On Dec. 31, 2012, the United States government officially hit its current authorized borrowing limit — also known as the debt ceiling — of about $16.4 trillion. Treasury Secretary Timothy F. Geithner had informed Congress the week before that he will be able to avoid breaching the limit through “extraordinary measures,’’ but only for a matter of weeks.
The news sets up a renewal of the conflict in 2011 that brought the country within days of default and led to the first ever downgrading of the federal government’s credit rating. Congressional Republicans insist that they will continue to demand, as they did in 2011, that any increase in the debt limit be tied to significant spending cuts. But President Obama has said that this time he will not negotiate over the limit.
“I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” the president said on New Year’s Day, as the House prepared to approve a deal averting the so-called fiscal cliff of scheduled tax increases and spending cuts.
But that bill put off the need for action on sweeping, across the board budget cuts set in motion by the 2011 debt deal for two months — right around when the government might be nearing default.
Federal law requires Congress to authorize the government to borrow any money that is needed to pay for the programs that Congress has passed.
The Constitution gives Congress the power to control spending and borrowing. The debt limit or debt ceiling was introduced during World War I and was meant to give the Treasury greater flexibility by not having to have Congress approve every new issuance of debt every time the government needed to borrow to pay for things Congress had already voted for.
As the national debt has grown, the Treasury has periodically bumped against this debt limit or debt ceiling. While votes to raise it are among the least popular things Congress does, the limit has been raised dozens of time, generally with little fanfare.
But in 2011, the debt ceiling became the central battleground for the budget conflict between the Republicans who took control of the House in the 2010 elections, and President Obama and the Democrats who still control the Senate, as Republicans refused to raise the limit without a deficit-reduction package.
The impasse over finding spending cuts and tax increases was resolved by a plan to force broad spending cuts if no deal was reached on large-scale deficit reduction. The deal’s so-called sequestration cuts are scheduled to take effect on Jan. 1, 2013 — the day after the Bush-era tax cuts and other stimulus measures are set to expire. The confluence of the spending hikes and potential tax increases became known as the fiscal cliff.
The 2011 deal pushed the next collision with the debt ceiling past the 2012 elections, but by late that year the Treasury Department was warning that it would run out of room to maneuver on the debt sometime in early 2013.
When Mr. Obama presented House Speaker John A. Boehner with his “fiscal cliff’’ plan in late November 2012, one proposal was to take the debt ceiling more or less out of Congress’s power. Originally put forward in 2011 by the Republican leader in the Senate, Mitch McConnell of Kentucky, the plan would allow the president to raise the debt limit unilaterally. Congress could block any increase, but only if it could muster the two-thirds majority that would be needed to override the presidential veto that would be sure to follow.
Both Mr. McConnell and Mr. Boehner rejected Mr. Obama’s plan.
In December, Republicans began discussing a fallback plan in which they would agree to a relatively limited package — like the one that eventually passed — and then dig in on negotiations over raising the debt limit, when they would feel like they had more leverage.
Mr. Obama responded by saying flatly that he would not “play that game.’’ He did not say what he would do in response, but some Democrats have urged him in the past to simply raise the borrowing limit using his own executive authority and let the courts determine if he overstepped his constitutional bounds, an approach the White House has rejected.
Later in the month, however, Mr. Obama appeared to drop his demand that Congress give up its power over the debt ceiling, proposing instead that it raise the ceiling by enough to cover two years’ worth of borrowing. And Mr. Boehner offered to extend the debt ceiling by a year, although his proposal went nowhere.
After his talks with Mr. Boehner on the “fiscal cliff’’ broke off, Mr. Obama reverted to his firm line on the debt limit. The president and his aides have signaled that they will try to educate the public by explaining that the increase in the borrowing limit is necessary to cover debts that the government has already incurred.
Juggling Bills and Cash
The day after Christmas, Treasury Secretary Timothy F. Geithner informed Congress that the government would hit its $16.4 trillion borrowing limit on Dec. 31.
He said the Treasury would “shortly” begin undertaking “extraordinary measures” to avoid the limit — essentially moving money from pocket to pocket to give the government enough breathing room to pay all of its bills, from soldiers’ salaries to Social Security payments, after that date.
But within weeks — sometime in February or March, analysts estimate — its required payments would overwhelm its receipts, leaving an unprecedented cash shortfall.
The 2011 Debt Ceiling Fight
In May 2011, the Treasury Department said that the debt limit of $14.29 trillion had been reached, but said it could keep the government functioning normally by “extraordinary measures’’ that would run their course by Aug. 2. Bipartisan negotiations began, led by Vice President Joseph R. Biden Jr., and in late May he said progress had been made toward outlining $1 trillion to $2 trillion in possible savings.
But the talks collapsed in June, as Republicans rebuffed Democratic insistence that a deal include revenue increases as well as spending cuts.
In July, President Obama pushed for a sweeping $4 trillion deficit-reduction deal that would include reductions in Social Security, Medicare and Medicaid as well as changes to plug tax loopholes. The House Republican leader, Speaker John A. Boehner, expressed interest, but quickly backtracked in the face of protests from conservatives opposed to tax increases.
At the end of July, an event that had once seemed unthinkable — a default by the federal government — loomed only days away.
Late on the night of July 31, President Obama and Congressional leaders of both parties announced an agreement that would raise the debt ceiling by up to $2.4 trillion in two stages, enough to keep borrowing into 2013. The pact called for at least $2.4 trillion in spending cuts over 10 years, with $900 billion in across-the-board cuts to be enacted immediately.
A bipartisan Congressional commission, or “super committee,” was given the task of coming up with the second round of deficit reduction. To put pressure on, a “trigger’’ was adopted that meant a failure by Congress to enact those cuts would lead to across-the-board cuts in military spending, education, transportation and Medicare payments to health care providers. The committee reached a stalemate in November.
In accordance with the July 31 deal, Congress raised the debt limit to $15.2 trillion at that time; in January 2012, the limit rose to $16.4 trillion after Senate Democrats voted down a “resolution of disapproval’’ that had been passed by House Republicans.
Girding for Another Fight
In May 2012, Speaker Boehner set the stage for a bruising election-year showdown on fiscal policy, vowing to hold up another increase in the federal debt ceiling unless it was offset by larger spending cuts.
The Boehner comments, made at a fiscal summit meeting in Washington on May 15, were the first public shot in what promises to be the most consequential budget fight in a generation. On Jan. 1, 2013, nearly $8 trillion in tax increases and across-the-board spending cuts are scheduled to take effect.
Mr. Boehner said he would not allow Congress to duck tough decisions with another round of short-term measures. He also said the House would pass an extension of the Bush-era tax cuts before the November elections, and he urged lawmakers in both parties to reach a long-term deal on spending and tax changes — but no additional taxes — to head off a fiscal calamity.
Democrats immediately accused Mr. Boehner of once again holding the nation’s full faith and credit hostage to his conservative political agenda, even as Republicans cut corners on the deal struck last summer to end the last debt-ceiling crisis.
Treasury Secretary Timothy F. Geithner, speaking at the same meeting, said the government could bump into its borrowing limit before the end of the year, but, he said, the Treasury has enough “tools” to keep the government afloat into early 2013.
While the Republicans largely prevailed in 2011, this time the Obama administration believes it has the greater leverage. The pain of the reductions is being felt as House Republicans advance the annual spending bills; already they have proposed to raise the spending caps for the military, and they are squabbling over domestic programs.
Source: The New York Times