Debt Ceiling! What Is It Good For?

Congress is once again debating whether to raise the debt ceiling, a legal limitation on how much the government can borrow to pay debts to which it has already committed. But what is the debt ceiling, anyway? And do we really need it? Here are some surprising things you might not know about the debt ceiling:
By Abby D. Phillip

Congress is once again debating whether to raise the debt ceiling, a legal limitation on how much the government can borrow to pay debts to which it has already committed. But what is the debt ceiling, anyway? And do we really need it? Here are some surprising things you might not know about the debt ceiling:

1. Congress invented it less than 100 years ago.

For more than a third of the county’s history, there was no debt limit. Congress simply decided how to spend money, and authorized the government to borrow what it needed to pay for it. Easy. But then again, for most of the pre-debt ceiling era, America’s economy wasn’t very complicated. So in 1917, in order to give the Treasury Department more flexibility to borrow money to pay for wars and other expenses, Congress created a debt ceiling for certain kinds of debt. And in 1939, it created an overall debt ceiling that governed all forms of debt the government could take on. Back then, Treasury officials liked the idea of a debt ceiling because it gave them some flexibility in how to borrow in order to pay for what Congress authorized. Today, Treasury Secretary Jack Lew, like the others before him, is now trying as hard as he can to convince Congress to raise the debt ceiling to avoid default.

2. Only one other democracy in the world has one.

That’s right, we’re pretty much alone on this one. Denmark is the only other democratic nation with a system like ours. And in the 20 years since they’ve had a debt ceiling, they’ve only raised it once. The United Kingdom, France, Canada, Germany, you name it; none of them has debt limits. They all have slightly different ways of figuring out how to control their debt, but it’s through the spending process in most cases. In Germany’s case, they’ve enacted a law in 1999 that restrict debt to 0.35 percent of the Gross Domestic Product, which prevents lawmakers from authorizing spending beyond that point. Other countries have similar, albeit less stringent, restrictions on debt as a percentage of GDP.

3. It’s not in the Constitution.

There’s nothing in the Constitution that says Congress should use the debt ceiling to control spending or debt. Congress is, however, constitutionally required to decide how money is spent, and the debt ceiling is just one of the mechanisms they use to measure the fiscal impact of those choices. Speaking of the Constitution, many people suggest that President Obama has the power through the 14th amendment to raise the debt ceiling. Specifically, it says: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” Whether that means the president can pay the country’s debts with or without Congress, few people know, and White House officials say they don’t think the 14th amendment gives Obama that power, but Obama himself hasn’t ruled it out.

 4. The debt ceiling hasn’t helped Congress spend less.

The debt limit, according to a 2008 Congressional Research Service report, “can hinder the Treasury’s ability to manage the federal government’s finances.” What it doesn’t do is prevent the government from spending more money. Since the debt ceiling has been in place, it has been changed by Congress more than 100 times. Congress acted to raise it rather than lower it the vast majority of the time. Between 1990 and 2000, the debt ceiling went from roughly $3 trillion to nearly $6 trillion. From 2000 to 2010, the debt limit went from nearly $6 trillion to more than $14 trillion. You get the idea.

5. We don’t need it.

When Congress members decide to authorize spending and levy taxes, they sometimes create debt that needs to be paid. The debt ceiling simply forces a second, retrospective conversation about that debt.  “Whenever you’re spending and taxing you’re implicitly deciding how much you have to borrow,” said Robert Murphy, a senior economist at the Council of Economic Advisers in the Clinton Administration. Congress could do what most other democratic nations do and simply decide on spending, taxing and borrowing all at the same time because, after all, you can’t have one without the other (or others). Some, however, view the debt ceiling as a fire alarm Congress put in place to alert the country when borrowing might be getting out of hand, however. “The debt limit also imposes a form of fiscal accountability, which compels Congress and the president to take visible action to allow further federal borrowing when the federal government spends more than it collects in revenues,” as the CRS put it. Others suggest that Congress members should do away with the debt ceiling and address new debt when they decide to spend money, not after.
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