What You Need to Know About the Debt Ceiling
As the partial government shutdown enters its third week, it is important not to lose sight of why the government shutdown in the first place: the fight over funding Obamacare in the Continuing Resolution, which deals with appropriations. The debt ceiling debate happens to be occurring at the same time because in mid-October the Treasury Department will only have $30 billion to pay bills unless the debt ceiling is raised. It is important not to confuse the two debates.
- The last big fight over the debt ceiling occurred in 2011, resulting in the passage of the Budget Control Act (BCA). BCA raised the debt ceiling by $2.1 trillion to $16.4 trillion, in exchange for 2.5% cuts in spending over the next decade, called the sequester. (The idea for the sequester originated in the Obama White House as motivation for the super committee to devise a plan with other spending cuts, which was not successful).
- The debt ceiling, having been raised by $2.1 trillion in 2011, was reached at the beginning of this year, resulting in a suspension of the debt ceiling limit of $16.394 trillion until May 19, 2013, when Obama signed the No Budget, No Pay Act into law on February 4, 2013.
- What's the difference between a debt ceiling suspension and raising the debt ceiling by a dollar amount? According to Romina Boccia at the Heritage Foundation, a debt ceiling suspension means that the current debt limit is maintained, and the government continues to borrow. When the end date of the suspension is reached, the money that the government borrowed during the period of suspension is added to the debt limit and that is the new debt ceiling figure. Using numbers from the U.S. Office of Managment and Budget and the U.S. Treasury Department, the federal government borrowed $300 billion from in the debt limit suspension period from February 4 through May 19.
- While raising the debt ceiling at all means adding to the national debt, one can argue that raising the debt ceiling by a dollar amount may curb potential spending rather than settling for a suspension--if those are the only two options and Republicans stand firm and insist on serious cuts in mandatory spending as a condition for raising the debt ceiling by a dollar amount. If that happens, then everyone will know by what exact amount the borrowing authority of the Treasury has been raised, instead of a guessing game.