The Debt Ceiling

By Heidi Przybyla | Updated Oct. 15, 2013

 

 

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. Now it has become a political crowbar some Republicans view 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.

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The Situation

Source: U.S. Department of the Treasury

The debt ceiling now stands at $16.7 trillion. The government first bumped up against the limit in May, but the Treasury employed what it called “extraordinary” measures to keep the borrowing going — measures it says will be exhausted on Oct. 17. If Congress doesn’t raise the limit, the U.S. may face the first default in its history, though exactly when isn’t clear; the Congressional Budget Office has said the government would start missing scheduled payments, including benefits, salaries and interest, between Oct. 22 and Oct. 31. The Obama administration and many economists predict that a default would be catastrophic, and an earlier battle over the debt ceiling led  the Standard & Poor’s credit rating company to downgrade U.S. debt for the first time. But the fight isn’t really about the debt; it’s about spending and the future of entitlement programs. Republicans began the standoff by demanding the defunding or delay of Obamacare and long-term cuts in Medicare and Medicaid. The White House responded that it would not negotiate over the debt limit. Before addressing the debt ceiling, Congress missed another fiscal deadline, the start of the new budget year on Oct. 1. Without an agreement to fund the federal government, most programs and departments ran out of money and shut down.

The Background

U.S. Department of the Treasury

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. Two 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, types of spending now at historic lows. 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

Opinion from

• Republican Hostage Game Has Only Just Begun
• When Republicans Supported the Debt Unconditionally
• John Boehner's Dangerous Choice

Bloomberg View Homepage »

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 prepared an exhaustive report on the debt ceiling in September.
• The Committee for a Responsible Federal Budget aggregates news, documents and other resources in a “Debt Ceiling Watch.”
• The Congressional Budget Office issued an analysis of the situation in September 2013 that traced when bills would come due if the debt ceiling was breached.

(First published Oct. 7, 2013)