Debt Ceiling 2013: Why Do We Have One, Anyway?


If you had a credit card debt of almost $150,000, would you ask your card carrier to raise your spending limit? This is the situation the United States government finds itself in. With our national debt steadily climbing toward $17 trillion and your personal share as a taxpayer inching closer to $150,000, the decision must be made next week about whether to raise the debt ceiling again. This provides yet another opportunity to ask ourselves some crucial questions: Why do we have a "debt ceiling"?  Is it benefiting us? And, how do we line up compared to other democratic nations around the world? Looking at the issue only briefly will show that compared to the rest of the Western world, our process is overdue for a revision.

What the debt ceiling actually is is something most people do not understand, and certainly it's a mechanism those in the rest of the world are not familiar with. Amidst concerns in 1917 about funding the United States' efforts in World War I, Congress implemented the national debt "ceiling," or limit. By standard definition, the debt ceiling is the amount of money the U.S. government can borrow (by selling Treasury bonds) to pay its bills (interest on the national debt, Social Security benefits, and other obligations). The limit was last raised to $16.7 trillion, which we exceeded in May (the Treasury Department enacted certain measures to continue borrowing, which will expire on October 17). With the limit again approaching next week and Washington beginning to buzz with talk of raising it once again, one has to question how the debt ceiling positions us in the rest of the modern world.

Denmark is the only democratic nation other than the United States that has a debt ceiling and borrowing system separate from its spending policies. By this process, spending bills like budgets are passed and then a separate battle is fought over whether the debt ceiling should be raised to accommodate borrowing to allow such spending. There is nothing to require a correlation between the two. However, in nations like Canada, Sweden, the United Kingdom, and New Zealand, spending is directly tied to the national debt limit. The government in Canada is allowed to borrow only as much money as is approved to be spent in the yearly budget. In the UK and New Zealand, the Treasury departments can borrow only as much as is approved by parliament. These countries tie their debt limits to their spending numbers.

How does the American system stack up against these? When we consider the idea of a debt ceiling logically, it's clear we are lagging behind our fellow Western nations. Spending and borrowing are linked closely. Passing a budget that spends X amount of dollars and only allows the Treasury to borrow X amount of dollars is a much more responsible strategy than passing an X-dollar budget and having a debt ceiling of Y. The more closely the two are related, the more sound our budgeting process can be. Rather than having the threat of a default looming overhead, only allow the government to borrow as much as is necessary for the coming fiscal year. This eliminates the reckless attitude of "the money is there, so why not spend it?" A clear red line would be established that would prevent the unnecessary spending we currently see (RoboSquirrel sound familiar?).

Having a debt ceiling free from spending habits only increases the political tension and fights that take place in Washington. Tying the two together creates an added measure of accountability for the government. If borrowing is only allowed in the amount specified by the yearly budget, less taxpayer money can be wasted, and rather than having political fights every couple of years about whether it is responsible or not to raise the amount of debt we accumulate, we would be having discussions about what is truly necessary to fund in the budget and worth borrowing money for. In the words of Governor Mitt Romney, we should be asking ourselves, "Is it worth borrowing money from China to fund it?" This, rather than political points, could be our focus.