It’s official: The U. S. government has reached its debt limit. According to the Daily Treasury Statement for December 31, 2012, total public debt increased to $16.432 trillion, exceeding the debt limit of $16.394 trillion. The debt subject to limit, $16.393 trillion, was about as close as it could get without going over.
This is a far cry from the debt of $75,463,476.52 incurred during the Revolutionary War and under the Articles of Confederation that was indicated on the first yearly report of the Treasury Department in 1791.
The United States has always been a debtor nation. Federal debt can increase in two ways, as explained in The Debt Limit: History and Recent Increases, issued by the Congressional Research Service:
First, debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it.
The debt limit or debt ceiling is the maximum amount of money the government is legally allowed to borrow. Beginning in 1917, Congress established statutory limits on federal debt. As the Treasury Department explains, “The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.” Since 1939, the debt limits have been combined into one aggregate debt limit. The debt ceiling was “only” $49 billion in 1940. Surprisingly, it was actually lowered five times, in 1946, 1956, 1960, and twice in 1963, before growing to $1 trillion by September of 1981.
Treasury Secretary Timothy Geithner warned for months that the government would hit its debt ceiling by the end of December. In a letter to Congress issued the day after Christmas, Secretary Geithner announced that the formal debt limit would be reached on December 31 and that the Treasury Department would “shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.” These “extraordinary measures” are four in number:
(1) suspending sales of State and Local Government Series Treasury securities;
(2) determining that a “debt issuance suspension period” exists, which permits the redemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund;
(3) suspending reinvestment of the Government Securities Investment Fund; and
(4) suspending reinvestment of the Exchange Stabilization Fund.
Taken together, these “extraordinary measures,” since the public debt increases by approximately $100 billion per month, create or conserve headroom beneath the debt limit that should delay for two months the government’s defaulting on its obligations.
The bipartisan fiscal-cliff deal passed by the Congress last week did not address the debt-ceiling issue.
Since it is a myth that the Republican Party is the party of fiscal conservatism and the Democratic Party is the party of deficit spending (President Reagan signed off on 18 increases in the debt limit), it is no surprise that the Republicans gave in the last time the government faced a debt-limit crisis.
When Barack Obama was elected president in 2008 with a Democratic majority in both Houses of Congress, the Republicans almost unanimously resisted any increase in the debt ceiling. On February 17, 2009, the debt limit was raised from $11.315 trillion to $12.104 trillion. H.R.1 (P.L. 111-5), the “American Recovery and Reinvestment Act of 2009” (Obama’s stimulus plan), was opposed by 38 out of 41 Republicans in the Senate and all 176 voting Republicans in the House.
Following that measure, the debt limit was subsequently raised to $12.394 trillion on December 28, 2009 (H.R.4314, P.L. 111-123), and to $14.294 trillion on February 12, 2010 (H.J.Res.45, P.L. 111-139). Not a single Republican in the House or Senate voted in favor of those bills to raise the debt limit.
But then came an election.
The Republicans regained control of the House in the 2010 midterm election. It was not long after that that they agreed to the Budget Control Act of 2011 (S.365, P.L. 112-25). The Republican vote in the House was 174-66 in favor of the legislation. In the Senate, the Republican vote in favor was 28-19.
On August 2, 2011, Obama signed that legislation into law, which immediately raised the debt ceiling by $400 billion to $14.694 trillion and included provisions allowing the president to request two additional increases, subject to congressional disapproval. Naturally, the president took advantage of that and requested a $500 billion increase that took effect on September 22, 2011, and a $1.2 trillion increase that took effect on January 28, 2012, thus creating the current debt limit of $16.394 trillion. Party-line votes on disapproval measures (H.J.Res. 77, H.J.Res. 98) meant that they passed only in the House.
Then, as now, Republicans accept raising the debt ceiling today as long as it is in tandem with numerically larger spending cuts tomorrow.
In a speech at the Economic Club of New York in May 2011, House Speaker John Boehner maintained, “Without significant spending cuts and the way we spend Americans’ money, there will be no debt-limit increase. And the cuts should be greater than the accompanying increase in debt authority the president is given.”
And in a speech earlier this year at a fiscal summit sponsored by the Peter G. Peterson Foundation, Boehner reiterated, “When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt-limit increase.”
There are two problems here. First, tomorrow never comes. Future Congresses can spend any amount of money they choose. And second, Boehner’s principle is ludicrous on its face. Instead of raising the debt ceiling by $1 trillion now and promising to cut spending by $1.5 trillion later (for a net cut of $.5 trillion), the simple thing to do if you really wanted to cut spending would be to cut spending by half a trillion dollars now.
Although liberals charge Republicans with “government by brinkmanship and extortion” for not wanting to raise the debt limit, what Republican opposition there is to doing so is purely political, as is everything they do.
When George W. Bush took office in January 2001, he inherited a debt limit of $5.95 trillion (thanks to the increases enacted in 1996 and 1997 by the Republican-controlled Congress under Bill Clinton). On the day of his first inauguration, the national debt stood at $5.73 trillion. But then he and his Republican-controlled Congress went on a spending spree that would make Lyndon Johnson proud. By the time of Bush’s second inauguration, the national debt had increased by almost $2 trillion to $7.61 trillion. On the last day of his second term, the national debt stood at $10.63 trillion. So during Bush’s eight-year presidency, the national debt practically doubled.
But with a debt limit of “only” $5.95 trillion, how did all that happen? Simple. Bush and the Republicans raised the debt limit four times from 2002 to 2006 and then Bush and the Democrats raised it again three more times before Obama and the Democrats raised it three times. It was Democrats who opposed raising the debt limit during the time that Bush had a Republican majority in the House and Senate, including Senator Obama, who criticized Bush for a lack of leadership: “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills.” But he is just as much of a hypocrite as any Republican. When the Democrats regained control of the Congress and supported raising the debt limit in 2008, he voted in favor of doing so. And now he says that he regrets his earlier opposition to raising the debt ceiling because he made “a political vote as opposed to doing what was important for the country.”
Treasury Secretary Geithner has proposed allowing the president to raise the debt ceiling unless two-thirds of Congress overrules him. Republicans, of course, oppose the idea, since the president is a Democrat. “Congress is not going to give up this power,” said Boehner, who wants Congress to adopt perpetual reforms along with perpetual increases in the debt limit: “I’ve made it clear to the president, that every time we get to the debt limit, we need to cut some reforms that are greater than the increase in the debt limit. It’s the only way to leverage the political process to produce more change than what it would if left alone.”
And don’t look to economists to offer any real solutions either. James Glassman, senior economist at JPMorgan Chase, said that “the debt ceiling will have to be increased, perhaps by $1 trillion or so, to give the government enough borrowing room for the coming year. He predicted the debate will be rancorous and focused on the government’s need to rein in spending for government medical programs for older Americans and the impoverished so that it can eventually trim its debt.”
The problem is not that the federal government needs to borrow more money to prevent it from defaulting on its obligations. The problem is that the federal government has too many obligations.
Rejecting an increase in the debt limit is the first step toward restoring fiscal sanity in Washington. It would force Congress to cut spending, and cut it drastically, not just reduce it to “pre-stimulus, pre-bailout levels,” as the House Republicans proposed in their “Pledge to America.”
But don’t look for the Republicans to reject an increase in the debt limit. They will cave, just as they did the last time, because they remain just as firmly committed to the welfare/warfare state as the Democrats.
