Republicans may lose the House in 2012 because they are boxed in on the debt limit, which, as currently written, forces a choice between default and more debt. It’s a lose-lose proposition for fiscal conservatives.

The current debt limit always goes up, doesn’t control spending or debt and yet has to pass the House to avoid a default. The Republican Plan to get out of the bind? Cut a deal with Vice President Biden for reductions in future spending growth.

But that’s not a way to win elections. The road forward for Republicans is to work toward a permanent new debt-to-GDP cap with teeth that makes the president responsible for any over-spending and gives him the power to cut spending. The public would understand this type of deal and support it.

Instead, Republicans are fighting with the Administration over what to cut even though they can’t force the issue or get broad public support. To avoid a default in August, the White House will threaten a rolling shutdown of government and brand Republicans as irresponsible extremists. High unemployment adds to the risk of being called hard-hearted as critical services are cut.

Some Republicans are saying they won’t vote for a debt limit at all — or only if they get to name the cuts. But there’s even less leverage to get spending cuts with the debt limit increase than there was with the spending bill earlier in the year. When the continuing resolution came to a head, there was little public support for a government shutdown so Republicans were left voting for trillions in spending and claiming they’d made cuts.

As a rolling government shutdown approaches in August, the Administration’s incentive to cut spending will go down, not up, and it may even toughen its demands for higher taxes. It still believes that federal spending and higher taxes are good for the economy. It can point to the May congressional election in western New York to claim public support for big government entitlements. Two senior Democrats told me they thought tax increases should be included in the debt limit deal because America is one of the lowest taxed industrialized countries and spending cuts alone aren’t fair and won’t get the job done.

The Republican goal should be to get public support for replacing the harmful $14.3 debt limit with something that will work to stop Washington’s spending machine. That was the demand from the public in the November 2010 election. Instead the Republicans are proposing unpopular cuts that won’t pass and backing themselves into a corner over government shutdowns.

Why can’t the current $14.3 trillion debt limit be enough? It should be, but more than that has already been spent. It’s a badly designed limit — like closing the barn door after the horse has run off. Proponents of ‘just say no’ to the debt limit increase point out that, on average, over $200 billion in tax revenues come in every month, more than enough to pay interest on the national debt and prevent a default. That’s true and may work for a few days. The problem is the consequences for Republicans as the Administration orchestrates the shutdown of most other government spending and the public communications of the cutbacks and the bond market disruptions.

Even if Congress and the president agreed to enact a fully balanced 10-year budget tomorrow, the national debt would still have to go up by trillions of dollars in the next few years as the government pays old bills and makes the required contributions to the social security and Medicare trust funds (which are counted in the debt but aren’t included in the deficit or in Treasury auctions.)

There’s still time to replace the current unworkable debt limit with a permanent new debt-to-GDP cap with teeth. If it gets a chance, the public would almost surely support an aggressive downsizing process as part of this summer’s debt limit legislation. But it can’t be done through a closed-door Washington-style one-time compromise or a last-minute deal. And don’t expect Washington to voluntarily write a forceful debt limit any more than it was willing to write a constitutional line-item veto in the 1990s.

To win an upheaval, fiscal conservatives have to involve the public early, basically asking for a national referendum on smaller government. Specifically, fiscal conservatives should replace the current debt limit (the bad one) with a phased-in debt- or spending-to-GDP ceiling that makes the President responsible for spending cuts when the debt ceiling is exceeded. Presidents through Richard Nixon had that responsibility. Congress never wants to give up power, but they’ve misused it badly creating the current fiscal crisis.

For now, Democrats are using Friday’s weak job number to set expectations low for the 2012 election. Chances are the economy will pick up some by then, letting President Obama claim progress.

Republicans will say Obama made things worse. He’ll say they are mean extremists trying to shut down government services. Thus, the public perception of the debt limit outcome may be critical for Republicans to hold their House majority (now 240R-193D) and gain the majority in the Senate (now 53D-47R).

Mr. Malpass is president of Encima Global, was chief economist at Bear Stearns and worked on tax and budget issues in the Reagan Administration.