The U.S. government is bumping against its current legal borrowing limit of $16.4 trillion. As Congressional leaders argue over when, by how much and under what terms this limit will be increased, a few big misunderstandings about the so-called debt ceiling have spread.
Myth No. 1: Raising the debt ceiling means agreeing to increase government spending and the deficit
When the president is asking for trillions more in borrowing on top of record government-debt levels, it’s easy to see how it seems he’s proposing heavy new spending.
In reality, though, the spending has already occurred or been mandated by law. More borrowing is just needed to cover the tab.
Congress approves all government spending measures, while separately controlling how much is borrowed to help pay for that spending. The laws that set the government’s budget for the fiscal year ending Sept. 30 are already in place, with the deficit projected to come in just under $1 trillion, down from $1.1 trillion in fiscal 2012.
Treasury reached the limit on how much it can borrow in recent weeks, and is now using accounting measures, such as moving funds among various government retirement accounts, to keep the government operating. By March, these emergency maneuvers, which have been used under prior debt-ceiling delays, will be exhausted.
Myth No. 2: Demanding a debt-ceiling increase is an extraordinary maneuver
Even though the dollar figures are bigger than ever and the issue has become more contentious in recent years, there have been dozens of debt-ceiling increases in the past century and most were passed as a matter of routine.
The Congressional Research Service says the debt limit was lifted 76 times since 1962 - 11 since 2001. Congressional skirmishes over the debt vote happened every now and then but eventually were settled before the Treasury ran out of cash.
With unusually large increases requested in recent years due to trillion-dollar-plus deficits during and after the financial crisis, deficit-targeting Congressional Republicans have resisted approving heavier borrowing, as a way to press for deeper long-term cuts to entitlement and other spending.
Myth No. 3: The government could easily avoid default and cover crucial expenses for a while even if the debt ceiling were not increased
Hypothetically, this appears possible. Projected tax revenue for this year would almost exactly cover the budgets for the military, veterans’ benefits, Social Security, Medicare, Medicaid and interest payments on outstanding debt. The rest of the government would have to shut down.
More practically, though, budget experts say the way the Treasury pays its bills makes such fine prioritization of payments difficult, and perhaps impossible. Its computer systems receive invoices and pay balances on an as-received basis. And revenue and expenses aren’t perfectly predictable, with tax payments and various expenses arriving in lumps, which would lead to periodic shortfalls.
Whether Treasury could keep fighter jets in the air and Social Security checks in the mail on an emergency basis or not, a government shutdown would be chaotic and would surely serve a nasty blow to the overall economy -- even as the unpaid bills would pile up in advance of eventual payment following a debt deal.
That said, the GOP has in recent days backed off on previous shutdown threats, with House Budget Committee Chairman Paul Ryan telling reporters Thursday, "We’re discussing the possible virtue of a short-term debt limit extension, so that we have a better chance of getting the Senate and the White House involved in [spending cut] discussions in March."
And on Friday House Majority Leader Eric Cantor said the House would vote next week for a temporary three-month debt-limit increase.