The Debt Ceiling



The federal government was shut down from December 22, 2018 until January 25, 2019 for a record 35 days due to the debt ceiling being reached. There have been ten shutdowns since 1980, with three occurring since 2010.

What is the debt ceiling? Article I, Section 8 of the United States Constitution gives Congress the authority to borrow “on the credit of the United States.” From the founding of the United States until the end of World War II, the federal budget was routinely balanced outside of times of war. Borrowing was only done for one-time, large expenditures, such as war or for infrastructure projects like the Panama Canal, so that these costs could be spread over a number of years. During World Wars I and II, it became too cumbersome for Congress to provide authorization each time the federal government needed to borrow, given the level of borrowing and spending taking place. Thus, Congress authorized the federal government to borrow up to a limit – this limit is the debt ceiling, and Congressional authorization is required to exceed it.

After WWII, the debt ceiling was never removed, while annual deficit spending became the norm. Since 1945, the federal budget has only been balanced for seven years. Congress has had to continually increase the debt ceiling, as these budget deficits caused the national debt to routinely hit the limit. If Congress does not increase the debt ceiling, the federal government is unable to borrow and thus, must shut down, since it is unable to meet current expenditures. The annual federal budget deficit has doubled from approximately $500 billion annually before the Great Recession to nearly $1 trillion annually after. Consequently, Congress must raise the debt ceiling at increasingly frequent intervals, which explains why government shutdowns have become more routine after 2010.

In a world where borrowing is only for one-time, major capital expenditures, a debt ceiling makes sense. A debt ceiling might help keep the cost of these projects in check, as the federal government would have to seek Congressional approval to borrow for these projects after total borrowing exceeds a certain threshold.

In a world where Congress finances day-to-day expenditures through borrowing, a debt ceiling is illogical. Congress, as per Article I, Section 8 of the Constitution, sets taxes and through the yearly appropriations process, determines spending. Congress routinely sets a level of taxation and spending that requires the government to borrow. By refusing to raise the debt ceiling, Congress then prohibits the government from borrowing!

Congress could leave the debt ceiling in place and return to an era of responsible taxation and spending, so that the budget is balanced each year. Or, Congress could acknowledge its budgetary irresponsibility and remove the debt ceiling to prevent future shutdowns. There is no evidence that the debt ceiling does anything to retrain the deficit in our current budgetary climate. All it does is increase economic uncertainty with the prospect of future shutdowns.


Comments are closed.