By: Stephen Vellecca
As private, responsible citizens of the United States, the government expects us to be careful with our finances and it holds us severely accountable if we are not. We, as tax paying citizens, are told to budget, pay off our debt and to not live beyond our means, or we risk losing that good credit score we worked so hard for. Or worse, being penalized by the Internal Revenue Service (IRS), the government’s watchdog. We, the people, are terrified of the prospects of this and most do everything they can to avoid it.
Yet, ironically, the same government that expects financial responsibility from us, does not mandate it for itself.
There have been many attempts to keep the federal government in fiscal check, though not many have been successful. The debt ceiling is one example of this.
Many of us have been hearing the term “debt ceiling” quite a lot in the past few weeks, as Congress struggles to deal with this issue. But a lot of us are not entirely sure what this term exactly means, and what its implications are; it is not taught in school, and we don’t hear about it on a regular basis.
On the surface, “debt ceiling” just sounds like another fancy term made up by the government to confuse the people, and maybe that is true. But the debt ceiling does play an important role in our government, and it is important that we are familiar with it.
The debt ceiling helps control the national debt by holding the government accountable, making sure it does not spend more than it takes in. This is something that the U.S. government has always struggled with, and our national debt has continued to skyrocket. According to Market Watch, the debt currently sits at over $20 trillion.
That is an overwhelming amount of money, and when it comes to having to pay off the debt, the interest on the debt, and funding important programs and projects, there simply isn’t enough tax revenue to go around. So, the government borrows money by selling savings bonds to citizens and foreign investors to help pay some of these vast expenses.
The ability to sell bonds seems like “the easy way out.” Why should the government be fiscally responsible when it can just borrow? According to the Congressional Budget Office, which provides economic advice to congress too much debt can lead to:
- Lower national savings and income
- Higher interest payments, leading to large tax hikes and spending cuts
- Decreased ability to respond to problems
- Greater risk of a fiscal crisis
And so, with this in mind, the debt ceiling is a legal limitation to how much the federal government can borrow. When the government reaches the limit the government fails to make these debt payments, which, according to the Council on Foreign Relations, lowers the credit rating of the United States and increases the debt; however, when this occurs, the government has the power to simply raise the ceiling limit.
This is what is occurring right now. The federal government reached the $28 trillion limit. This worried many, including Treasury Secretary Janet Yellen, who warned of “catastrophe” if the ceiling was not raised. And raised it was. As reported by the New York Times, on Oct. 7, the U.S. Senate passed legislation via a 50-48 vote to temporarily raise the debt ceiling. The House of Representatives also voted to pass the bill on Oct. 12. Nevertheless, this is a temporary solution to the problem, which the government will revisit in a few months.
The ceiling was raised by over $480 billion, money that the federal government did not take in tax revenue.
In all, the debt ceiling is sort of a last-ditch effort to keep the government fiscally responsible, though as we see, it is not an effective solution. It is another example of Washington’s inability and unwillingness to address the larger issue at play here, and tackle the debt crisis without politics or partisanship. Democrats on the campaign trail continually attack Republicans for seeking to cut Social Security. Republicans on the campaign trail continually attack Democrats for seeking to cut national defense spending. Yet, if the debt issue is allowed to continue spiraling, the procedure continues to be ignored, and if that ceiling keeps being raised, there won’t be anything left for Social Security or national defense.