Question: What is the federal debt ceiling and why is it so important?
Answer: Under the U.S. Constitution, the Congress has the power of the purse, meaning that the legislature appropriates or spends money and also collects money through taxation. Ideally, the government’s spending would equal or perhaps be less than, the amount of money collected each year. But that is rarely the case.
When Congress spends more than has been collected in taxes the U.S. has to borrow the money. This is typically done by selling treasury bonds. Institutions, countries and even individuals buy bonds as a safe form of investment, as the U.S. is considered to be a very low risk to default. As many seek the safety of U.S. debt, we are able to borrow relatively cheaply.
People will often use the terms debt and deficit interchangeably. However, they are not the same. The annual deficit is the difference between what is spent and what is collected in taxes each year. The national debt is the running total of what we owe. You will hear politicians talk about reducing the deficit. While that is a good thing, that’s just an attempt to reduce how much we borrow each year. It does not even address paying back what we owe. The current annual deficit is around $3 trillion, and the national debt is approaching $30 trillion. Put another way, the national debt is about $86,000 per person.
Historically, every time Congress wanted to borrow money, it had to pass a new law issuing bonds. There is no constitutional limit on the amount that the U.S. can borrow, but Congress created its own maximum in 1917 through the passage of the Second Liberty Bond Act. The purpose of the law was to simplify the borrowing process by broadly authorizing borrowing up to a certain amount and to encourage fiscal responsibility by having a set limit, or “ceiling”. But anything that is created by law can be modified by law, so the ceiling has been raised over 100 times.
Politically, the issue of the debt ceiling arises each time the U.S. approaches the limit. Most countries do not have a debt ceiling for good reason. It is largely ineffectual way to address fiscal responsibility because it does not limit spending, it just limits borrowing. After already having spent or appropriated the money, the failure to raise the debt limit to pay would force the U.S. to default on its obligations which could do severe damage to the economy. While some members of Congress are against raising the limit, it does not make much sense to decide that fiscal responsibility begins when the bill arrives.
There is also an interesting question about whether a debt limit or ceiling is itself constitutional. The 14th Amendment to the U.S. Constitution reads, “the validity of the public debt of the United States, authorized by law…shall not be questioned.” It may well be that the U.S. is not allowed to default and is constitutionally required to pay its obligations. If at some point Congress refuses to raise the debt ceiling, we may well get to test this argument in court.
The Palm Beach Post – 8/22/21
Kevin Wagner
Kevin Wagner is a noted constitutional scholar and political science professor at Florida Atlantic University. The answers provided do not necessarily represent the views of the university.
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https://www.palmbeachpost.com/story/opinion/columns/2021/08/22/civics-project-federal-debt-ceiling-does-poor-job-keeping-lid-spending/8176964002/
