By Ann Sullivan
By all accounts, the U.S. will default on its monthly spending
obligations of roughly $100 million by early fall, unless the Congress raises
the debt ceiling. Secretary of the Treasury Steven Mnuchin sounded the alarm,
urging Congress to act quickly. As the
debate starts heating up, below is a guide to understanding the debate amongst
all of the partisan noise and media hype.
1. Why does the Congress need to raise the
debt ceiling? If Congress fails to raise the debt ceiling, the nation won’t
be able to borrow any more money to finance the existing financial commitments agreed
to by Congress and the President. This
includes payments to contractors, social security recipients, Medicare and
Medicaid payments and veteran’s pay – literally everything the government
writes a check for.
2. What is the difference between the debt and
the deficit? The deficit is a result
of the government spending more than the revenue it takes in, and is calculated
from year to year. The federal debt is
an accumulation of the government’s annual budget deficits, or the amount of
money the government owes.
3. Has Congress ever missed the deadline? Yes.
However, Congress has always taken action at the final hour before it’s really
too late. In 2011, lawmakers failed to raise the debt ceiling by the May
deadline established that year. Congress ultimately raised the debt limit in
August through the Budget Control Act of 2011—only two days before the Treasury estimated
it would run out of funds. While initially Wall Street reacted negatively to
the threat, it’s now seen as a yearly bluff.
4. Why does this
happen every year? Congress establishes
an annual budget. Raising the debt ceiling allows
the government to pay the bills for expenses already incurred by Congress,
which is done on an annual basis. It
used to be considered a relatively noncontroversial action, but that is no
longer the case.
5. What is a “clean”
debt ceiling bill? Clean means
sticking to the debt ceiling language without attaching other policy “riders.” As
partisan gridlock worsens, the budget becomes the vehicle to pass legislation, making
it an important tool for lawmakers on both sides of the aisle. Treasury Secretary Mnuchin called for a clean
bill, but that idea isn’t popular with the House Freedom Caucus. They “demand
that any increase of the debt ceiling be paired with policy that addresses
Washington’s unsustainable spending by cutting where necessary, capping where
able and working to balance in the near future.”
