5 Fun Facts About the Fight Over the Debt Ceiling
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One thing on which virtually everyone agrees – Democrats, Republicans and experts from across the political spectrum – is that not raising the debt ceiling will lead to economic catastrophe. It would send shockwaves across the financial system, undermine confidence in the dollar as the world's reserve currency and reverse our fragile “recovery,” resulting in an extraordinarily painful double-dip recession.
That lawmakers who ostensibly receive a paycheck to govern this country are threatening to bring that dire reality about may be a sign that our political discourse has achieved Peak Crazy.
It may be crazy, but according to a recent CBS/ New York Times poll, Americans oppose lifting the debt ceiling by a 63-27 margin. It's safe to conclude that a significant majority of them would not be in favor of causing massive upheaval in the global economy (and a second, deep recession), so it's probably a good time to shed some light on what the debt ceiling does, and why not raising it has never been a serious option.
Here are five things you ought to know about the fight ahead.
1. Keeping the Current Debt Ceiling isn't a Means of Controlling the Deficit
The only explanation for the polling on this is that people think that not raising the debt ceiling is a way of controlling the national debt, which, they are told just about every day, is a dire crisis.
But debt is created when Congress authorizes the government to spend more than the revenues it takes in, and that's an entirely separate process. That process has now brought us to the debt limit – an arbitrary line established by Congress in the 1940s and increased regularly since then.
Every legislator who voted for the 2011 budget deal is responsible for authorizing the government to spend $3.7 trillion while raising $2.2 trillion in tax revenues, and what we're currently debating is whether the government will pay its tab or default on any debt that goes over the ceiling.
As the Congressional Budget Office (CBO) put it ( PDF):
By itself, setting a limit on the debt is an ineffective means of controlling deficits because the decisions that necessitate borrowing are made through other legislative actions. By the time an increase in the debt ceiling comes up for approval, it is too late to avoid paying the government’s pending bills without incurring serious negative consequences.
Ironically, failing to raise the debt limit will make our fiscal deficits far worse. The leading cause of today's deficit is not two wars or the Bush tax cuts – it is the recession itself, which sent tax revenues into a deep hole. As David Min, a financial markets analyst at the Center for American Progress, notes, failing to raise the debt limit would make the budget deficit “worse by forcing a massive multitrillion dollar hit to an already struggling economy and threatening to take us into a second Great Depression.”
It is no small irony that the base of a political party whose rhetoric centers around responsibility and accountability and fiscal restraint would favor driving up the deficit by welching on our bills.
2. Raising the Debt Ceiling Is Necessary Under Every Budget Plan
Underscoring that point is this simple fact: the debt ceiling must be raised under every budget plan that's out there – Obama's, the House Republican plan authored by Rep Paul Ryan, R-Wisconsin, or the “reforms” proposed by deficit commission co-chairs Alan Simpson and Erskine Bowles.
According to the Washington Post , Obama's budget outline would require borrowing an additional $7 trillion over the next decade, while the Republicans' disastrous plan would require the government to borrow $5.5 trillion over that same period. Either way, the limit has to be raised in order to govern this country.