Every year in the United States, there is usually a disagreement regarding the raising of the debt ceiling, which was especially noticeable in 2013 when it caused a government shutdown. Why is raising the debt ceiling the only option to solve this issue? Why is it seen as controversial to reduce expenses to the point where the debt ceiling no longer needs to be raised?
The debt ceiling is an accounting technicality that is being hijacked by the Republicans to gridlock the political process.
- First, Congress authorizes a budget with spending programs and tax laws for income. Both expenses and incomes vary over the course of a year, and neither is totally predictable.
- Then the treasury needs to manage the cash flow of the government. One tool is to borrow now, with the expectation that the debt will be paid later on when the taxes come due. But the treasury is not allowed to borrow without authorization by Congress. Until 1917 Congress authorized each individual bond issue, then they found that too cumbersome during WWI and instead gave an authorization to issue bonds up to a certain limit. Adjusting this limit is necessary whenever the national debt goes up.
So the real question would be, "why don't they cut appropriations bills if they are not prepared to raise the debt ceiling?"
The answer to that is the negotiation and mutual blackmail in the appropriations process, where legislators trade their approval vote for the inclusion of their pet projects -- which may or may not benefit the nation as a whole.
Complaining about budget deficits, by the Reps, seems to be height of hypocrisy.
How the 2017 Tax Act Affects CBO’s Projections (note those are Trump 2017 tax cuts):
What Are the Act’s Projected Budgetary Effects?
To construct its baseline budget projections, CBO incorporated the effects of the tax act, taking into account economic feedback—that is, the ways in which the act is likely to affect the economy and in turn affect the budget. Doing so raised the 11-year projection of the cumulative primary deficit (that is, the deficit excluding the costs of servicing the debt) by $1.3 trillion and raised projected debt-service costs by roughly $600 billion. The act therefore increases the total projected deficit over the 2018–2028 period by about $1.9 trillion.
The CBO (Congressional Budget Office) is generally held to be competent and non-partisan.
And... which party, forewarned, both passed the tax cuts and complain about deficits?
The same Congressional party that stands for honesty, integrity and keeping George Santos.
p.s. I tend to be fiscally conservative, so, yes, the budget deficits should be brought under control. Best by tax increases and bipartisan spending cuts, at the appropriate time in the business cycle.
I won't work it into this answer, but Starve the Beast in an interesting summary re. possible ulterior motives on Wikipedia.I also would not be surprised that the deadlock and kingmaker status of the Republicans during budget negotiations allows for slipping choice pork morsels when government shutdowns loom, as per OM's answer.
As of December 2022 it costs $210 billion to maintain the debt, which is 15% of the total federal spending.
It is considered controversial because we are talking about debt that the United States already owes and there should not be any debates over paying the what we owe. Spending does need to be addressed but we should not be holding paying our bills hostage over cutting our spending. Not to mention there are issues around when Republicans want to spend and when they don't want to spend which tends to center around which party is in power.
The table below shows the national debt as the U.S. Treasury recorded it on the last day of the past four presidential administrations or the last day for which we have data at the time of this reporting:
|Record Date||Total Public Debt Outstanding|
During the four years of the Trump administration, the national debt rose by $7.8 trillion. That addition makes up 24.8% of the current $31 trillion national debt. As shown in the table below, Barack Obama's eight years in office, using the same metric, contributed what amounts to 29.7% of the present national debt, and Biden's incomplete first term is presently responsible for 11.7% of the national debt:
|Administration||Added to Public Debt||% of 1/17 Total|
An estimated $3.7 trillion of added debt during the Trump administration can be attributed to Covid-19 relief measures passed with bipartisan support. A series of tax cuts passed during the Trump administration has also added significantly to the national debt.
Because the $7.8 trillion increase in the national debt incurred during the Trump Administration represents nearly 25% of the current $31 trillion national debut, the claim is "True."
It should be noted that during the Trump years with Republicans in power we didn't have these issues about the amount of spending by the country as evident by the amount that the debt increased without all the debates about cutting spending.
Why is raising the debt ceiling the only option to solve this issue?
The money has already been allocated. If we don't pay it, then we would be defaulting on our debts. If your question is then "Why don't we stop allocating so much money", the simple answer is that it is the will of the people, as expressed through the legislative process, for that much money to be allocated. The radical Republican's response to this democratic process is to try to use the prospect of default to blackmail Democrats into concessions. Why don't they instead use the appropriation step to blackmail Democrats instead? The answer to that question is: why not both? Republicans have used both budgets and debt ceiling negotiations to try to extract concessions.
Why is it seen as controversial to reduce expenses to the point where the debt ceiling no longer needs to be raised?
If you're asking "Why does the democratic process result in deficit spending", that's a complicated question. People say they don't like deficit spending, but their revealed preference is that they prefer deficit spending to not getting what they want. Sure, "We should pass a balanced budget" is uncontroversial, but only until choices have to be made as to what to cut. We "want" a balanced budget in the sense that if we could wave a magic wand and magically have the deficit go away, we would, but we don't really want a balanced budget, in the sense of wanting to get rid of the deficit more than we want the things we're allocating money to.
Contributing to this is the fact that no one piece of the budget can be blamed for the deficit. Each piece can be argued for without directly supporting a deficit, even though the overall effect is to have a deficit. Moreover, there are strong economic arguments for why the economic benefits of deficit spending can outweigh the harms. The Keynesian school of economic is especially known for supporting deficit spending, at least in times of economic downturn.
Why is it seen as controversial to reduce expenses to the point where the debt ceiling no longer needs to be raised?
Because people cannot agree on whether to raise taxes or cut spendings in order to do that. Many people don't want to pay more taxes and equally many people like many of the ways the government spends money on.
Instead of solving the dilemma here and now they have this nice "get out of jail" card that means increasing the debt ceiling. And you could ask yourself as well why it's such a big thing and even exists. At the very least it should probably automatically increase with the inflation rate, otherwise the ceiling becomes lower over time.
What the US is doing is effectively kicking the can down the road which is an often used solution in many areas (maybe not the best one though, maybe they really should think more about raising taxes and reducing spendings). And the raise of the debt ceiling is just (mis)used for some political strong-arming. In the end it always has been increased.
Why is raising the debt ceiling the only option to solve this issue?
In that way, of course you could also abolish the debt ceiling (other countries don't have one) or change it to a deficit limit instead like in Switzerland, preferably one on the constitutional level
I don't remember the exact book I read it in, but I definitely read it somewhere:
Everyone wants to have a balanced budget (here meaning reduce interest payments on already-issued debt). The problem is getting there is not easy. If you cut spending, then you will usually lose jobs, and there is no real way to avoid it. If you lose jobs, then of course some people are going to be unhappy, departments are going to be less productive, and the economy suffers.
Crucially, the people who are unhappy at losing their jobs/funding can vote you out. Also crucially, if you deficit spend, you create jobs and happy people who will vote you in.
The result is that politicians who are serious about balancing the budget (either by spending less or taxing more) are routinely defeated in elections.
Failure to raise the debt ceiling provides a way for the US government to renege on promises to which it has already agreed. Consider someone who owes a lot of money to a mob boss for a gambling addiction. Suppose that person tells the mob boss that the debt is above their debt ceiling. The mob boss might well shoot that person in the kneecaps. Reneging on agreements or promises already made is in general a bad idea for individuals, for companies, and for governments. In particular, it is bad for governments because the debt will still be owed. All that reneging (or even threatening to renege) accomplishes is to raise the interest rate that lenders charge to those reneging governments. That's the equivalent of a mob boss kneecapping a gambler.
The place for Congress to address the deficit is in the debates for the budgets of upcoming fiscal years rather than threatening to renege on existing debt.
Frame Challenge: Would reducing expenses actually reduce the deficit?
In some budgets, cutting the size of the budget by removing one aspect of it can cause other parts of the budget to need to be larger to compensate.
For example, let's look at a smaller budget
Let's say that to save on a monthly budget, you decided to stop paying the electricity bill - where I live, the bill is only due every two months, and won't get cut-off for nonpayment during the winter months, so it's probably a bit smaller as part of the overall monthly budget, but I do have to pay eventually an effectively monthly amount, otherwise the electricity where I live will be shut off. Once electricity is cut, technically, I might as well save on my internet bill (Since I can't actually connect to the internet service anyways with anything that plugs into the electrical grid, which...even portable devices need to eventually.), so that could be one additional savings, and now my monthly budget has a significant reduction.
But once we do that, my refrigerator would no longer work as intended, and all the food that I bought (Probably relatively cheap, as individual ingredients, leftovers, etc.) will go bad. Meaning not only did I pay for food that I now can't eat, I need to buy more food...and it can't be anything I need to cook with electricity, including kettle cooking, stove cooking, or oven cooking. It also can't be perishables...If I fix this problem by going to restaurants to get food for every meal, my food budget will go up, because now I have to pay for a restaurants' overhead, including server wages, chef wages, slightly reduced volume discount on ingredients, but also likely gratuity payments are involved here.
The increase of food costs as a result of cutting electricity will almost certainly increase my budget past any savings from my electrical bill, and my internet bill. I tried to save money, and am now finding myself spending way more money than I was before, because of a cost-cutting measure I took.
Government budgets would run into the same issue over time
So it's not always obvious what parts of a budget actually cutting it would end up actually cutting the budget down further.
What's worse with government budgets is that their effects may be longer felt, and take a while to see the results; that bridge that was constructed for $4 Million? It'll connect two areas, probably faster than existing bridges, and thus reduce commute costs for a section of an area, so you can see the benefits shortly after it's built, but if you cut, say, education costs, the side effects of people reacting to that could take 20 years before we see the beginning of the effects of cutting educational resources at lower grades with the effect on overall education in the end. We do, however, know the benefits of funding education, and building bridges, and we know that at some point, they need to be paid for, so we pay the cost now, even if through loans, on the indication that the cost elsewhere drops over time, and we'll see the benefits when they're there to be gotten from the investment.
The problem is, those costs aren't always fluid, and the benefits of funding the things that historically are needed at the cost budgeted for when taking out loans, may not hold if you reduce funding to try and balance the budget in short-term monetary considerations, ignoring downstream effects.
TL:DR; some parts of a budget just can't be reduced anymore than they already have been.
Ideally, the United States should be able to manage its own deficit such that there is no need to raise the debt ceiling.
However, due to structural reasons, both major political parties (either Democrat or Republicans) tend to increase debt while in power. While Democrats increase debts at a lower rate than Republicans, we are still talking at least billions of dollars.
Provided that debt increase is a given regardless who is in charge, the only way for the United States to not go bankrupt is by increasing the debt ceiling. Without which the consequence would be devastating.
This is the context in which "reducing budget deficit" is brought into the conversation, almost exclusively by the Republicans.
Since the Obama era, the Republicans have figured out that - if they control either one of the congressional chamber - they can force Democrats into concessions by threatening to not raise the debt ceiling, essentially saying give me what we want or we will bankrupt the country.
This Republican tactic is often wrapped in the language of "reducing budget deficit", "fiscal responsibility", or "cut wasteful spending". Pretense aside, this is just meant to sabotage Democratic policy program, as Republican congress people never pull the same move when the President is also a Republican.
This is a highly asymmetric dynamic. Republicans can employ this tactic against Democrats almost one-sidedly because only Democrats have political stakes in keeping the federal government functional, whereas Republicans almost never get punished by their voters for handicapping the federal government.
Cynically speaking, the answer is because there is no repercussions.
Consider your personal finances. You may have debt, for example student loan debt, mortgage debt, credit card debt, etc. What happens if you don't pay your debt? Your credit rating goes down. That means, if you have a credit card that you never pay off, you may be unable to get a good mortgage rate, or a mortgage at all, in the future. The base reason for this is that if it is known that you don't pay your debt, nobody will give you additional money to incur more debt; pay off your existing debts to prove you're trustworthy or people won't believe you're trustworthy.
This is not how it works in the US government, for many reasons, which are all interwoven. Here is basically the story:
When the US government wants to borrow money, the bank that it uses is its own bank, the US Federal Reserve (aka "the Fed"). Just like you, when the government goes to its bank, it has to provide documentation to show that it's good for the money and will pay it back on schedule. The Fed is constitutionally separate from Congress, so that Congress cannot force the Fed to lend it money if the Fed thinks such lending is irresponsible; the Fed can, indeed, say no to Congress, which would scuttle spending plans (actually it would just force Congress to find another way to fund spending which would mean tax hikes).
So, how does the US, with so much debt and history of bad spending, prove to its bank that it's fiscally responsible? The way it does so is by accumulating money from other sources. Not every US dollar that exists is controlled by the US government. Other governments have reserves of US currency. The government that has the most reserves of US currency in the world is China, because China is the US's largest trading partner. So when the US needs money to pay its Fed bill, the US government calls China to take a loan. The thing is, China can't say no, because if China says no and forces their largest trading partner to fiscally collapse, they lose their largest trading partner and it causes economic mutually assured destruction. So China must say yes. But essentially all that's going on here is the government is just paying one credit card with another credit card; they're not actually doing anything. But in any case the Fed doesn't seem to care about this and they're happy to lend the government money, provided China pays for it.
This is where the problem lies. If you tried a personal finance scheme of paying off your credit cards with each other, eventually the banks would get wise and lower your credit score: JonathanReez is really shitty with his finances and can't actually pay his debts, so we're going to cut him off. JonathanReez can't get a mortgage until he reduces his credit card load. The problem is, the same thing doesn't happen with US government debt. Because of the US's international standing as an economic superpower, basically nobody will meaningfully downgrade US debt (they did so in the early '00s but not to a meaningful degree). So the US government can just continue to borrow and borrow more and more money, with the fundamental reason that there's actually simply nobody who will say no and stop them from doing so. The Fed is happy to provide debt as long as China is paying for it, and China seems to have no plans of stopping propping up the US economy*.
To wrap this around back to the actual question asked: The debt ceiling doesn't actually mean anything. It's just like your personal budget: "We really shouldn't spend more than $X this month, and we should really consider carefully if we need to go over that amount". That's all the debt ceiling actually is. It's just a line whereby the US government says "we should review our finances if our debt goes above this level", and every time it goes above the level it gets reviewed, and every time it gets reviewed the conclusion is "it's fine, just spend more", because the Fed and China will continue to pay for it. That's really the reason. The debt ceiling continues to rise rather than the deficit being cut, simply because it's the easier and more politically expedient thing to do and there's no repercussions for not doing so.
* This is a very dangerous game that the US is playing. It is well documented that China is a US adversary (governmentally speaking, I don't want this to be taken as a racial attack in any way). The thing is, when you borrow money, the money is borrowed on a term, and eventually the term has to be renegotiated or the principal of the loan has to be paid back. Currently, China knows that the US government does not have the principal to pay its loan; were China to not renegotiate the terms of the loans continuously on contractual terms agreeable to the US, the U economy would collapse. Since the US is China's largest trading partner, this would also cause the Chinese economy to collapse, and China doesn't want that to happen; they couldn't give a flying fuck about the US, but they most certainly care about self-preservation. However, were China to be able to decouple itself from the US economy in a meaningful way, China would be able to call US debt principal without meaningfully affecting its own economy, which would cause a US economic collapse and China to become the de facto world superpower, supplanting the US. Nobody wants to live in a world where China has that sort of power. China is already making moves towards this end, particularly in light of Russia becoming an international pariah, allowing China to step in as the only one (or one of a very small group) of economies willing to prop up Russia, and the ramifications thereof in the medium to long term are frightening.
EDIT: An addendum note:
The question that follows from the above being that, China can only cause a US economic collapse so long as the Fed refuses to lend Congress money without China's backing. The Fed is a US entity, with Americans working for it. Presumably those Americans would be as affected by an economic collapse as any other Americans would be, and so they have a self-preservation interest in making sure that China doesn't collapse the US economy. So why doesn't the Fed rubber-stamp Congress's spending in the interest of self-preservation? The reason is because a central bank can never be under control of the government, and this would de facto put the Fed under control of Congress. The reason why a central bank can never be controlled by its government is because, if it were, then the government could use the central bank for political purposes. For example, when the party in power is losing in the polls, they can simply tell the central bank to print $10,000 cheques to every citizen to get the poll numbers up. Of course, this would result in rampant inflation; see Zimbabwe or Venezuela for examples when this has happened in real life. That's why the Fed must prefer an economic collapse of the US government over preventing Chinese world supremacy; it's not really a binary choice, both options result in the same outcome.
Because in current political climate, politicians focus on entitlements (a.k.a. positive rights) rather than negative rights. Despite government spending a third of GDP, some programs are still underfunded, and democratically elected leaders are so reliant on giving more freebies... Than they complain about limits, rather than spending within the limits. https://tradingeconomics.com/united-states/government-spending-to-gdp
It's a false either/or juxtaposition
There's nothing controversial about reducing budget deficits, though even THAT conversation is something of a performative farce. Spending, of course, is a key component in creating deficits. However, cutting revenue is an equally key component. The party that claims to be the most concerned about deficits seems to have no worries about what impact cutting revenue will have on the deficit when they are in charge, but they suddenly "find Jesus" regarding deficits and debt when the other party is in power.
But that's a side issue. The reason cutting deficits is not embraced as an "alternative" to raising the debt ceiling is because cutting deficits will reduce, comparatively, the amount of increase in FUTURE debt levels. Or you can argue it will PRESENTLY reduce how much is added to total debt.
The debt ceiling is about making good on obligations incurred by PAST fiscal and spending policies. Changing current or future deficit levels does nothing if we're at the debt ceiling limit because that limit is needed to make good on spending and deficits already incurred. They already agreed to budget for and spend that money, but now they're claiming that holding up honoring that debt is somehow fiscally responsible.
Since we like to use the really, really inaccurate "household spending" analogy when talking about government budgets, think of it as deciding not to add any more debt to your credit card balance as a means to deal with current payments due on your auto loans and home mortgage. Super duper, but you still need to make the payments on the debt already incurred.