Early this month, Congress increased the amount of money that the federal government is allowed to borrow, a contentious task without which the United States would default on its debt. Though Congress controls this debt ceiling ostensibly to make it harder to run deficits, it has become a political club that the minority party uses to bash the majority, regardless of who or what is at fault.
In fact, it’s hard to see that the existence of a debt limit does much except give some members of Congress reason to rail about debt and blame someone else for creating it.
“Other than drawing attention to the problem, it’s an after-the-fact admission of what has already happened and doesn’t accomplish anything,” said Mickey Levy, chief economist at Bank of America.
“Does it lead to better spending and tax policies? The answer is no,” Levy said. “Does it force Congress and the public toward a more meaningful debate on budget policy? Again the answer is no.”
No Republican in either the House or the Senate supported the latest $1.9 trillion debt limit increase — to $14.3 trillion. A typical comment in the House debate came from California Rep. Jerry Lewis, the top Republican on the House Appropriations Committee. “There is one easy way to avoid this kind of colossal national debt: The Democrat majority can stop spending so much taxpayer money,” he said.
A debt limit was first imposed in 1917 when the Treasury was given broad authority to issue bonds to finance World War I costs. When John F. Kennedy became president in 1961, the government’s debt was just under $300 billion, about what it was at the end of World War II.
Since then, the debt has soared to $12.3 trillion and the limit has been adjusted more than 70 times. More than half the debt, $6.7 trillion, has been added in just the past nine years.
While there have been some close votes, Congress has so far not allowed a default, which would make it both more difficult and much more expensive for the government to borrow in the future. It also could undermine the dollar’s preeminent role in the world economy.
Nevertheless, many members of Congress routinely play a game of political chicken, excoriating those who vote to increase the limit while ignoring the prospect of a default.
In this year’s debate, Republicans blamed spending favored by President Obama and Democrats for the debt. They skipped over the fact that the debt almost doubled, rising from $5.6 trillion to $10.6 trillion, while President George W. Bush was in office.
Opponents also generally ignore another important point: Debt can increase even when the budget is balanced, because more than one-third of the total debt is the value of the Treasury securities held by the Social Security, Medicare and other government trust funds.
In other words, the debt limit might have to go up because the size of those funds was increasing. That happened in the late 1990s when the budget was in surplus.
But such details usually are lost in the ranco rous debates about the debt limit. As a result, it’s an issue on which no one wants to be on record. During the February House debate, Democrats used a parliamentary maneuver so that the chamber voted on a procedural measure instead of the debt bill itself. That provided some cover to Democrats who wanted to support the party and prevent default but did not want to cast the hard vote in favor of the increase.
At the end of 2001, the shoe was on the other foot. President Bush’s tax cuts and a mild recession in the wake of the high tech stock market bubble pushed outstanding debt close to the limit, then at $5.95 trillion.
The Republican-controlled Congress didn’t act, forcing the Treasury to undertake some fancy bookkeeping—including suspending investment of money paid by government employees into their own retirement funds and postponing securities auctions—to keep from breeching the limit.A few months later, the House finally cleared by one vote a bill to raise the limit. Last year, when the Senate approved a short-term increase, it did so by the same margin: a single vote.
John M. Berry covered the Federal Reserve and the U.S. economy for the Washington Post for 25 years.