Center for American Progress

Congress Shouldn’t Raise the ‘Debt Limit’—It Should Repeal It

Congress Shouldn’t Raise the ‘Debt Limit’—It Should Repeal It

The debt limit has a long and sordid history, but it is quite different from the one described by Sen. Ted Cruz.

Sen. Ted Cruz (R-TX) talks with reporters as he walks to the Senate floor on Capitol Hill, Saturday, October 12, 2013. (AP/ Evan Vucci)
Sen. Ted Cruz (R-TX) talks with reporters as he walks to the Senate floor on Capitol Hill, Saturday, October 12, 2013. (AP/ Evan Vucci)

Shortly after the 1992 election, I was riding in a car with a newly elected member of the House of Representatives from the South. He was very unhappy because he had just been told that one of the first votes he would cast would be for raising the debt limit and that he would have to vote “aye.” He was nearly in a rant: “I can’t vote to increase the debt limit. I spent my whole campaign arguing against an increase in the public debt. What would I say to my constituents? How would I explain that?” Then his disposition began to mellow and he got a glint in his eye. “I guess if I were appointed to the Appropriations Committee, I could explain it.”

He was not the first member of Congress to figure out that you could get something for voting for the legislation that prevented the nation from going into default. As Republicans pointed out last week, that legislation has come before Congress 55 times in the last 35 years and, according to them, riders were attached on a number of those attempts. My experience is that there has often been a quid for the pro quo of preventing default. Sometimes it was written into law; more often it was not. In few of these side deals was reducing the deficit an objective; most involved favors that added, perhaps only slightly to the deficits. Presidents have put up with this game of cat and mouse because the price has not been that high in the past.

The problem, however, is that the “debt-limit” resolution purports to be something that it clearly is not—a tool for shaping and redefining the nation’s fiscal policy—and, in reality, plays a totally nonsensical role. It can’t be explained to people in simple terms because it doesn’t make any sense.

Back in 1917, President Woodrow Wilson needed a way to finance America’s entry into World War I. The government’s budgeting process was in shambles. Individual agencies went directly to Congress to seek appropriations without direction or even coordination from the White House. The War Department would put together their request and send it up to the Hill. The Department of the Navy and other departments would do the same.

But in many instances, Congress also had limited control over what the various pieces of the bureaucracy were up to, how they spent their money, or how much they spent. Despite an 1870 law that attempted to prohibit the creation of deficiencies—obligations to pay tax dollars to individuals or businesses that have not been appropriated—there was little real restraint on a department secretary who wanted to expand his budget by simply signing a contract to spend that money and then telling Congress that the United States owed the money and the good faith and credit of the American people would be damaged if Congress didn’t appropriate the money and pay the bill.

So when President Wilson asked Congress for the authority to issue Liberty bonds—the forerunner of modern-day Treasury bonds that were used to finance World War I—many in Congress rightly wondered where the issuance of such debt could lead the country given the lack of any real budget process to make budgetary decisions. The debt limit was probably a useless tool for forcing budget choices even in those primitive days of developing the nation’s fiscal policy. It had only one thing going for it—a name that was hard to vote against.

But just four years later, President Warren G. Harding signed the Budget and Accounting Act of 1921 and instituted the beginning of modern federal budgeting. The act was largely based on the recommendations of a commission established by President William H. Taft a decade earlier, and did a number of important things.

First, the act established the Bureau of the Budget, which reviewed and could revise the budget requests of all departments and agencies of the federal government. The Bureau was obliged to add all of the spending up into one total and propose changes in revenue to ensure that deficits were kept to a minimum.

Second, the act created the General Accounting Office to have professional auditors go over the agencies’ books and examine whether expenditures were made in conformance with the laws under which they were authorized. Congress also reorganized itself so that all spending requests were under the jurisdiction of a single committee.

Finally, the legislation established strict procedures by which any employee of the government could sign a contract obligating the federal government to make any kind of payment. Any employee who did so without appropriated dollars to pay the cost of that contract was guilty of a felony and subject to criminal prosecution.

The increased control and accountability provided by the 1921 act went a long way toward addressing the concerns that had sparked the Liberty bond amendment, but Congress continued the process of passing legislation to increase the debt limit as it was needed. However, Congress finally dealt directly and comprehensively with establishing a process to determine all of the issues related to the growth of the public debt in 1974 with the adoption of the Congressional Budget and Impoundment Control Act.

This act, among other things, required each house of Congress to adopt a resolution each year setting forth a blueprint for future spending decisions as well as changes in the level of revenues collected, and expressly requiring a vote on the level of the deficit that would result from the decisions about spending and revenues. This not only gave Congress the opportunity to vote on deficits before they were created, but it also made the “debt ceiling” completely irrelevant except for one purpose: whether or not we should default on paying the bills on purchases we had previously decided to make.

But the House did not move to suspend the legislative charade of deciding whether or not to pay the bills they had already voted to ring up for several years after the congressional budget process was implemented in 1977. There were probably several reasons for that. One was that some members of Congress never seem to tire of hearing themselves drone on about the evils of rising debt. All too often, those members are only covering their tracks for supporting more spending and big tax giveaways. Another group saw the regular process of bargaining with the White House over whether or not to push the country into default as a useful opportunity to get concessions of various types. This was more popular in the House than in the Senate, because the Senate already had a wealth of executive branch appointments on which to bargain over, and what could be demanded and obtained was usually small enough that the White House and congressional leaders were willing to play the game.

But in 1979, former House Speaker Tip O’Neill (D-MA) assigned a rapidly rising young member of the House Democratic caucus—then-Rep. Dick Gephardt (D-MO)—to head up the effort of passing the debt limit. Rep. Gephardt described his efforts in a recently published story in The Atlantic:

I had just gotten to Congress. Tip O’Neill gave me the assignment to pass the debt ceiling [increase]. We [Democrats] were in charge of Congress, but nobody ever wanted to vote for it. Republicans wouldn’t give us votes, so it was our responsibility. Every time it came up I had to go to every member and seek their vote. It was painful and difficult and, I thought, unnecessary. I’d say to members, “Did you vote for the appropriations bill? The defense bill? The highway bill?” They’d all say yes. And I’d say, “Well, then you gotta pay the bill. If you didn’t mean it, don’t vote for it. Then you won’t have to pay for it.”

Rep. Gephardt figured out how to translate the obvious solution for dealing with the debt ceiling from the standpoint of logic into a change in the House rules. Under the Gephardt rule, as the change became known, when a budget resolution conference report was adopted, a House Joint Resolution was automatically deemed as passed by the House and sent to the Senate. Put in place in 1979, the new rule was first used in 1980 and remained in place until House Speaker Newt Gingrich (R-GA) jettisoned the procedure in 1995. While Speakers O’Neill, Jim Wright (D-TX), and Tom Foley (D-WA) were willing to let the will of the House on the annual budget resolution represent the will of the House on the debt limit with no further demands on either President Ronald Reagan or George H.W. Bush, Speaker Gingrich saw it as a potential pressure point in his dealings with President Bill Clinton.

On a number of occasions, the House had to act on legislation to prevent default despite the Gephardt rule. This was either the result of amendments added in the Senate, or because the budget resolution anticipated growth in the public debt that was slower than the demands on the Treasury turned out to be because the economy grew at a slower pace than the Congressional Budget Office had forecast. But most of the time, the budget resolution provided the basis for House action on the debt limit.

Comments by people like Sen. Ted Cruz (R-TX), however, have been highly misleading about this long and sordid history. As Sen. Cruz commented on CNN’s “State of the Union” on October 6:

Since 1978, we raised the debt ceiling 55 times. A majority of those times, 28 times, Congress has attached very specific and stringent requirements, many of the most significant spending restraints, things like Gramm-Rudman, things like sequestration came through the debt ceiling. And so the president’s demand — jack up the nation’s credit card with no limits, no constraints — it’s not a reasonable demand.

Those specific stringent demands included:

  • The American Recovery and Reinvestment Act of 2009, which contained $550 billion in emergency spending and $275 billion in tax cuts
  • The Emergency Economic Stabilization Act of 2008, otherwise known as the bank bailout bill, which allowed the Treasury to buy up to $700 billion in distressed assets
  • The Housing and Economic Recovery Act of 2008, which contained $300 billion in federal mortgage guarantees
  • An increase in the interest payments made by the Treasury on savings bonds.

Moreover, three separate debt-ceiling resolutions contained language that simply increased the percentage of long-term bonds the Treasury could auction off. One of these resolutions was in 1984 and resulted in the sale of bonds on which the United States continues to make interest payments of more than 13 percent a year. Another contained a suspension of the oil-import fee, reducing revenues collected by the Treasury by more than $10 billion a year. On four separate occasions, the debt limit was inserted in continuing appropriations measures, each containing billions of dollars in additional federal expenditures.

A number of the remaining resolutions raising the debt limit contained extraneous language that appeared to have had little or no impact on either spending or the deficit. Of those that contained language that was clearly directed at deficit reduction, there is little evidence that such language was used to force a recalcitrant president into toeing the line on fiscal policy. President Reagan, for example, did not oppose the Gramm-Rudman-Hollings Act and would have undoubtedly signed it with or without the inclusion of the debt limit provision. In 1991, deteriorating budget forecasts persuaded President George H.W. Bush and congressional leaders to launch budget discussions between the two branches that took place through the spring and summer of that year at Andrews Air Force Base. The ensuing agreement did contain a rider raising the debt limit, but the agreement served as a vehicle of opportunity for disposing of the nettlesome legislative responsibility rather than the product of that responsibility.

Most of the 55 votes on raising the debt limit over the past 35 years contained no extraneous language at all little or no specific relevance to the pace of federal borrowing. It would be a tall order to argue that those measures that did contain such language placed more downward pressure on spending than upward pressure. In fact, the opposite is probably true.

So we are again at the 11th hour with continued uncertainty as to whether the Congress will force the country into default. Consumer confidence has dropped 12 points in the past week, the most since the collapse of the Lehman Brothers investment bank five years ago. House Republican leaders insist that their disagreement over raising the debt limit is a matter of deep philosophical differences with the president over how much the federal government should be borrowing. But if you look at their position in terms of the legislation they have passed—the so-called Ryan budget resolution, H. Con. Res. 15—you find in section 101 on page 6, line 6: “DEBT SUBJECT TO LIMIT.—The appropriate levels of the public debt are as follows: Fiscal year 2014: $17,776,278,000,000.” That is exactly $1.077 trillion above the current debt limit that House leaders refuse to raise. It is also $184 billion above the level of debt that the Congressional Budget Office projects the country will have at the end of this fiscal year in October 2014. All but four House Republican leaders who were in the chamber at the time of passage voted for that resolution.

The reason the public debt is rising under the House-passed budget is that the $2.82 trillion in spending contained in the budget resolution passed this spring greatly exceeds the $2.27 trillion in revenues contained in that proposal. Very simply, they have voted to spend the money, but they don’t want to pay the bill.

Rudolph Penner, a former Congressional Budget Office director who has served in high positions in several Republican administrations, recently said on CNN:

Many poor countries face a debt limit. It is not because they have a stupid law like ours that doesn’t allow them to pay for spending they have already authorized. They are limited because at some point international capital markets will refuse to lend to them at reasonable interest rates.

It appears, in fact, that no other nation has such a law. It lends itself purely to congressional mischief, and it should have been repealed a long time ago.

Scott Lilly is a Senior Fellow at the Center for American Progress.

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Scott Lilly

Senior Fellow