The Debt Ceiling
The very phrase “debt ceiling” sounds austere and restrictive, as if intended to keep a lid on government spending. In fact, this U.S. federal debt limit was first conceived almost a century ago to make it easier for the government to borrow money. It’s morphed into an explosive political tool with the potential to roil financial markets. Congressional Republicans repeatedly sought to use it as a club against Democratic President Barack Obama as they fought for budget cuts. Now they may need to decide whether they should raise the debt ceiling to allow fellow Republican President Donald Trump to fulfill promises he made for tax cuts and spending on the military and infrastructure.
Treasury Secretary Steven Mnuchin has urged members of Congress to increase the nation’s debt ceiling soon, since tax receipts are coming in more slowly than expected. The U.S. hit its current debt limit in March. This date was determined in October 2015 when, as one of his last acts as House of Representatives speaker, John Boehner hammered together a bipartisan budget agreement. The agreement suspended the limit until March 16, 2017 — a date well past the 2016 election — with a new limit set at whatever the debt was that day, which ended up being $19.8 trillion. The Treasury Department can keep paying the nation’s bills for a while, first by shifting funds around and then by “extraordinary measures,” like deferring payments to federal retirement accounts. But a failure to raise the debt ceiling could eventually result in a first-ever default on some of the government’s obligations. While Senate Majority Leader Mitch McConnell has said Congress will raise the limit, he hasn’t suggested when this might happen. There’s been tension among Trump’s cabinet members over how to respond. Mnuchin has warned against playing politics with the country’s debt and wants to see a “clean” extension of the debt ceiling, without partisan riders. Office of Management and Budget director Mick Mulvaney, who voted against debt ceiling increases while he served in Congress, has said he’d like to see spending and debt reforms attached to a bill raising the limit.
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. 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. Just getting close to the debt-ceiling deadline in 2011 rattled the financial markets and consumers, who feared that home mortgage and credit card interest rates would soar and that government payments, like Social Security checks, might be delayed. S&P even downgraded its rating on sovereign U.S. debt. Congress used these pressures to extract spending cuts from Obama, slicing domestic and defense spending by more than $2 trillion over a decade in the Budget Control Act of 2011. But Obama declared after his 2012 re-election that he would never again give Republicans anything in return for a debt-limit hike. With no re-election to hold over Obama, Republican leaders repeatedly caved to his debt demands lest they face the ire of the public over another financial crisis. This infuriated Tea Party voters and other small-government advocates. Unable to control his angry caucus, Boehner resigned as speaker in October 2015.
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 runs a deficit. 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 congressional battles cost 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 Budget Office’s details what will happen during the period of using “extraordinary measures” to keep the government running.
- The Congressional Research Service follows 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.
Heidi Przybyla contributed to the original version of this article.
First published Oct. 7, 2013
To contact the editor responsible for this QuickTake:
Anne Cronin at email@example.com