Why many arguments are misleading in the debt limit debate

Congress is running out of time to act on the debt limit. Lawmakers have had five months to consider the issue thanks to the “extraordinary measures” that the government has employed since January to stay below its current $31.4 trillion borrowing cap. But the government estimates it will exhaust those measures by mid-June. That means Congress has only a few weeks left to increase the debt limit to accommodate more borrowing. If lawmakers do not raise its borrowing cap by then, the government will be forced to pair back its spending to operate on incoming revenue.

Republicans see the debate as an opportunity to reduce spending. And they want Democrats to agree to cuts before they support raising the debt limit. To jump-start negotiations, the Republican-controlled House recently passed a bill pairing a debt limit increase with reductions in government spending. Republicans hope the vote will force Senate Democrats and President Biden to enter into deficit reduction talks with them.

Democrats, on the other hand, want Congress to raise the debt limit without reducing spending. They hope to pressure Republicans to agree by refusing to negotiate with them. Democrats have rebuffed Republicans’ demand for deficit reduction talks, claiming that raising the debt limit isn’t a matter for negotiation. According to the White House, Congress has no choice but to raise the debt limit so that the government can borrow money “to pay the bills that have become due based on…prior policy decisions.”

The Treasury Department similarly describes the debt limit as a mechanism that “allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.” And a Cornell University law professor states the Democrats’ case succinctly. “Our legally contracted debt is congressionally legislated debt; refusal to pay on this debt boils down to…refusing to pay what Congress itself has mandated we pay.”

Yet such arguments are misleading. Whatever the merits of raising — or not raising — the debt limit, it is Congress’s decision to make. Lawmakers are not obligated to increase the government’s borrowing cap just because Congress approved policies in the past that the nation can’t afford in the present without taking on more debt. And lawmakers are not required to raise the debt limit in the future because of decisions that Congress makes today. Arguments to the contrary are merely negotiating tactics designed to pressure reluctant lawmakers to raise the debt limit without cutting spending at the same time.

The Constitution empowers Congress “to borrow Money on the credit of the United States.” That means that only lawmakers get to decide if the government can take on debt. The present debt limit mechanism dates to 1917. Congress approved legislation that year empowering the government to borrow the money it needed to pay for America’s involvement in the First World War. Lawmakers approved borrowing requests on a case-by-case basis before that. But starting with the First Liberty Loan Act of 1917, Congress altered its prior project-specific system by passing a series of laws that ultimately established an overall borrowing cap. Under the present approach, the government does not need prior approval to borrow money if its outstanding debt does not exceed that cap.

Under the new approach, Congress consistently raised the government’s overall borrowing cap whenever it needed to take on more debt than was previously authorized to fund its obligations. The Treasury Department notes that Congress increased the government’s borrowing cap 78 times since 1960. But lawmakers also negotiated over the debt limit on several occasions during the same period. For example, Congress paired a debt limit increase with spending cuts — and other budget process reforms designed to reduce the deficit — in 1985, 1987, 1990, 1993, 1997, 2010 and 2011. And lawmakers even negotiated spending increases during debt limit debates in 2015, 2018, and 2019.

Congress is never bound by its past decisions. Congress is always free to decide whether — and how — to raise the government’s borrowing cap. This is because every two-year Congress consists of a different set of lawmakers, chosen by the American people to adjudicate their concerns and pass legislation. For example, Congress presently has seven new senators (two Democrats and five Republicans) and 74 new House members (34 Democrats and 40 Republicans). The claim that those new lawmakers have no choice but to raise the debt limit to accommodate Congress’s past deficit spending — which happened before their time in office — effectively disenfranchises them. And that makes it harder — if not impossible — for the American people to change the government in elections.

Returning lawmakers are also free to disregard Congress’s past fiscal decisions. This is because changing conditions may make those decisions unsustainable. For example, the government spends most of its money on mandatory programs like Medicare, Medicaid, and Social Security. Congress gives the government permanent budget authority to administer these programs when it first creates them (or in subsequent reforms). Consequently, they are not dependent on future congressional action for funding. Specific funding levels for these programs is instead determined by eligibility criteria and benefit formulas that are either detailed in the legislation establishing the program or left to the government to determine pursuant to specific parameters. But lawmakers original cost projections are almost always incorrect. The cost of Medicare turned out to be 164 percent greater than the initial 1965 estimate.

To be fair, lawmakers can cut government spending — even mandatory spending — at any point. They do not have wait for a debt limit debate. But the present debt-limit brinksmanship is a consequence of how Congress structured its legislative process to pass spending bills in the first place. That is, Congress routinely delays the consideration of government funding until the last minute, at which point all funding bills are combined into one large omnibus measure. When that happens, lawmakers are confronted with a take-it-or-leave-it proposition that limits their ability to alter the underlying legislation.

Democrats are correct when they argue that raising the debt limit is about allowing the government to borrow money to pay for spending that Congress has already approved. But they are incorrect when they claim that the debt limit is not a matter for negotiation.

Congress can always change its mind. The American people can change Congress’s mind for it by electing new lawmakers to represent them in the House and Senate. Returning lawmakers can change their mind if conditions change. And how Congress presently makes fiscal decisions leaves lawmakers no choice but to look to the debt limit to force the debate.