The Debt Ceiling
The phrase “debt ceiling” sounds austere and restrictive, as if intended to keep a lid on government spending. In fact, the 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 must decide whether they should raise the debt ceiling to allow fellow Republican Donald Trump to fulfill promises he made during his presidential campaign for tax cuts and infrastructure spending.
The two people Trump picked to handle the U.S. debt and budget don’t see eye-to-eye. Trump’s choice to head the Office of Management and Budget, Mick Mulvaney, voted against debt ceiling increases while he served in Congress and has downplayed the dangers of defaulting. Treasury Secretary nominee Steven Mnuchin has warned against playing politics with the country’s debt. Although the limit is in limbo at the moment, it will stir soon. In October 2015, as one of his last acts in office, former House Speaker John Boehner hammered together a bipartisan budget agreement that suspended the debt limit until March 16, 2017. At that point, it will be reinstated at whatever the debt is that day, probably about $20.1 trillion, according to the Bipartisan Policy Center. Congress could decide to raise it before then, to give themselves leeway to pay for all the projects Trump wants. If they don’t raise the ceiling, it would immediately end government borrowing. The Treasury Department would be able to keep paying the bills for a while, first by shifting funds around and then by “extraordinary measures,” like deferring payments to federal retirement accounts. A failure to raise the debt ceiling would also mean a first-ever default on some of the government’s obligations. Just getting close to the 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.
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. Five years ago, Boehner used the debt limit to extract spending cuts from President 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 reelection that he would never again give Republicans anything in return for a debt limit hike. With no re-election fight 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. His successor, Paul Ryan, and Republican leaders are sure to face the same pressures next year but will have the backing of President Trump, who’s advocating for a big-spending agenda.
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 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 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.
Heidi Przybyla contributed to the original version of this article.
First published Oct. 7, 2013
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