CQ WEEKLY – COVER STORY
July 16, 2011 – 10:53 a.m.
Debt Ceiling: In Whose Hands?
By John Cranford and Joseph J. Schatz, CQ Staff
On April 1, 1979, the limit on the federal debt expired. For two days the Treasury Department and the Federal Reserve scrambled to make up for a cash shortfall and to meet the expectations of the bond market until Congress did its job and passed a measure raising the ceiling.
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There was a cost — perhaps as much as $11 million, according to a report later that year from the General Accounting Office — to destroy securities that had already been printed and to pay the higher interest rates in effect after the bond auctions were rescheduled. Afterward, the GAO told Congress that the process was broken and that it was time for lawmakers to revise the way they established a ceiling on the total amount of the government’s debt.
That was 32 years ago, and relatively little has changed. Today, a new crisis looms as lawmakers and President Obama seek a path to raise the debt ceiling by Aug. 2, when the Treasury says it will have used all the tricks at its disposal to avoid a default.
Last week, the impasse led to an astonishing proposal from Senate Republican leader
The idea — and the intractable political circumstances that led to it — raised an obvious question: Does the debt limit really belong in the hands of Congress?
There are two ways to frame this question, one based on constitutional theory and the other based more on practical, political considerations. Should Congress do it? Can Congress do it?
On the theoretical side, there’s little argument. Nearly everyone agrees that if there needs to be a debt ceiling, it’s Congress’ responsibility to set it. Most lawmakers don’t question their control over the size of the federal debt and say it’s part of their constitutional power over taxing and spending.
On the practical, political side, it’s an entirely different matter and a source of great but often-unspoken ambivalence even among members. Why else would the same lawmakers who say the debt ceiling is part of their solemn duty have spent decades trying to avoid it? If it’s so important as a matter of accountability, why have so many tried for so long to avoid being accountable?
Plainly, there are many lawmakers who would prefer that they didn’t have the responsibility of authorizing an increase in government borrowing at a time when the debt is viewed as dangerously large.
And the fact that members from liberal California Democratic Rep.
“Obviously people are thinking more and more about how we do this,” says Pennsylvania Democratic Sen.
Debt Ceiling: In Whose Hands?
On the other side, McConnell’s critics, most of them conservatives, say his plan would be an outrageous abdication of Congress’ constitutional responsibility and would cede extraordinary authority to the executive branch.
Congress has always had the final say over when the federal government borrowed money and how much it borrowed. Lawmakers have often exercised close supervision over the purpose for which any borrowing was intended.
At the beginning of America’s constitutional history, the legislative branch was given the power of the purse — including the authority to tax, to spend, to borrow and to pay debts. These interlinked responsibilities are laid out in Article I, Section 8 of the Constitution, and many constitutional scholars regard them as a fundamental element of the nation’s founding.
The debt limit itself, however, is a relatively new invention, dating in its earliest incarnation to the Second Liberty Bond Act of 1917, when Washington was struggling to finance the United States’ role in World War I.
From 1789 until then, every bit of borrowing by the Treasury had been specifically authorized by an act of Congress — down to the amounts, interest rates and other terms. The war made such micromanagement of the debt impractical, so Congress for the first time allowed the Treasury secretary to issue several types of debts — up to specified limits — to pay for the war effort. Treasury was also granted some latitude over the terms of the borrowing.
By the latter part of the Great Depression, when the country was forced to borrow to pay for a much-expanded safety net, this specific war-related cap on borrowing had evolved into a general limit on virtually all government-issued debt. The borrowing demands of World War II and the expansion of social programs in the aftermath of the war cemented the link.
A Constitutional Check
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The development of an increasingly modern economy made it unrealistic for Congress to keep passing individual bills to deal with the government’s borrowing requirements, says Rhode Island Democratic Sen.
Still, he says, Congress’ involvement in the debt limit flows from its constitutional authority, and it should remain. “We have to have some check on the finances” of the government, Reed says.
For Anita S. Krishnakumar, a professor at St. John’s University School of Law in New York City, the issue is even more fundamental. The debt limit serves as a legislative “check and balance” against the executive, she wrote in a 2005 journal article titled, “In Defense of the Debt Limit Statute.” To Krishnakumar, “Congress’s ‘power to borrow money’ would mean nothing if the president could instigate national borrowing without congressional consent.”
That’s a view that congressional critics of the McConnell plan embrace. “I don’t want to give anything away to the president,” says Republican
Solemn obligations notwithstanding, lawmakers have been strongly averse to voting for an increase in the debt limit for years, long before the advent of today’s tea party. After all, doing so amounts to an acknowledgment that their accumulated decisions on taxes and spending require ever-increasing amounts of borrowing.
Debt Ceiling: In Whose Hands?
In recent years, the practical question — can they handle it? — has become more pressing as the debt limit fight has taken on an increasingly partisan air.
The dynamics are generally the same, no matter who’s in power. When a Republican president requests a debt limit increase, congressional Democrats do their best to foist the responsibility on Republicans, and vice versa.
And as much as lawmakers say they want to retain their power over the debt limit in the interests of checks and balances and accountability, they’ve tried for years to mask their actual votes.
Gephardt Rule
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In the late 1970s, Richard A. Gephardt, a junior Democratic House member from Missouri who eventually rose to be majority leader, persuaded his colleagues to change the House rules to give themselves a sort of free pass on the debt limit. Under the so-called Gephardt rule, whenever the House adopted a final budget resolution for the coming fiscal year, a bill raising the debt limit by an amount necessary to meet the terms of the budget would be automatically passed and sent to the Senate. On occasion, the Senate would clear those bills and the debt limit would increase almost without notice.
When Republicans took control of the House in 1995, they dropped the Gephardt rule, but within a few years they restored it, because they, too, found it useful to protect members from the politically difficult vote. During her four years as Speaker, California Democrat
At the start of the 112th Congress, the tea party forced an end to all that. Freshman Republicans, swept into power in a wave of anti-spending fervor, made sure that new Speaker
They were egged on by all manner of conservatives, including McConnell himself, who said late last year that the ceiling wouldn’t be raised “without some strings attached.”
Decoupling Policy From the Debt
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Suggestions that the debt limit has outlived its usefulness — at least in the way it is currently being employed — start with the premise that all Congress is being asked to do is to authorize borrowing to cover spending that had been approved long before.
Krishnakumar, a constitutional scholar who has researched the issue extensively, says that while she believes Congress should have the responsibility for setting the level of the debt, she doesn’t think using the debt limit as a policy bludgeon is appropriate.
Debt Ceiling: In Whose Hands?
“Ideally, it should work in a way that keeps the president and Congress together accountable to the public,” Krishnakumar says. The way it’s being used now is “less about accountability” and more as “leverage to try to force the executive’s hand on a whole host of interrelated budgetary measures.”
She’s not alone in objecting to use of the debt limit as a political tool.
“The answer is, they shouldn’t” have to vote on the debt limit, says Norman J. Ornstein, a congressional scholar at the American Enterprise Institute. Ornstein concedes there are both constitutional and political arguments for why the size of the debt should be in lawmakers’ hands, but he says the debt limit has evolved far from its intended purpose.
“What I find utterly absurd is, the House voted for a budget that itself increases the debt by trillions over the next 10 years and is now refusing to increase the debt ceiling to accommodate its own budget,” Ornstein says.
He would go back to the days of the Gephardt rule and institute a procedure that would go further to ensure enactment of a debt limit increase upon adoption of a budget.
When the debt limit was established, “they believed that this would bolster the Treasury’s ability to raise money,” he says. It wasn’t intended as a means to rein in fiscal policy, but because it has evolved into such a device, “that has led to all kinds of unintended consequences.”
That’s why the GAO recommended a reconsideration of the debt ceiling in 1979. David Walker, who served as comptroller general and head of the GAO from 1998 to 2008, says he opposed the existence of a debt ceiling.
“The debt ceiling is outdated. We should substitute tough statutory budget controls that, among other things, include specific debt-to-GDP [limits]. That makes a lot more sense than some arbitrary debt limit,” he says, adding that there should be “fail-safe mechanisms” that institute automatic spending cuts and that revenue increases should the specified debt-to-GDP ratio be breached.
Hardball and Cutters
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In the end, the threat of a default took the leverage out of the hands of the budget cutters, a fact made clear by McConnell’s surprise proposition. By proposing to take almost all of Congress’ responsibility for raising the debt limit and putting it onto Obama’s shoulders for the next 18 months, McConnell was conceding that the risk of default was too great.
The minority leader’s defenders say it’s a recognition that Obama was simply not going to accept the kind of spending cuts demanded by conservatives, and was instead going to use his bully pulpit to hang a debt limit crisis, and a possible default, around the necks of the Republican Party.
His plan, however, doesn’t necessarily constitute a departure from the old ways of doing business at all.
Debt Ceiling: In Whose Hands?
Almost elegant in its procedural complexity, the plan would allow Obama to request $2.5 trillion in new debt limit authority in three separate increments of $700 billion, $900 billion and $900 billion. At each step, Congress could vote on a resolution to disapprove the increase, which Obama could veto.
That means lawmakers would have to take up to six votes on the debt limit over the next year and a half. Republicans could all vote to block the increase, as could nervous Democrats up for re-election in 2012. But Obama would be virtually assured of getting the debt limit authority he sought, because it would be difficult to muster two-thirds majorities in both chambers to override his veto.
McConnell’s plan demonstrated just how far members of Congress will go to avoid voting “yes” on the debt limit — unless they can also use it as a hammer against their opponents. “It’s a political response,” says Oklahoma Republican Sen.
And despite the insistence of Republicans in both chambers that they should use the threat of default as a bargaining chip, McConnell’s initial plan (still under development) wouldn’t guarantee a single spending cut.
That may change. Senate Democrats began working with McConnell late last week to add spending cuts to the proposal as a way to ensure House GOP support. Senators were discussing creation of a committee that would recommend budget cuts, and an expedited process to force Congress to vote on them — a throwback to the military base-closing process that Congress created in the 1980s.
GOP Sen.
Still, Lungren ridicules the McConnell proposal: “I’m trying to figure out what it is. We do something by not doing it?”
It is almost entirely House Republican firebrands, many of them freshmen, who have not shied away from the debt limit issue and who say the McConnell plan gives away their leverage.
“I just don’t think that giving the president authority over the Congress — which is what it is doing — is the right way to go,” says
Many analysts are more concerned that the problem with the debt limit process is less about politics and more about how Washington addresses these substantive concerns.
“It’s a very good idea to have a limitation on the amount of debt,” says Alex J. Pollock, a former banker and a financial expert at the American Enterprise Institute. But Pollock says he’s more concerned that trillions of dollars in debt, such as that issued by the two mortgage giants Fannie Mae and Freddie Mac, are off the government’s balance sheet altogether, unconstrained by the limit.
And some observers are merely worried that in the current environment, preventing a default isn’t a first priority for everyone.
For that reason, Steve Bartlett, a former House Republican from Texas and now president of the Financial Services Roundtable, a trade group, thinks the McConnell plan might be necessary, although only for the moment.
Debt Ceiling: In Whose Hands?
Bartlett says he is concerned about the country’s long-term fiscal posture as well as the short-term need to avoid default.
“We could figure out how to build a watch,” Bartlett says, drawing an analogy for trying to meet the nation’s fiscal needs as part of the debt-limit debate. “But right now we’re having enough trouble trying to figure out what time it is.”
For that reason, he says, he just wants Congress and the president to raise the debt limit. They can — and should — fight about fiscal policy another time, he says.
“Congress is responsible and understands that it’s essential,” Bartlett says. “But Mr. Madison’s system of checks and balances will scare you to death on the way through.”
Fred Barbash, Niels Liesniewski and Ben Weyl contributed to this story.
FOR FURTHER READING: McConnell plan advances, p. 1554; Club for Growth objections, CQ Weekly, p. 1422; pending cap plans, p. 998; government shutdown threat, p. 460; fiscal 2012 budget request, p. 384; debt limit fight looms, p. 200.