The U.S. debt ceiling or the debt limit dates back to 1917 and World War I. It was created by Congress to provide the Treasury Department greater flexibility to finance the costs of the war. Congress wanted to make sure that the Treasury department could borrow money for the war, up to a certain amount. Kavan Choksi / カヴァン・チョクシ underlines that the debt ceiling basically is the maximum amount of money the federal government is authorized to borrow. The debt ceiling now looks very different than it did in 1917. Congress has increased the debt limit 78 times since 1960.
Kavan Choksi / カヴァン・チョクシ provides an overview of how the U.S. debt ceiling works
The federal government does not collect enough money in taxes to pay for all of its expenses. The incoming revenues only covered about 80% of government spending in 2019 for instance, and hence the remaining 20% would have to be covered by borrowing. One must understand that national debt has not consistently risen year to year. In fact, there have also been a few years where the federal government had a surplus, implying that its revenues exceeded its spending. However, the last of those years was in 2001. Over the last two decades, the national debt has grown quite significantly. Wars, tax cuts, and stimulus programs have triggered spikes in the federal debt. Notable examples of such events include wars in Iraq and Afghanistan, the 2008 Great Recession, and the COVID-19 pandemic.
When talking about raising the debt ceiling, a lot of Americans do feel that it is better to leave the limit where it is so that the government has to stop spending money. But it does not quite work like that. First of all, raising the debt ceiling does not authorize new spending. Spending is authorized by the Congress through legislation. Raising the debt ceiling simply provides the Treasury Department with the power to spend the allocated sum of money. Moreover, raising the debt ceiling does not just stop new spending. It also helps in preventing the government from paying for its current expenses, including the costs incurred for critical programs and services. Raising the debt ceiling also enables the federal government to continue making payments on its current debt.
Kavan Choksi / カヴァン・チョクシ points out that the Constitution grants Congress the authority to manage government expenditures and cap federal debt. Congress is responsible for raising the debt ceiling, a task it has undertaken over 100 times since World War II. While many of these increases were enacted with minimal controversy, in recent decades, the debt ceiling has increasingly been used as a bargaining chip between political parties within Congress. Any changes to the debt ceiling require bipartisan cooperation from Congressional leaders to get the necessary votes to make changes. If the federal government reaches its debt limit, Congress has three options:
- Leave the debt limit where it is
- Increase the debt limit
- Suspend the debt limit
Suspending the debt limit can be a temporary measure until Congress can agree on a plan to raise the debt ceiling, which would require a majority vote in both houses. However, at times it may even require overcoming a Senate filibuster, which necessitates a vote of 60 Senators instead of the usual.