The ‘Debt Limit’: Time to End 95 Years of False Labeling

House Speaker John Boehner (R-OH), center, stands with, from left, House Majority Leader Eric Cantor (R-VA) and House Budget Committee Chairman Paul Ryan (R-WI) as he speaks to reporters outside the White House in Washington, Wednesday, June 1, 2011, after their meeting with President Barack Obama regarding the debt ceiling.

Congress and the White House have struggled over what has wrongly been called the “debt limit” since 1917, when a cap on the Treasury Department’s borrowing authority was inserted into legislation permitting “Liberty Bonds” to be sold to support U.S. military operations in Europe during World War I. A country that wants to maintain a reputation of paying its bills must recognize that debts are incurred when goods and services are purchased, not on the basis of whether or not the country wants to borrow the money needed to pay for those purchases.

The vote on what we have wrongly referred to for these many years as the “debt limit” is not a vote on how much we will spend or how much revenue we will raise to cover that spending: Those decisions are generally made by Congress months, and in many instances, even years before the extra borrowing authority is needed.

Each spring Congress deals with a budget resolution—setting targets for spending, revenues, and indebtedness. That legislation caps the amount of money that can be appropriated and prescribes what changes are needed in permanent spending legislation such as entitlements and whether we should raise or lower taxes to pay for those spending decisions. That resolution contains specific language stating what those decisions will mean in terms of the annual budget deficit and the change that will take place in the public debt.

Congress then considers the specific appropriation bills, entitlement changes, and tax legislation to implement the plan and determine the size of the debt. The vote on the so-called debt ceiling occurs long after those decisions are made. It is not a vote on how much we will spend or whether we will raise the money to pay for it but rather a vote on whether we will pay our bills. Voting against raising the debt limit is sort of like being the guy who turns down opportunities to work overtime so that he can spend more time at the movies, only to decide when his credit card bill arrives that he needs to correct his profligate ways by refusing to pay it.

Let’s look at last year’s so-called debt limit fight. On April 15, 2011 House Budget Committee Chairman Paul Ryan (R-WI) brought the fiscal year 2012 budget resolution to the House floor. Title I of that bill proposed revenues for FY 2012 of $1.87 trillion and outlays of $2.95 trillion. That left a deficit of $1.08 trillion, which, according to committee calculations, would have pushed the total public debt to $16.2 trillion by September 30, 2012—the end of that fiscal year. The resolution also indicated that the tax and spending policies that it proposed would result in the public debt rising to $23.1 trillion by the end of 2021. The resolution was adopted on a party-line vote, with 235 House Republicans voting “aye”—well more than the 218 votes necessary to pass.

Six weeks later, however, the House was presented with the question of whether the Treasury would be allowed to borrow the money to finance the deficit spending that they had already gone on the record as favoring. On May 31, 2011 House Republicans voted unanimously to hold the Treasury’s borrowing authority to the existing level—$14.3 trillion, which was $1.9 trillion less than the borrowing necessary to prevent default in the coming year, based on the budget plan they had just adopted.

In the end, Congress has only itself to blame for high deficits and rising public debt. The president is responsible for collecting taxes, but he can’t collect more than the statutes passed by Congress permit. He is responsible for administering entitlements, but he would be subject to a lawsuit if an entitled beneficiary receives less than the amount provided in the laws passed by Congress. He administers the hiring of government employees and the execution of grants and contracts, but if he spends less than the amounts appropriated by Congress, he is in violation of Title X—the anti-impoundment provisions—of the 1974 Budget and Impoundment Control Act. And if he spends more, he or his staff would be subject to criminal penalties under the antideficiency provisions of the Budget and Accounting Act of 1921. The deficit and the debt are what Congress say they are, and Congress makes that statement not by limiting the Treasury’s ability to pay the nation’s bills but by the legislation it enacts, which determines what those bills will be and how much revenue will be available to cover them.

The limitation on borrowing is not a limitation on debt. The debt is incurred when Congress adopts or refuses to scale back programs it is unwilling to raise revenues to finance. The limitation on government borrowing in no way limits those obligations—it simply limits the ability of those charged with paying the bills to get the funds necessary to make good on those promises and protect the good faith and credit of the American people.

So why do we continue to fight over whether we will pay our bills? The answer is simple: Some politicians like to represent to voters that they will take actions that they are not actually willing to take. They want to be against deficits, against taxes, for a bigger military, and against cutting any benefits all at the same time. It is hard to maintain that façade, however, when there is real legislation pending before Congress that would actually force choices between those mathematically incompatible commitments. So instead, legislation that has been mislabeled and is broadly misunderstood is used as a proxy for a fight that they really don’t want to have or a decision that they really don’t want to make.

That is the debt limit debate in a nutshell, and that is why it should be renamed the “deadbeats debate.” After 95 years this show is getting a little old.

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