Debt Be Not Proud
The president and Congress crash into the debt ceiling and pretend nothing happened.
Groundhog Day falls in April this year. Repeating an episode from last spring—and from 1996—the Treasury secretary is dipping into federal pensions to pay the government's bills because Congress won't increase the nation's debt limit.
But unlike the 1996 and 2002 showdowns, this episode isn't a partisan struggle between a president who wants to hike the ceiling and an opposition Congress that doesn't. This time, there's no partisanship, only cowardice. The Bush White House is reluctant to ask for—and the Republican-controlled Congress is equally reluctant to approve—an increase in the amount the government is permitted to borrow, even though the deficit is exploding and spending is soaring.
The refusal to raise the debt ceiling is the latest round in Congress and the president's game of "See How Long We Can Pretend There's Not a Half-Trillion-Dollar Deficit." The shirking of responsibility is as unseemly as it is pervasive. The president doesn't want to publicly acknowledge his profligacy by asking for the ceiling hike. And the Republican-controlled Congress is attempting to appear fiscally responsible by declining to raise the ceiling—as though everyone has forgotten that it is Congress that is passing the spending bills and tax cuts that are the cause of the mess. Congress looks like nothing so much as a temperance crusader holding up a sign advocating prohibition with one hand while downing shots of Jim Beam with the other.
Since World War I, the United States has operated under a statutory debt ceiling. It started at $11.5 billion and has steadily risen to $6.4 trillion. During the 1980s, Congress frequently voted to boost the ceiling as deficits and the national debt soared. The debt includes public debts—treasury bonds and bills sold to investors so the government can pay for operations—and trillions in debt held by Social Security trust funds, which lend money to the government and get Treasury securities as IOUs.
The Republicans were the first to play the nihilistic game of debt-ceiling roulette in the mid-'90s. The House tried to bludgeon the Clinton administration into accepting budget cuts and tried to attach anti-abortion language to a normally routine increase in the ceiling. The bond market was initially spooked by the brinksmanship, as Moody's said it might consider downgrading the nation's credit. But Treasury Secretary Robert Rubin (controversially) used funds from government retirement accounts and other sources to ensure the government could continue to function even if the House refused to raise the credit roof.
Dormant for the surplus-happy late-'90s, the debt-ceiling debate has re-emerged as the fin de siècle dreams of paying off the national debt dissolved in a rising tide of red ink.
In each of the past two years, the Treasury secretary has read from Rubin's playbook. Last spring, when the administration asked for a $750 billion increase to the $5.95 trillion debt limit, the Democrats who controlled the Senate balked. Like Rubin, Secretary Paul O'Neill turned to federal pension funds for succor. But this time, the actions that had prompted members of Congress to call for Rubin's impeachment elicited little more than yawns. In the end, Congress boosted the debt limit by $450 billion to $6.4 trillion.
Because the budget numbers continued to deteriorate, that small hike guaranteed that the administration would soon have to ask for more. So in February 2003, O'Neill's replacement, John Snow, told Congress that because it hadn't acted to raise the debt limit, he, too, would use pension funds to pay government bills. Last week, Snow informed Congress he intended to dip even deeper in those funds. The hope at Treasury is that a gusher of tax payments will arrive for the April 15 deadline, making further pension raids unnecessary for a few months.
There's plenty of hypocrisy on all sides. Trying to use the debt limit to instill fiscal responsibility has historically proven to be a futile, showboating gesture. And since Rubin's innovative use of federal pension funds has become accepted practice, members of Congress know that they can theatrically oppose such a debt-ceiling increase without really placing the bond market and the government's credit in any jeopardy. (Indeed, as Fray poster Peter 303 noted, the government has already exceeded the limit, and no one seems bothered. The Treasury monthly statement of April 4 shows the total debt to be $6.46 trillion.)
More importantly, whenever the Congressional majority has had the opportunity to vote on actions that would make raising the debt ceiling unnecessary—such as, say, cutting spending or not cutting taxes—it has explicitly chosen not to. The repeated need to raise the limit is the predictable result of the profligate policies those in control of the White House and Congress have championed, approved, and ratified.
This time, Democrats, who can still make mischief when they have a few deficit-phobic Republicans on their side, want to force the majority to take responsibility for increasing the public debt. They want a public vote. (The issue has grown so toxic that even cloaking it in the flag hasn't worked. Last week, Senate Appropriations Committee Chairman Ted Stevens, R-Alaska, tried—and ultimately failed—to attach to the war-spending bill a measure raising the debt ceiling by nearly $900 billion.)
Until now, the White House and Congressional leaders have struck a sort of bargain. If you play ostrich, we will too—burying their heads in the sand of Iraq. The White House doesn't remind Congress of its obligations at a time when we have soldiers in the field, and the Republican leaders don't ask the president—who in his State of the Union address assured the public he would not "pass along our problems to other Congresses, to other presidents, and other generations"—exactly how he plans to pay for all this. As a result, the ceiling stays in place, the Treasury secretary takes evasive action, and staffers eagerly await the mail each day, hoping that enough tax payments arrive to delay the debt reckoning for a few months.
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at firstname.lastname@example.org and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.
Illustration by Robert Neubecker.