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Removing the debt ceiling a wrench in Republican strategy

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Washington (AFP)

President Donald Trump has thrown a wrench into the works of one of the Republicans' key tactics for pressuring Congress on spending, by proposing to get rid of the federal debt ceiling.

After announcing the surprise deal with Democrats last week to temporarily suspend the debt limit and extend the current budget for another three months until December 8, Trump said the idea of eliminating the debt ceiling altogether deserved to be debated.

"For many years, people have been talking about getting rid of debt ceiling altogether, and there are a lot of good reasons to do that," Trump told reporters. "It complicates things, it's really not necessary."

But that is provoking a strong reaction from stunned Republicans who use this powerful leverage over the government's borrowing authority in budget negotiations with the White House.

For the past 100 years, authorization to increase the debt ceiling has been the sole prerogative of the Congress. And while the debt is merely used to pay spending and obligations already approved by the legislature, it nevertheless is a bargaining chip used to pressure the ruling party for concessions on spending.

It also regularly reopens the political debate over the massive US debt, which has reached $20 trillion.

Until the mid-1990s, Congress routinely approved increases in the debt limit. But everything changed in 1995 under the presidency of Democrat Bill Clinton who battled the Republican-controlled Congress on many issues, including the budget.

- Tea Party pressure -

Since then, the recurring threat of the debt ceiling has regularly poisoned US administrations, especially under the presidency of Barack Obama, raising the specter of a government shutdown -- as happened in late 2013 -- or worse, a debt default.

"I think it would be good policy to get rid of it," Stan Veuger, an economist with the conservative American Enterprise Institute (AEI) told AFP.

But that will be difficult to do since Republicans will strongly oppose it.

"They like having some future leverage if they were in the opposition again," he said.

In addition, "politically it would put them in a very difficult position because it would make them look like they don't care about the debt," Veuger said, "especially after the way the Republicans have politicized the subject over the last few years."

In fact, using the debt limit to politicize the debate over government spending led to the creation of the very conservative Tea Party movement within the Republican party, which supplied many Trump supporters.

FreedomWorks, the organization that helped launch the Tea Party, immediately denounced the idea of ??removing the debt limit.

"The debt ceiling is a good thing," FreedomWorks President Adam Brandon said. "Debates over the debt ceiling are moments when conservatives can successfully fight to reduce the size and scope of government."

- More effective tools -

The Republican Speaker of the House of Representatives, Paul Ryan, also blasted the idea.

"As imperfect as this tool is, I always see this as a good tool for fiscal discipline," Ryan told Fox News Radio.

But most economists say the debt ceiling is not an effective means to limit spending, and in fact leads to increased borrowing costs when Congress threatens to allow the US to default on its debt.

That was the case in 2011 when, for the first time in contemporary history the US lost its coveted AAA credit rating.

When interest rates on US debt rises because of the increased risk, "ultimately we as tax payers are paying," said Shai Akabas, of the Bipartisan Policy Center.

He said it is time for a bipartisan approach to find "other vehicles or tools, fiscal tools, that would be more effective and less risky" than the debt limit.

The debate will take months. Even after the new December 8 deadline for suspending the debt limit, the Treasury will be able to use "extraordinary" accounting measures to allow it to continue to finance the government until Spring 2018.

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