Politics – Donald Marron

Eight Thoughts on Business Tax Reform

On Tuesday, I had the chance to testify before the Senate Finance Committee on business tax reform. Here are my opening remarks. They are a bit on the glum side, emphasizing challenges and constraints lawmakers face. Moving from optimistic rhetoric about tax reform to legislative reality is hard. You can find my full testimony here.

America’s business tax system is needlessly complex and economically harmful. Thoughtful reform can make our tax code simpler. It can boost American competitiveness. It can create better jobs. And it can promote shared prosperity.

But tax reform is hard. Meaningful reforms create winners and losers. And you likely hear more complaints from the latter than praise from the former. I feel your pain. At the risk of adding to it, my testimony makes eight points about business tax reform.

Thoughtful reform can promote economic growth, but we should be realistic about how much.

More and better investment boosts economic activity over time. The largest effects will occur beyond the 10-year budget window. If reform is revenue neutral, revenue raisers may temper future growth. If reform turns into tax cuts, deficits may crowd out private investment. Either way, the boost to near-term growth may be modest. Dynamic scoring will thus play only a small role in paying for tax reform.

The corporate income tax makes our tax system more progressive.

The corporate income tax falls on shareholders, investors more generally, and workers. Economists debate how much each group bears. Workers are the most economically diverse. But they include highly paid executives, professionals, and managers as well as rank-and-file employees. The bulk of the corporate tax burden thus falls on people with high incomes even if workers bear a substantial portion.

Workers would benefit from reforms that encourage more and better investment in the United States.

In the long run, wages, salaries, and benefits depend on worker productivity. Reforms that encourage investment and boost productivity would thus do more to help workers than those that merely increase shareholder profits.

Taxing pass-through business income at preferential rates would inspire new tax avoidance.

When taxpayers can switch from a high tax rate to a lower one, they often do. Kansans did so when their state stopped taxing pass-through income. Professionals use S corporations to avoid payroll taxes. Investment managers convert labor income into long-term capital gains. Congress and the IRS can try to limit tax avoidance. But the cost will be new complexities, arbitrary distinctions, and new administrative burdens.

Capping the top rate on pass-through business income would benefit only high-income people.

To benefit, taxpayers must have qualifying business income and be in a high tax bracket. Creating a complete schedule of pass-through rates could reduce this inequity. But it would expand the pool of taxpayers tempted by tax avoidance.

Taxing pass-through business income at the corporate rate would not create a level playing field.

Pass-through income faces one layer of tax. But corporate income faces two, at the company and again at taxable shareholders. Taxing pass-throughs and corporations at the same rate would favor pass-throughs over corporations. To get true tax parity, you could apply a higher tax rate on pass-through business income. You could levy a new tax on pass-through distributions. Or you could get rid of shareholder taxes.

It is difficult to pay for large cuts in business tax rates by limiting business tax breaks and deductions.

Eliminating all corporate tax expenditures except for deferral, for example, could get the corporate rate down to 26 percent. You could try to go lower by cutting other business deductions, such as interest payments. But deductions lose their value as tax rates fall. To pay for large rate reductions, you will need to raise other taxes or introduce new ones. Options include raising taxes on shareholders, a value-added tax or close variant like the destination-based cash flow tax, or a carbon tax.

Finally, making business tax cuts retroactive to January 1, 2017 would not promote growth.

Retroactive tax cuts would give a windfall to profitable businesses. That does little or nothing to encourage productive investment. Indeed, it could weaken growth by leaving less budget room for more pro-growth reforms. Another downside is that all the benefits would go to shareholders, not workers.

Outside Research Organizations Can’t Replace CBO’s Budget Team

The House Freedom Caucus wants to eliminate the Budget Analysis Division at the Congressional Budget Office and rely on outside research organizations, including the Urban Institute, instead. As a former acting director of CBO and an Institute fellow at Urban, I think this is a terrible idea. It would harm fiscal policymaking and weaken the Congress.

Here’s the proposal offered by Representatives Scott Perry (R-PA), Jim Jordan (R-OH), and Mark Meadows (R-NC):

The Budget Analysis Division of the Congressional Budget Office, comprising 89 employees with annual salaries aggregating $15,000,000, is hereby abolished. The duties imposed by law and regulation upon the employees of that Division are hereby transferred to the Office of the Director of the Congressional Budget Office, who shall carry out such duties solely by facilitating and assimilating scoring data compiled by the Heritage Foundation, the American Enterprise Institute, the Brookings Institution, and the Urban Institute.

We certainly appreciate the shout out. Here at Urban, we have amazing researchers who model policies involving health insurance, Social Security, taxes, food stamps, housing, and many other programs. We are proud of our work and try to be as helpful as possible to lawmakers across the political spectrum.

But neither we nor other private organizations can replace CBO’s budget group. Our skills overlap, but we fill different niches in the policy ecosystem.

Consider the sheer scope of CBO’s responsibilities. As Director Keith Hall noted in recent testimony, the agency expects to publish official scores of more than 600 pieces of legislation in the next year. The scores will estimate the spending and, usually with input from the Joint Committee on Taxation, the revenue implications of every provision in those bills. They will also assess whether the bills impose substantial mandates on the private sector or state, local, and tribal governments.

To do this, CBO has staffers familiar with every nook and cranny of the government, from agriculture to veterans. In just the past week, CBO has published more than two dozen cost estimates covering everything from flood insurance to child care to maritime administration to sanctions on Russia, Iran, and North Korea. Not to mention scoring Senate proposals to repeal and possibly replace the Affordable Care Act. Only CBO and its White House equivalent, the Office of Management and Budget, have the capacity to model every facet of federal spending.

Outside groups could certainly expand their capacities. And Congress could expand the list of anointed organizations. But the bottom line is that we would need substantial new resources, both funding and people. Replacing the capacities of CBO’s budget division is not something research organizations can or should do for free.

But resources aren’t the core issue. In addition to its published cost estimates, CBO provides thousands of confidential cost estimates to members of Congress and their staffs as they craft potential legislation. This service is vital to thoughtful legislating. Confidential feedback helps members test new ideas, consider alternatives, and refine proposals until they are ready to go public.

Outside organizations can, and indeed already do, provide similar modeling help to members. At Urban, we frequently get requests from Representatives and Senators of both parties. But working through iterations of potential legislation works best when lawmakers and their staffs work directly with the analysts who will give them official scores. Working with CBO’s budget team is a much more effective process than trying to coordinate different scores, based on different models and assumptions, from multiple outside organizations.

The most important difference between research organizations and Congress is also the most obvious. CBO works for Congress and only for Congress. CBO works closely with the budget committees and House and Senate leadership to juggle priorities, set deadlines, and provide the analyses Congress needs and wants. CBO obeys congressional budget rules, even when it disagrees with them. CBO has the backing of Congress when it gathers data and information from agencies.

CBO thus has an edge in providing the analyses Congress needs, when it needs them. Research organizations can and do provide timely analysis as well, but there are limits. We have other projects and demands on our time.

Moreover, we outside researchers rely heavily on the work that CBO’s budget analysis division currently does. CBO’s annual baselines, for example, often provide the starting point for our analyses. And CBO scores provide many of the numbers we use to model alternative policies. Eliminating CBO’s budget team would undermine our ability to deliver the type of analyses that Congress wants.

Eliminating CBO’s budget team would also weaken Congress. Congress created CBO in the early 1970s as part of a larger battle with President Nixon about power over the purse. Congress created CBO to ensure its own source of credible budget information. Defunding CBO’s budget team would weaken Congress at a moment when objective budget information and a balance between Congress and the President are as important as ever.

My colleagues and I would welcome opportunities to provide more help to Congress as members grapple with policy challenges, develop options, and try to understand the range of potential outcomes. But asking us to replace CBO’s budget team would undermine thoughtful policy making and weaken the Congress.

How Should We Use the Revenue from Taxing Carbon?

Adele Morris co-authored this post.

A US carbon tax could raise $1 trillion or more in new revenue over the next decade. There is no shortage of ways to use it.

Tax reformers want to cut business and personal taxes. Budget hawks want to reduce future deficits. Environmental advocates want to invest in clean energy. Progressives want to expand the social safety net. And so on.

How should we make sense of these competing ideas? In a new policy brief, we suggest a framework for thinking through these options. We identify four basic uses of carbon tax revenues:

Offset the new burdens that a carbon tax places on consumers, producers, communities, and the broader economy;
Support further efforts to reduce greenhouse gas emissions;
Ameliorate the harms of climate disruption; or
Fund public priorities unrelated to climate.

Each has merit, especially as part of an effort to build a political coalition to enact and maintain a carbon tax. But some ideas have more merit than others.

On both policy and political grounds, it makes sense to use carbon tax revenue to soften the blow on lower-income households and coal workers and their communities. Doing so will require only a small fraction (15 percent or so) of carbon tax revenue, leaving substantial resources for other purposes.

Recycling revenue into broader cuts in personal and business taxes also has particular merit. It can help offset the economic burden of the carbon tax and facilitate pro-growth tax reforms. By assuaging concerns that a carbon tax is just another way to expand government, moreover, revenue recycling may be essential to enacting a tax. However, requiring strict revenue neutrality also has downsides. Some policy goals, such as assistance to displaced coal workers, could be better pursued by spending the money directly, rather than indirectly through the tax system.

Policymakers should approach other uses of carbon tax revenue with more caution.
For instance, they should be careful in using revenues to try to cut emissions further. A well-designed carbon tax would do a good job reducing greenhouse gas emissions, so additional policy initiatives should focus on filling in gaps—reducing emissions the tax may miss. Merely duplicating efforts—e.g., supporting clean electricity facilities—would not be cost effective. Indeed, policymakers could roll back tax credits for solar and wind power and other subsidies and mandates that a sizable carbon tax would make redundant. That would free up resources to pursue other, more beneficial goals.

Policymakers should be similarly cautious about tightly linking revenue to specific new spending, whether climate-related (e.g., coastal protection) or not (e.g., new highways). Earmarking risks overspending on any one line item, deploying resources inefficiently, and fueling concerns that the tax would become a slush fund for politicians’ pet projects.

Decarbonizing the economy requires long-term solutions. Many emissions-reducing investments involve large expenditures on long-lived capital, such as power plants and industrial facilities. A carbon tax package that businesses and people believe will endure will be more environmentally successful than one that people think may not survive the next election.

In Australia, for instance, a carbon tax that took effect in 2012 was repealed just two years later, an object lesson in how highly partisan climate policies can be rescinded by future governments. Policymakers should thus give special attention to identifying revenue uses that build ongoing support for a carbon tax.

What Should We Do with the Money from Taxing “Bads”?

What do indoor tanning, shopping bags, junk food, alcoholic beverages, tobacco, “gas guzzling” cars, ozone-depleting chemicals, sugary drinks, marijuana, gasoline, coal, carbon-containing fuels, and financial transactions have in common? Taxes that discourage them. The United States taxes indoor tanning to reduce skin cancer, for example, while Washington DC taxes shopping bags to cut litter, and Mexico taxes junk food to fight obesity.

Governments hope these “corrective taxes” will reduce harms from pollution, unhealthy consumption, and other risky behaviors. But taxing “bads” can also bring in big money. A US carbon tax could easily raise more than $100 billion annually, for example, and a tax on sugary drinks could raise $10 billion.

How should governments use that money? As you might expect, policymakers, advocates, and analysts have proposed myriad ways to use the revenue to pay for new spending, to cut taxes, or, in a few cases, to reduce borrowing. In a new paper, however, Adele Morris and I argue that all these options boil down to four basic approaches:

Revenue Use Table 2

Advocates often suggest that revenue be put toward the same goal as the tax. Carbon tax revenues might subsidize energy efficiency or clean energy, for example, and sugary drink revenues might subsidize healthier food or nutrition information programs. Using revenue that way may make sense if you believe the tax won’t sufficiently change business and consumer choices. But there are downsides. A successful tax will typically reduce the potential benefits from other policies aimed at the same goal. As a result, it may make sense to roll back other policies, rather than expand them, when a substantial corrective tax is implemented. Directing revenues to the same goal may also limit lawmakers’ ability to build a coalition for a corrective tax, while other uses may attract supporters with other priorities.

Another approach is to use the revenue to offset the burdens that a corrective tax creates. New taxes on food, energy, and other products can squeeze household budgets, particularly for families with lower incomes. Shrinking the market for targeted products may disproportionately burden specific workers, industries, and communities. If a tax is large enough, moreover, it may slow overall economic activity. Tax cuts, expansions in transfer programs, or other spending increases may offset some of these harms while leaving the incentives intact. This is particularly important when taxes are intended to help people who suffer from internalities—health risks and other costs they unintentionally impose on themselves. In those cases, rebating revenue to affected consumers can help ensure that a tax actually helps the people who pay it.

A third approach is to use revenues to offset costs of the taxed activity. If an activity imposes costs on an identifiable group of people, it may make sense to compensate them for the harm. A US tax on coal does this, for example, by funding assistance to workers who develop black lung disease. Revenues can also cover some costs of providing public services that support the taxed activity. Fuel taxes paid by drivers, airplane passengers, and maritime shippers , for example, help fund the creation and maintenance of the associated infrastructure.

Finally, governments could treat corrective taxes like any revenue source, with receipts used to reduce borrowing, boost spending, or cut taxes in ways unrelated to the goal of the tax. Governments could allocate the money using ordinary budget processes, as Berkeley, California does with its soda tax revenue, or could earmark revenues to specific efforts, as France does by directing some financial transactions tax revenue to international aid.

Policymakers must consider a host of factors when deciding what mix of these options to pursue. Complete flexibility may allow them to put revenue to its best use over time. But surveys suggest that the public is often skeptical of corrective taxes if they don’t know how the revenue will be used. Many worry, for example, that the corrective intent of a tax may just be a cover story for policymakers’ real goal of expanding government.

Recycling corrective tax revenue into offsetting tax cuts can assuage that concern. But revenue neutrality has downsides as well. Matching incoming revenues and offsetting tax cuts may be difficult, given uncertainties in future revenues from a corrective tax and any offsetting tax cuts. In addition, it may be easier to achieve some distributional goals through spending than tax reductions. For example, a new spending program may be a more straightforward way to help coal miners hurt by a carbon tax than some kludgy tax credit. People who generally oppose wholesale revenue increases from corrective taxes should thus be open to modest deviations from revenue neutrality that provide a more effective way to accomplish policy goals.

Can Nudges Improve Government?

Behavioral “nudges” can increase college enrollment by low-income students, boost health insurance take up, encourage federal workers to save for retirement, cut delinquencies on student loans, reduce vendor fraud, and save paper, according to the first annual report of the White House’s “nudge” unit.

President Obama established the unit—officially known as the Social and Behavioral Sciences Team (SBST)—to use insights from psychology, behavioral economics, and other decision sciences to improve federal programs and operations. Those social sciences increasingly appreciate what regular folks have long known: people are imperfect. We procrastinate. We avoid making choices. We get confused and discouraged by complex forms. We forget to do things. We sometimes lack the energy to weigh decisions thoroughly, so we act based on what we think our peers do or how choices are framed. And we sometimes cut corners when we think no one is looking.

Changing how people engage with the choices they face—“nudging” them—can reduce those imperfections and substantially affect their decisions. The SBST is exploring how that insight can improve government activities. To date, it’s completed more than 15 pilots exploring such questions as:

Can prompted choice and sending reminders increase service-member participation in employee retirement plans? Yes.
Can personalized text messages reduce “summer melt,” the failure to enroll of low-income students accepted to colleges? Yes.
Can reminder emails reduce student loan delinquencies? Yes, modestly.
Can a simple change to a form reduce vendor low-balling of the fees they owe the government? Yes, a bit.
Can redesigning a collection letter increase debt recovery? No, at least not the letter that SBST tested.
Can notifying doctors that they are especially high prescribers of controlled substances reduce inappropriate prescriptions in Medicare? No, but SBST is trying new notifications.
Can a pop-up box get employees to print double-sided rather than single-sided? Yes.

These examples run the gamut from the life-changing to the almost trivial. But they illustrate a common theme: details matter. Policy debates usually focus on high-level issues. Should health insurance be offered on exchanges? Should student loan repayments be limited as a share of a borrower’s income? But after such issues are settled, their impact depends on how policies are implemented. The nitty-gritty of designing forms, deciding how and when to prompt people, and framing and communicating options really matter.

The SBST’s first year also demonstrates the importance of testing new approaches before rolling them out at large scale. It isn’t enough to recognize that particular nudges can influence people. Where possible, agencies should test different approaches to see how they work in specific circumstances. Letters comparing your behavior to your peers’ may encourage people to conserve electricity and pay their taxes, for example, but as one pilot found, that doesn’t mean that they will get doctors to prescribe fewer opioids.

On Tuesday, President Obama signed an executive order making the SBST a permanent part of the White House and directing government agencies to use behavioral sciences to improve their programs and operations. That move is consistent with a larger, bipartisan effort to bring more evidence to bear on the design and implementation of federal programs. The government shouldn’t operate in the dark when there’s an opportunity to use evidence to make programs more efficient and effective.

That potential comes with responsibility, however. One of the most important lessons from behavioral science is that framing matters. Government nudges are a perfect case in point. I’ve been characterizing the SBST’s efforts as “pilots” and “testing new approaches” to improve government activities. Those words are innocuous or positive. As a recent headline illustrates, however, this effort can also be characterized as “President Obama Orders Behavioral Experiments on American People.” That sounds much more ominous.

That characterization reflects concern about the goals of government nudging and the oversight of experiments. Are they really trying to improve our government and lives? Or are they manipulating us to do whatever Uncle Sam wants?

The most effective response is transparency. Tell the American people about the experiments, their goals, and their results. The SBST deserves good marks on that dimension. Its first report provides a good deal of information about each of the pilot studies, both the successes and the failures. As behavioral approaches spread, the government should build on that transparency to ensure that policymakers, media, and the public have the evidence they need to judge their merits.

Back When the Debt Limit Was Funny

Actually, the United States Has Defaulted

Since the day of Alexander Hamilton, the United States has never defaulted on the federal debt.

That’s what we budget-watchers always say. It’s a great talking point. One that helps bolster the argument that default should not be an option in Washington’s latest debt limit showdown.

There’s just one teensy problem: it isn’t exactly true. The United States defaulted on some Treasury bills in 1979 (ht: Jason Zweig). And it paid a steep price for stiffing bondholders.

Terry Zivney and Richard Marcus describe the default in The Financial Review (sorry, I can’t find an ungated version):

Investors in T-bills maturing April 26, 1979 were told that the U.S. Treasury could not make its payments on maturing securities to individual investors. The Treasury was also late in redeeming T-bills which become due on May 3 and May 10, 1979. The Treasury blamed this delay on an unprecedented volume of participation by small investors, on failure of Congress to act in a timely fashion on the debt ceiling legislation in April, and on an unanticipated failure of word processing equipment used to prepare check schedules.

The United States thus defaulted because Treasury’s back office was on the fritz in the wake of a debt limit showdown.

This default was temporary. Treasury did pay these T-bills after a short delay. But it balked at paying additional interest to cover the period of delay. According to Zivney and Marcus, it required both legal arm twisting and new legislation before Treasury made all investors whole for that additional interest.

The United States thus did default once. It was small. It was unintentional. But it was indeed a default.

And the nation still stands. But that hardly means we should run the experiment again and at larger scale. Zivney and Marcus examined what happened to T-bill interest rates as a result of this small, temporary default. They find a surprisingly large effect. As best they can tell, T-bill interest rates increased about 60 basis points after the first default and remained elevated for at least several months thereafter. A simple way to see that is to look at daily changes in T-bill yields:

T-bill rates spiked upwards four times in the months around the default. In November 1978, Henry “Dr. Doom” Kaufman predicted that interest rates would rise. They did. Turn-of-the-year cash management disrupted rates as 1978 became 1979. And rates spiked and fell in October 1979 when Paul Volcker announced that the Fed would target monetary aggregates rather than interest rates (the “Saturday night special”).

The fourth big move was the day of the first default, when T-bill rates rose almost 0.6 percentage points (i.e., 60 basis points).There’s no indication this increase reversed in the days that followed (the vertical line on the chart is just a marker for the day of default). Indeed, using more sophisticated means, including comparing T-bill rates to interest on commercial paper, the authors conclude that default led to a persistent increase in T-bill rates and, therefore, higher borrowing costs for the federal government.

The financial world has changed dramatically in the intervening decades. T-bill rates hover near zero compared to the 9-10 percent range of the late 1970s; that means a temporary delay in payments would be less costly for creditors. Treasury’s IT systems are, one hopes, more reliable that 1970s vintage word processors. And one should take care not to make too much of a single data point.

But it’s the only data point we have on a U.S. default. Not surprisingly it shows that even small, temporary default is a bad idea. Our leaders shouldn’t come close to risking it.

P.S. Some observers believe the United States also defaulted in 1933 when it abrogated the gold clause. The United States made its payments on time in dollars, but eliminated the option to take payment in gold. For a quick overview of this and related issues, see this blog post by Catherine Rampell and the associated comments.

P.P.S. This post originally appeared in May 2011. This version has been slightly edited.

The Costs of Debt Limit Brinksmanship

Today I had the chance to testify before the Joint Economic Committee about a perennial challenge, the looming debt limit. Here are my opening remarks. You can find my full testimony here.

I’d like to make six points about the debt limit today.

First, Congress must increase the debt limit.

Failure to do so will result in severe economic harm. Treasury would have to delay billions, then tens of billions, then hundreds of billions of dollars of payments. Through no fault of their own, federal employees, contractors, program beneficiaries, and state and local governments would find themselves suddenly short of expected cash, creating a ripple effect through the economy. A prolonged delay would be a powerful “anti-stimulus” that could easily push our economy back into recession.

In addition, there’s a risk that we might default on the federal debt. I expect that Treasury will do everything it can to make debt-service payments on time, but there is a risk that it won’t succeed. Indeed, we have precedent for this. In 1979, Treasury accidentally defaulted on a small sliver of debt in the wake of a debt limit showdown. That default was narrow in scope, but financial markets reacted badly, and interest rates spiked. If a debt limit impasse forced Treasury to default today, the results would be more severe. Interest rates would spike, credit would tighten, financial institutions would scramble for cash, and savers might desert money market funds. Anyone who remembers the financial crisis should shudder at the prospect of reliving such disruptions.

Second, Treasury doesn’t have any “super-extraordinary” measures if the debt limit isn’t raised in time.

Pundits have suggested that Treasury might sidestep the debt limit by invoking the 14th Amendment, minting extremely large platinum coins, or selling gold and other federal assets. But Administration officials have said that none of those strategies would actually work.

Third, debt limit brinksmanship is costly, even if Congress raises the limit at the last minute.

As we saw in 2011, brinksmanship increases interest rates and federal borrowing costs. The Bipartisan Policy Center—building on work by the Government Accountability Office—estimates that crisis will cost taxpayers almost $19 billion in extra interest costs.

Brinksmanship also increases uncertainty, reduces confidence, and thus undermines the economy. In 2011, for example, consumer confidence and the stock market both plummeted, while measures of financial risk skyrocketed.

Finally, brinksmanship weakens America’s global image. The United States is the only major nation whose leaders talk openly about self-inflicted default. At the risk of sounding like Vladimir Putin, such exceptionalism is not healthy.

Fourth, as this Committee knows well, our economy remains fragile.

Now is not the time to hit it with unnecessary shocks.

Fifth, as the CBO confirmed yesterday, the long-run budget outlook remains challenging.

Deficits have fallen sharply in the past few years. But current budget policies would still create an unsustainable trajectory of debt in coming decades. Congress should address that problem. But the near-term fiscal priorities are funding the government and increasing the debt limit.

Finally, Congress should rethink the debt limit and the entire budget process.

Borrowing decisions cannot be made in a vacuum, separate from other fiscal choices. America borrows today because this and previous Congresses chose to spend more than we take in, sometimes with good reason, sometimes not. If Congress is concerned about debt, it needs to act when it makes those spending and revenue decisions, not months or years later when financial obligations are already in place. When the dust settles on our immediate challenges, Congress should re-examine the entire budget process, seeking ways to make it more effective and less susceptible to dangerous, after-the-fact brinksmanship.

The 47% is Now 43% and Falling

Remember the 47%? Well, my colleagues at the Tax Policy Center just updated the numbers. For 2013, they estimate that the fraction of Americans not paying any federal income tax is down to 43%. Why? Because the economy is recovering and tax cut stimulus has ebbed. A decade from now, they predict, it will be 34%.

Bob Williams, the Sol Price Fellow at the Urban Institute, explains the number in this video. Key point: the 43% may not pay any federal income tax, but that doesn’t mean they don’t pay taxes:

Ike and the 1953 Debt Limit Showdown

It’s debt limit season again. Treasury will soon exhaust all the “extraordinary” (if familiar) measures it’s using to stay within the limit. By mid-October, Treasury will have just $50 billion on hand. Once that’s gone–maybe at Halloween, maybe a bit later–Uncle Sam won’t be able to pay all his bills or will be forced into doing something desperate like breaching the debt limit or minting platinum coins (kidding, mostly).

We seen this movie before. Sometimes it ends with major policy changes, such as the 2011 deal that spawned the sequester. Other times it leads to minor tweaks, such as the January 2013 deal that linked congressional pay to passing separate budgets through the House and Senate.

These showdowns feel like a modern phenomenon. But over at Tax Analysts, tax historian Joe Thorndike reminds us that a similar showdown happened in 1953 under President Eisenhower:

Soon after President Dwight Eisenhower took office, his administration began signaling the need for additional borrowing authority. But conservatives were not convinced. “For the Administration, this would be the easy way out of hard decisions,” warned the Wall Street Journal. “[T]o lift the debt ceiling for this ‘emergency’ need will make the whole idea of a debt ceiling meaningless. To impose a limit on the government’s debt and then to change it the moment it begins to squeeze makes of the whole thing a trick for fooling people.”

In fact, the Journal suggested that a debt ceiling crisis might be useful. “The government would not be able to carry out all of its spending plans,” the editors predicted. “Some things would have to be cut back a little further. Up against the hard ceiling, government officials would be compelled to make hard decisions, to choose between this dollar and that one.” Staying under the existing cap would be difficult, but that was the point. “Under such a compulsion,” the paper suggested, “many needed economies would be made that would otherwise be thought impossible.”

Eisenhower didn’t believe that spending cuts would be sufficient to keep federal debt under the cap. “Despite our joint vigorous efforts to reduce expenditures,” he told Congress, “it is inevitable that the public debt will undergo some further increase.” On July 30, Eisenhower asked Congress for an increase in the debt ceiling from $275 billion to $290 billion.

Treasury Secretary George M. Humphrey stressed the urgency of the situation. “We will just run out of money and we can’t pay our bills,” he told lawmakers. “It’s just that simple.” Failing to raise the borrowing limit, he warned ominously, might produce “a near panic.”

The House of Representatives swallowed hard and approved Eisenhower’s request. But the Senate had other ideas.

History, as they say, sometimes repeats. Swap the House and Senate and boost the dollar amounts and you’ve got rhetoric that could almost be plucked from today.

Read Joe’s piece to find out how it all turned out. One tidbit (which I don’t think we should repeat): Treasury was forced to sell gold bullion to cover $500 million in debt.