The Debt Ceiling

By | Updated Oct 30, 2015 12:56 PM UTC

The phrase “debt ceiling” sounds austere and restrictive, as if intended to keep a lid on government spending. Actually, the U.S. national debt limit was conceived almost a century ago to do the opposite: to make it easier for Washington to borrow money. Lately, it’s become a political crowbar many Republicans viewed as their best tool for extracting spending cuts from President Barack Obama and a proxy in a wider battle over the size and scope of the federal government.

The Situation

As one of his last acts in office, House Speaker John Boehner hammered together a bipartisan budget agreement that would extend borrowing authority through March 2017. The Senate passed it Oct. 30. The unhappy heads of the conservative groups Heritage Action and Club for Growth called it a “zombie budget deal” because it was “brokered by a lame duck speaker and a lame duck president.” The agreement came after Treasury Secretary Jacob J. Lew warned that Congress had to raise the $18.1 trillion debt limit by Nov. 3 or the nation could face default. The previous limit was reached when a small group of Republicans in the House of Representatives joined with Democrats in February 2014, to vote to extend the government’s borrowing power; the Senate followed suit the next day. Tea Party conservatives were furious. Their determination to rein in spending had forced Boehner into a debt ceiling showdown and a 16-day government shutdown in October 2013 that ended with Republicans backing down a day before the Treasury said the government would be in default. Republicans suffered in the polls after the shutdown so Boehner agreed to the last debt extension to avoid angering voters.

 

The Background

The federal debt limit was created in 1917 to make it easier to finance World War I by grouping bonds into different categories, thus easing the legislative burden on Congress. Before that, lawmakers approved each bond separately, including borrowing that paid for the Panama Canal. With World War II looming in 1939, Congress created the first aggregate debt limit, and it was routinely raised without incident until 1953. That year, approval was held up in the Senate in an attempt to restrain President Dwight Eisenhower, a Republican, who wanted to build the national highway system. Four years ago, Republicans began using the debt limit as leverage to extract spending cuts from President Obama, resulting in the Budget Control Act of 2011 that instituted across-the-board spending cuts on discretionary domestic and military programs. Partisan divisions over the debt ceiling shift with time and circumstance. When the Senate passed a 2006 resolution to raise it, all the Democrats voted no — including the first-termer from Illinois, Barack Obama.

The Argument

At least one thing is clear about the debt ceiling: It hasn’t restrained the federal debt. That’s in the hands of Congress when it sets levels of taxation and spending, then borrows money when it overspends. Raising the debt ceiling simply lets the government pay for things it has already decided to buy. As a result, some budget experts and commentators want to abolish it, arguing that the uncertainty of Congressional battles costs taxpayers money by increasing economic uncertainty, among other problems. Debt-limit supporters say opponents overstate the potential harm and that using it to bargain for spending cuts serves the public interest at a time of historically high debt levels.

The Reference Shelf

  • A U.S. Debt Clock displays an up-to-the-second ticker on the national debt and many other fast-moving statistics.
  • The Congressional Research Service traced debt ceiling votes and limits.
  • The Committee for a Responsible Federal Budget aggregates news, documents and other resources on the debt ceiling.
  • The Atlantic traced the history of U.S. debt back to 1790.

 

First published Oct. 7, 2013

To contact the writer of this QuickTake:
Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editors responsible for this QuickTake:
Jodi Schneider at jschneider50@bloomberg.net
Anne Cronin at acronin14@bloomberg.net