The money the U.S. uses to run the country does come — in part — from taxes; however, it comes from another, perhaps, more important source as well: investors.
Investors from around the world can buy bonds from the federal government (essentially investing in our country) and are supposed to be paid back over time. The money that the government gets from these investments (and from taxes) is used to fund spending that congress has already approved, according to Brookings. When the government runs out of money to pay for these programs using taxes alone, this money borrowed from investors becomes crucial, according to Investopedia.
The debt ceiling puts a limit on how much debt we can accrue, or in other words how much money we can borrow. Essentially it limits how much money the Treasury can borrow in order to pay its bills, according to a White House explainer on the Debt Ceiling.
However, Congress has the power to raise the debt ceiling and save the U.S. from economic disaster. Congress has done this numerous times before. The U.S. is one of the only major countries to have a debt ceiling and the only country to have one so tight that we must constantly raise it, according to U.S. News.
If the U.S. reached the debt ceiling and were not able to pay back our debt, we would default. Something which has never happened before. As CBS News reported, the U.S. government being unable to pay its bills will result in a domino effect. Payments and benefits, such as social security and food assistants, would be halted. U.S. troops and federal civilian employees would lose pay and veterans could see their payments stop.
Because of this, one might think that Congress would simply always raise the debt ceiling when it’s necessary, however it is nowhere near as simple as this.
The debt ceiling was first introduced with the Second Liberty Bond Act in order to simplify the process of government borrowing, according to the BGR Group. The Second Liberty Bond Act essentially allowed the U.S. Treasury to issue bonds and accrue other debts without congressional approval as long as it fell under the debt ceiling, according to the U.S. Senate Finance Committee.
The debt ceiling was also introduced as a way to promote fiscal responsibility from the government. The debt ceiling worked to make sure the government didn’t borrow money that it couldn’t pay back and that congress didn’t approve spending it couldn’t afford, according to the New York Times.
Based on this, one would certainly believe that the debt ceiling would be beneficial in restraining spending. In practice, however, this isn’t necessarily how the debt ceiling is utilized. In recent times the debt ceiling is often used as a political device.
As a recent New York Times article stated, raising the debt ceiling used to be a bipartisan process and much more procedural rather than a point of contention. However, the issue is much more political today than it ever has been.
Over the past two decades, this has manifested in many different ways. In 2006, Democrats refused to support raising the debt limit as a protest against the ongoing Iraq War, according to Clay Risen. In 2011, Republicans refused to support an increase to the debt ceiling in order to force Democrats to agree to certain spending cuts, according to Clay Risen.
The politicization of something so procedural could be detrimental to our country. When such an important issue is politicized and used as a bargaining tool, we might someday reach a point where the deadlock in Congress is too strong to break. If either side holds out too long we could default as a country which would lead to certain economic catastrophes.
There are two viable solutions to this problem. The first is to shift control of the debt-ceiling to either the secretary of the treasury (currently Janet Yellen) or to the president. This would likely get rid of the political issue; however, the other issues that come with a debt ceiling (primarily the consequences of defaulting) would remain. And additionally, because of our nation’s system of checks and balances, we would likely never have one person with that much power (and perhaps rightfully so).
A second solution to the problem could come through legislation.
Currently, the party in power passes spending increases and the other party tries to get some type of revenge, perhaps years later, according to CNBC, by refusing to raise the debt ceiling to accommodate those spending increases. A legislative way to combat this would be requiring the passage of an increase to the debt ceiling every time that spending was approved. This would take out the political battle that occurs every time approved spending is due to go into effect.
Current legislative solutions for this include the Debt Ceiling Reform Act and H.R 6139. Both of which propose reform to the debt ceiling that involves the two solutions mentioned above. The latter is the more radical example as it truly works towards abolishing the debt ceiling.
The third and perhaps best solution would be to fully abolish the practice. The U.S. is very unique in the fact that it even has a debt ceiling. Most countries throughout the world don’t have such a thing. The practice was introduced when the U.S. was in a time of economic uncertainty and it was necessary in order to keep our debt under control, according to Marketplace.
However, today our more mature economy doesn’t need this handicap. Additionally, the practice has become so politicized that it’s no longer a system that keeps debt under control, it is used much more as a political pawn.
Abolishing the debt ceiling would rid our government of unnecessary tension and help to reunite us economically.