit showdowns were relatively rare because both sides recognized the need to include fiscal reforms. Indeed, of the eight largest deficit-reduction laws since 1985 — such as Gramm–Rudman in the 1980s, the 1997 Balanced Budget Act, the 2009 PAYGO law, and 2011 Budget Control Act — all eight were attached to debt-limit bills.

Conservatives also gravitate toward using the debt limit for fiscal reforms because the annual budget process no longer functions as it should. Roughly 70 percent of federal spending is classified as mandatory and therefore grows automatically on autopilot, outside the budget process (nearly the entire tax code is also on autopilot). Reversing the burden of legislation to stopping new spending is a substantially higher bar in a legislative system designed for gridlock. For autopilot programs, the debt limit is the only time when the burden is on the spenders to build a legislative majority plus White House support.

Even the 30 percent of spending that Congress does vote on annually — discretionary spending — is usually merged into one massive take-it-or-leave-it appropriations bill that must be voted on with no amendments under the threat of a government shutdown. Is it any wonder that lawmakers are grasping for any legislative tool to vote their preferences?

With every other legislative tool stripped from them, it is understandable that fiscally conservative lawmakers turned to the debt limit to address spending and deficits. After all, to repeat myself, that's how things used to be done, with Democrats and Republicans pairing debt-limit hikes with budget savings to address the root cause of rising debt. Democrats have refused to attach savings reform to the debt limit since the 2011 Budget Control Act imposed caps on discretionary appropriations. In the interest of fairness, it's worth noting that Republicans hiked the debt limit in 2017, 2018, and 2019 under President Trump while attaching large spending increases.

Hitting the Debt Limit Is Not Acceptable

For all the reasons explained above, I get why congressional conservatives want to take the debt limit hostage in 2023. And I've been in the trenches advising them for more than 20 years. So take it from a longtime ally when I say that the debt limit absolutely must be raised no matter what. This is a hostage that cannot be shot. The consequences for the economy (not to mention the GOP) would be cataclysmic. And it would not even fix the budget.

Hitting the debt limit — and forbidding the federal government from any additional net borrowing — would essentially force Congress to balance the budget immediately. The $6 trillion federal budget would need to immediately fall 20 percent to match the $4.8 trillion in revenues (annualized). Social Security, Medicare, Medicaid, defense, veterans' benefits, and interest alone cost $4.2 trillion. Exempting these popular programs would force the immediate elimination of two-thirds of all remaining spending from programs such as food stamps, child nutrition, disability benefits, refundable tax credits, infrastructure, highway aid, the NIH, the FDA, national parks, homeland security, U.S. embassies, NASA, federal prisons, K–12 education, Pell Grants, unemployment benefits, and disaster aid. Rather than smartly and sustainably streamlining government, this would bring immediate chaos.

I can already hear readers shouting, Good, we tighten our belts, so should Congress. Just cut the waste. Yes, the federal government is extraordinarily wasteful, as I have documented for two decades. Yet eliminating narrowly defined waste such as overpayments, mismanagement, fraud, and $600 hammers cannot close a gap as large as $1.2 trillion. Even more importantly — even if pure federal waste did total $1.2 trillion — there is no budget line-item called waste, fraud, and abuse to zero out. Overpayments persist because agencies lack the tools to identify improper recipients until years later. Outdated management systems are ill-equipped to streamline agency operations for overall effectiveness. Congress fails to cut waste because lawmakers lack the patience to cut the countless gordian knots of inefficiencies entangling hundreds of agencies. Simply cutting an agency budget by 20 percent (or likely much more) will not supply the tools or technology to fix wasteful systems. Instead, the agencies will just cut benefits and operations across the board. Bureaucrats won't pay the price. You as the Medicare enrollee, passport applicant, national park visitor, or Pell Grant recipient will pay it.

The Prioritization Distraction

Some in Congress are reviving the prioritization concept of drafting legislation ensuring that, if the debt limit forces an immediate 20 percent spending cut, the Treasury would be required to first continue payments for debt interest, Social Security benefits, troop salaries, and a few other protected priorities. I studied prioritization at length while working for Senator Rob Portman (R., Ohio) during the 2011 debt-limit standoff and concluded that it was unworkable. Millions of payment invoices pass through the Treasury and Federal Reserve computer systems each week, which do not appear to be capable of creating categories of invoices to pay (or not pay). Instead, each day's payments and transfers would likely be made chronologically until that day's new incoming tax revenue runs out. Better hope your monthly Social Security check is scheduled for early in the morning.

But even if prioritization was feasible, it is just default by another name. Bondholders get paid, but the federal government defaults on its legal obligations to others. A substantial portion of federal spending is government purchases and payments for services. It reimburses hospitals and doctors for the cost of seeing patients covered by Medicare and Medicaid. It purchases military equipment from defense contractors and office supplies from small businesses. It contracts with construction companies to build roads. Hitting the debt limit means defaulting on legally obligated payments for goods and services that have already been purchased. Washington would be defrauding millions of businesses, and endangering their ability to pay their own employees and make their rent payments. Businesses could go bankrupt and millions of unpaid workers could be furloughed or laid off. The economic spiral would be brutal.

And even if bondholders get paid through prioritization, it will still dramatically push up interest rates and endanger the full faith and credit of the federal government. After all, making your monthly credit-card payment will not protect your credit rating if you are skipping your mortgage and car payment to do so. Bondholders will see a federal government in financial chaos and pull their money out (or demand exorbitant interest rates to roll over existing debt).

Even with prioritization, there may not be room to fund school operations, embassy security, disability benefit programs, border security, nuclear-facility safeguarding, and the FBI.

Prioritization is also politically suicidal: Congress is going to pay Chinese bondholders before your children's school lunches and brother's VA health benefits? Do lawmakers really want to publicly rank federal programs by priority? And deal with the furious constituents and advocates of every program that misses the cut? Lawmakers would be wise to avoid this road altogether.

Shift Focus to the Spenders

Voters are much more likely to accept budget savings that are presented as commonsense, responsible, and non-disruptive. A successful message focuses on the spenders driving permanent trillion-dollar deficits, elevated interest rates, and Social Security and Medicare insolvency. They are burying Washington in red ink that is pushing us toward a financial crisis and chaos. Reining in deficits is responsible, affordable, and prudent. Yes, the debt limit must be raised, but both parties used to agree that spending savings should accompany these debt-limit hikes. Violating this longstanding norm risks chaos, instability, and economic disruption.

Threatening to default on the debt or to fail to meet other financial obligations instead allows fiscal reformers to be portrayed as the ones threatening chaos, instability, and economic disruption. Trying to explain that defaulting on the debt wouldn't be so bad because Congress will ensure that Chinese bondholders are paid first — again at the expense of school lunches and veterans' health care, and while defrauding countless small businesses that do business with Washington — is both economic and political malpractice.

Look no further than the current news cycle filled with countless articles and broadcast reports on the consequences of a debt default — drowning out proper coverage of the debt itself and America's ruinous fiscal outlook.

Threatening default is also ineffective. Hitting the debt limit would cause a few days of economic chaos before overwhelming public and financial-market pressure motivates a panicked bipartisan congressional majority to pass a clean debt-limit hike. And then fiscal conservatives will lose any remaining credibility, setting back the cause of fiscal restraint for years.

Instead, responsible lawmakers should emphasize that the debt limit will absolutely be raised before the extraordinary measures run out, but that not attaching spending savings would be another breach of precedent and threaten Washington's long-term fiscal solvency. Instead of defending the possibility of default, pressure the spenders to defend annual deficits projected to surpass $2 trillion and Social Security and Medicare heading towards insolvency.

This strategy ultimately gives up on a massive grand deal this year to bring the budget towards balance. But a Democratic Senate and White House were never going to accept such a deal during this debt-limit standoff anyway. Instead of driving a default crisis and ultimately achieving nothing except a voter backlash, the strategy of publicly shaming the spenders to attach some modest deficit reforms to a debt-limit increase offers at least a modest chance of success and is politically smarter.

There are several plausible policy goals. Conservatives could seek to end the Covid-emergency designation and end all pandemic-related emergency spending (a chance for Democrats to declare victory over the pandemic, too). Several Democrats have also expressed openness to the TRUST Act, which would create a congressional commission to extend Social Security and Medicare solvency. Conservatives could seek to freeze discretionary spending for the year (which may mean trimming domestic programs to accommodate any defense or veterans' health hikes). If progressives want to eliminate the debt limit, they can make a deal to provide other tools to address unrestrained mandatory spending, such as statutory fiscal targets.

There is a myth that taking default off the table eliminates conservatives' bargaining power. But that tool is an illusion when everyone knows that the hostage cannot be shot, and even a debt-limit breach would not be sustained by Congress beyond a catastrophic day or two. Conservatives' best hope for spending savings is to take the default risk off the table, and then force spenders to defend their stubborn refusal to address the wave of red ink.

Brian Riedl is a senior fellow at the Manhattan Institute.