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Brinksmanship is nothing new when it comes to congressional negotiations, but this year's stalemate over raising or suspending the country’s debt limit led to dire visions of a plunging economy, recession, and cuts in federal spending—a situation that would hit not only the federal government but also U.S. states and localities, as well as other countries around the world whose economies are tied to our own. In this Congress Report, former congressional reporter, Deborah Kalb, delves into the history of the debt ceiling and the ever-increasing frequency of discussions to raise it in recent years.

As of early December, Congress had yet to act to resolve the problem, with December 15 looming as the possible deadline for avoiding disaster. The whole thing was unfolding against a backdrop of a global pandemic that shows no signs of ending. But on December 7, just eight days before the deadline, congressional leaders indicated that a deal was in the works to resolve the situation. Once again, a crisis over the debt ceiling seemed about to be averted.

So how did we get to this point? And what exactly is the debt limit, or debt ceiling, and when was the idea first established?

According to the Treasury Department’s website, “The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.”

The debt ceiling has been compared to a personal credit card—if you hit your limit, problems will follow. But, of course, the government’s problems are on a much larger scale. If federal debt nears the debt ceiling, it makes it more difficult for the government to manage its finances.

When the government needs to borrow to meet its obligations, it turns to investors, including the American public. Among the types of Treasury debt or securities are bills, notes, and bonds. In general, they have been considered a safe form of investment. In addition to these outside sources, debt is held by the government itself in federal trust funds, including the Social Security Trust Fund.

History of the Debt Limit

In various ways, Congress has been involved in setting debt limits for many years. Before the World War I era, lawmakers authorized the Treasury to borrow money to pay for specific projects, such as building the Panama Canal. Congress got involved in other ways, too, often giving the Treasury Department instructions about interest rates and bond redemption. In times of war, the Treasury secretary was given more leeway.

In 1917, the Second Liberty Bond Act, designed to help finance the country’s participation in World War I, disposed of certain limits on the redemption and maturity of bonds while retaining other constraints. It marked a shift in how the Treasury Department was able to raise money.

The Treasury secretary at the time, William Gibbs McAdoo, stated, “We must be willing to give up something of personal convenience, something of personal comfort, something of our treasure—all, if necessary, and our lives in the bargain, to support our noble sons who go out to die for us.” The Liberty Bonds became very popular during the war.

Moving forward, through 1982, debt limit legislation was based on amending the Second Liberty Bond Act. Subsequent legislation stood on its own.

Another shift came in 1939, when Congress, urged by President Franklin D. Roosevelt and Treasury secretary Henry Morgenthau, passed legislation allowing an aggregate debt limit of $45 billion, rather than having one limit for bonds and another for other debt. This system allowed the Treasury secretary more flexibility in managing the country’s debt.

Morgenthau had expressed concern about the increasing Depression-era national debt, stating to Congress in 1939, “We have tried spending money. We are spending more than we have ever spent before and it does not work… We have never made good on our promises… I say after eight years of this administration we have just as much unemployment as when we started… And an enormous debt to boot!”

Prior to this latest possible deal, since 1960, Congress has voted seventy-eight times to raise, extend, or change the definition of the debt limit, according to the Treasury Department—forty-nine times under Republican presidents and twenty-nine times under Democrats. According to the White House website, as of August 1, 2021, the debt limit stood at $28.4 trillion. A temporary deal reached in Congress this fall raised it by $480 billion.

The Current Crisis

In fall 2021, the country came to the brink of defaulting on its debt when lawmakers failed to agree on a measure to raise the debt limit. Despite previous bipartisan efforts to raise the limit, Republicans in Congress said they would not help this time because Democrats were in control of the White House, the House, and the Senate and should solve the problem on their own. They suggested that Democrats, who have very narrow 50–50 control of the Senate, pass a debt ceiling increase through a process known as reconciliation that would avoid the need for a 60-vote filibuster-proof majority.

Democrats, meanwhile, argued that because the debt is a reflection of past spending under both Republican and Democratic control, they should not be solely responsible for solving the problem. They also stated that the reconciliation process was too lengthy and cumbersome to apply to this issue at this time.

In September, the House, also narrowly controlled by Democrats, twice approved measures, almost entirely along partisan lines, to raise the debt limit through December 2022. But that legislation ran into roadblocks in the Senate.

Treasury secretary Janet Yellen told lawmakers that they needed to act, and if they failed to do so, “[i]t would be disastrous for the American economy, for global financial markets, and for millions of families and workers whose financial security would be jeopardized by delayed payments.”

Ultimately, Senate majority leader Mitch McConnell agreed to move forward with a short-term measure that pushed the deadline into December—a gambit that led to sharp criticism from some in his caucus that he was caving to the Democrats. The House subsequently approved the short-term measure, and President Biden signed it.

As December arrived, the issue returned. With only a short time to spare before the new deadline, former president Donald Trump chose to pour more gas on the fire, disparaging McConnell and urging him to use the debt ceiling as a political ploy to crush the sweeping Democratic bill known as Build Back Better.

Meanwhile, various pieces of debt limit legislation are pending in Congress, including one that would move the responsibility for raising the debt limit from Congress to the Treasury secretary—an idea House speaker Nancy Pelosi reportedly seemed to favor. And some experts, including Yellen, have said the entire concept of the debt limit should be abolished.

Whatever the result, the crisis over the debt limit is another sign of the polarization and dysfunction present in American politics.

 
Document Citation
Kalb, D. (2015). The debt limit discussion on the table, again. CQ Congress collection (web site). http://library.cqpress.com/congress/cqelcong-2240-117792-2993857
Document ID: cqelcong-2240-117792-2993857
Document URL: http://library.cqpress.com/congress/cqelcong-2240-117792-2993857