The latest dust-up in Congress, precipitated by House Republicans, is the debt ceiling, or the debt limit. House Republicans refuse to raise the limit unless they get guaranteed cuts on future spending. President Biden, however, wants to raise the limit without any conditions on future spending. That probably sounds unreasonable to some of you.
I saw a recent Wall Street Journal poll that says 45% of people do NOT want the debt ceiling to be raised, and 44% do want it to be raised. This tells me that 45% of the country doesn’t know what the debt ceiling is.
So What Is the Debt Ceiling, or Limit, and How Does It Work?
Simply put, the government has bills to pay for things that have already been approved for purchase or things that have already been purchased, and raising the debt ceiling allows the government to borrow enough money to pay for those purchases. This includes actual physical items but also money for programs and services that the government provides to all of us.
When the government is not taking in enough revenue—which means taxes—to pay for those purchases, it has to borrow some money in order to make up the difference between what it owes and how much it has (taxes) in its purse to pay for it. It really is that simple.
It’s like paying your credit card bill: You’ve already bought the new computer and have been using it for 3 weeks, had dinner out 7 times last month, and charged your hotel bill from the vacation you just get back from; now, you’ve received the bill in the mail, and you HAVE TO pay it. If you don’t, then bad things will happen: You will accrue late fees, get a reduction in your credit score, and might be sued. Similarly, if the U.S. debt goes unpaid, we will have higher interest to pay, and our credit rating will be reduced, which makes us a greater financial risk in the global economy.
What Is the Debt Ceiling NOT?
The debt ceiling is not linked to any future spending. It has nothing to do with what we might spend money on in the future or what programs and services might be cut in the future or what people think we should not be spending money on in the future. It’s not even about what people think we should not have spent money on in the past. That money has already been spent on services, programs, and items through the legislative process, so it’s too late, just like in the credit card analogy above where you’ve already taken the vacation and gone out to dinner—you can’t return them and get your money back. The best you can do is to be better at budgeting for next month’s purchases—which leads me to my next short but important point: Not raising the debt ceiling also doesn’t mean that future government spending will be cut. Future government spending is what the annual budget negotiation is for. The debt ceiling is related ONLY to past debt that must be paid—just like your credit card—not future spending.
Why Does the Debt Ceiling Keep Increasing?
Things get more expensive as time goes on, Congress (sorry to say that it’s usually the Republicans) keep giving tax cuts to rich people, and corporations and the wealthy either don’t pay any taxes or don’t pay their fair share of taxes because the tax rules are written to benefit them. Thus, the government doesn’t have enough money to pay its bills.
Where Does the Government Get the Money to Make Up the Difference Between the Amount It Owes on Its Bills and the Amount That It Has in Its Purse (Taxes) to Pay the Bills?
When the debt ceiling is raised, that essentially means that the government can then borrow the money to pay the difference between what it owes and how much money it has in its account to pay what it owes. According to the U.S. Government Accountability Office (GAO, the non-partisan government agency that provides Congress with fact-based information), the government borrows the money from the public, issuing them Treasury securities (Treasury bills, Treasury bonds, and Treasury notes). GAO’s own website, GAO.gov, offers a more in-depth look at how the borrowing works and who loans the government money.
Negotiating Future Spending
It should be obvious by now that when Republicans want to use the threat of not raising the debt ceiling as a way to cut spending, that is a disingenuous argument since there’s no way that any spending cuts would be able to reduce spending that’s already occurred. If they want to reduce spending in the future, that’s certainly reasonable—I think both parties would like that, but each party has different priorities on what kinds of spending should be cut—but there’s already a mechanism in place for negotiating future spending cuts, and it’s been used every year: It’s called the annual budget negotiation process (as I mentioned above in the section What Is the Debt Ceiling NOT).
In the negotiation, the President provides Congress with his budget proposal, and then Congress comes up with its own budget proposal, and then they discuss, argue, vote, and eventually come to an agreement that is usually a compromise between both budgets.
The bottom line is that we shouldn’t pretend the debt ceiling battle is about future spending. Again, that’s what the annual budget negotiation is for. To me, it looks as if Republicans are using the debt limit in order to accuse Democrats of one of the things they always like to accuse Democrats of: engaging in out-of-control spending.
For those of you looking for facts, it might interest you to know that, in actuality, it’s the Republican party, not the Democratic party, that has historically added more to our national debt.
Next time, we’ll look at what some previous Presidents have said about raising the debt ceiling.
The Logical Report 