The Debt Ceiling

House Republicans Meet To Continue Work On Debt Ceiling Plan

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. For two years, it became 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. After two standoffs, one in 2011 that led to deep cuts and one in 2013 that didn’t, Republicans leaders put down the crowbar — the threat of a first-ever federal default — even at the cost of deepening a split in their own ranks. But the fight isn’t over.

The Situation

A month before the 2014 Congressional elections, some conservative House Republicans were making noises that without more limits on Washington spending they wouldn’t agree to extend the debt ceiling when it expires on March 15, 2015. As in previous debt-ceiling battles, some conservatives want tax and spending cuts in exchange for their votes. Others say the debt ceiling shouldn’t be raised under any circumstances. The current limit was reached when a small group of Republicans in the House of Representatives joined with Democrats on Feb. 11, 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 Speaker John Boehner into a debt ceiling showdown and 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 new, Republican-led Congress that took office in January 2015 won’t be feeling the same imminent ballot-box pressure. Yet Tea Party conservatives are likely to advocate for using the debt ceiling to force Obama’s hand on policy.

 

Source: Office of Management and Budget
Source: Office of Management and Budget

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. Three 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

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 2013.
  • The Committee for a Responsible Federal Budget aggregates news, documents and other resources in a “Debt Ceiling Watch.”
  • The Atlantic traced the history of U.S. debt back to 1790.

(This QuickTake includes a corrected reference to the time elapsed since the Budget Control Act of 2011 was passed.)

 

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