Congress Sets the Debt Limit

In the coming months we are going to hear a lot about the debt limit again. Treasury Secretary Timothy Geithner recently announced that the government has reached its capacity for borrowing and called on Congress to raise the debt limit.

During the last debate over raising the debt limit, leading liberals started to claim that the President had the authority to issue new debt without the consent of Congress. This is a dangerous assault on the Constitutional separation of powers.

There is a long history of Congress being responsible for issuing debt and it begins with the ratification of the U.S. Constitution. Article I, Section 8 of the Constitution lays out the explicit powers of Congress. The second power listed is: “To borrow Money on the credit of the United States.” The Constitution does not grant these powers to the President.

The modern day debt limit evolved out of the need to fund the Spanish-American War in the 1890s. The 1898 War Revenue Act granted the Treasury Secretary the authority to issue long-term and short-term debt but within an explicit limit. Congress continued to set well defined limits on Treasury’s borrowing during World War I.

In 1939, Congress enacted the first aggregate debt limit covering all types of public debt. The limit was set at $45 billion. After increasing to $300 billion to cover the cost of the World War II, Congress actually reduced the debt limit when the war ended.

Through most of the ‘90s and ‘00s, the national debt as a percentage of the economy remained around 60 percent. After President Obama came to office, the debt grew from 69 percent in 2008 to more than 100 percent of GDP in 2012. Many economists note that government debt begins to be a drag on economic growth at 90 percent of GDP.

The dramatic Congressional elections in 2010 were a direct response to the uncontrolled spending and debt of the first two years of the Obama administration. Previous Congresses saw little debate over raising the debt limit. Typically the majority party quietly raised the limit while the minority complained about fiscal irresponsibility. Senator Obama himself said in 2006 that raising the debt limit was, “a sign that we now depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies.” In 2006, the debt limit was $8.9 trillion. It now stands at $16.4 trillion.

In the 112th Congress, things were different. Speaker John Boehner, backed by Republicans, called for one dollar of spending decreases for each dollar increase in the debt limit. The Budget Control Act passed in August of 2011 accomplished this by giving Congress and the President a choice: see defense and domestic spending automatically cut in 2013 or replace the cuts with a plan formulated by what became known as the “Supercommittee.”

Despite a notable effort at compromise led by Pennsylvania Senator Pat Toomey, the Supercommittee could not agree to a plan. The automatic cuts, known as sequestration, were due to take effect on January 1. The fiscal cliff deal passed this week kicked the can down the road another two months.

During the last negotiation on the debt limit, Standard and Poor’s credit rating agency downgraded the U.S. from AAA. Now, a second agency, Moody’s, has issued another stark warning that, “Further measures that bring about a downward debt trajectory over the medium term are likely to be needed to support the AAA rating.”

Our debt problem is a spending problem, not a tax problem. If we took every single dollar earned by the top one percent, it would only fund the government for three months.

The President has indicated that he does not want to negotiate with Congress over the debt limit. Again, there are whispers among liberal media personalities and politicians that the President should raise the debt limit on his own. This would be an extraordinary breach of the Constitution.

The House of Representatives has passed budgets two years in a row that control federal spending and put us back on the path to fiscal stability. I believe we can negotiate, but the President needs to put forward a realistic plan for dealing with spending.