What Is the Congressional Debt Limit? (with Phil Wallach)
What Is the Congressional Debt Limit? (with Phil Wallach)  
Podcast: Understanding Congress
Published On: Mon Mar 06 2023
Description: The topic of this episode is: "What is the congressional debt limit?"To answer that question we are once again speaking with Philip Wallach. He was the very first guest on this podcast, where we pondered why we need a Congress. Phil is a senior fellow at the American Enterprise Institute, and the author of the book, Why Congress, which was published by Oxford University Press in 2023. Phil also has written previously about the debt limit, which makes him the right person to ask: What is the congressional debt limit?Kevin Kosar:Welcome to Understanding Congress, a podcast about the first branch of government. Congress is a notoriously complex institution, and few Americans think well of it, but Congress is essential to our republic. It's a place where our pluralistic society is supposed to work out its differences and come to agreement about what our laws should be, and that is why we are here to discuss our national legislature and to think about ways to upgrade it so it can better serve our nation. I'm your host, Kevin Kosar, and I'm a resident scholar at the American Enterprise Institute, a think tank in Washington, DC.Phil, welcome back to the program.Phil Wallach:Thanks for having me back.Kevin Kosar:Let's start by getting clear on what we're talking about. There are deficits and there is debt. How do these two things differ?Phil Wallach:It's a stocks versus flow kind of thing. Each year, we have spending and revenue—in almost all years in recent memory, we have more spending than revenue. That creates a deficit. So the accumulation of all of the past deficits is the debt. So the debt is our total of all the spending we've done minus the revenue we've taken in, and it is now officially north of $30 trillion.Kevin Kosar:So when the Treasury needs to issue more debt, it's got to sell bonds—basically, these IOUs that say, "Please give us money that we can spend now, and we'll pay you back later." Is that essentially what's happening when we're taking on more debt?Phil Wallach:Yeah. A bond is a legally obligating instrument, and debt put out by the United States government is considered the lowest-risk kind of debt instrument in the world. So the government is not just saying, "If we feel in a good mood, we'll pay you back,” but, “we are legally obligated to pay you back with interest." That's very valuable to investors. And of course, United States bonds form the gold standard of collateral used not only in this country but around the world in the global financial system.Kevin Kosar:So this leads us to an important point, which is that an executive agency called the US Treasury that is issuing debt, but it doesn't do it simply at the behest of the President. The President can't say, "Well, let's just issue as much debt as we want on this day of the week or during this year." We have a law that limits the amount of debt; that is, our legislature has a role here.We keep finding ourselves—with some frequency—in a situation where Congress will run these yearly deficits where they're spending more than the revenue coming in, and the debt grows and grows. Then, when we hit this legally mandated limit, Congress has to vote to pass a new law so that the limit is set higher so that more debt can be issued.So let's just turn back the clock. This practice of setting a debt limit by law: why do we have it, and when did Congress first start doing it?Phil Wallach:Okay, so go back to the Constitution. Article I, Section 8 lists Congress's powers and pretty clearly gives the power of the purse to Congress. So Congress is responsible for making decisions about spending and taxation, and it's also, therefore, responsible for making decisions about financing deficits.  Through the 19th and early 20th centuries, whenever the Treasury wanted to sell debt, Congress would specifically vote to approve every single bond issue. Now, it didn't really think very hard about the way it did that; the Treasury Secretary pretty much came over and said, "This is what we'd like," and Congress generally said, "Okay, that sounds all right with us." But it was approving every single bond issue. Now we come to World War I, and the federal government was spending money like never before, and Congress started to feel like this was too much of a burden for it to have to approve every single bond issue. So instead, in 1917, it put in place a ceiling, a limit. So up to this amount, Treasury can issue bonds as it sees necessary, and then once it hits that amount, it's going to have to come back to Congress. Congress will have to raise the ceiling, and the process involves the legislature again. But they put in place a dollar limit, and periodically raised that.Somewhere around World War II, it took a modern statutory form. And ever since then, Congress has been raising the debt limit periodically, because we keep accumulating more debt such that if we didn't raise the limit, the Treasury would find itself unable to service the debt (i.e., unable to meet all of the obligations that Congress has incurred).Kevin Kosar:Is the United States unusual in having this debt ceiling policy where the legislature has to enact an increase to the debt periodically?Phil Wallach:Yes. It's not a normal thing for countries to have. In most countries, debt issuance seems to be thought of as a ministerial function of the Treasury Department, and not something that the legislature involves itself in so much. This is another aspect of America having an unusually powerful legislature that gets involved in more activities than legislatures in most countries do. But it is fairly clearly rooted in the Constitution that the US Congress has to be involved.Now, it could just raise the limit really high. It could put in some sort of default rule that as long as we've passed spending laws, we're automatically authorizing the Treasury to sell enough debt such that we can spend all that money that we have voted in approval of. But we've never done that yet, so the debt limit has been the way we've coped with this congressional involvement for the last century.Kevin Kosar:It's worth pausing here to point out that the function of spending seems to have three big legislative steps. Congress passes a law to authorize spending on a program, an agency, etc. Then, Congress passes another law to appropriate the actual dollars that the executive agency can spend. But if the aggregate amount of those dollars exceeds the amount of revenues, you're going to have to take the next step to borrow. And in the olden days, as you referenced—a hundred years ago and earlier—Congress would just regularly pass these things ad hoc.  But that became such a frequent thing, it probably made very little sense to spend that much time on the floor of both chambers pushing those bills through. So they just set a higher number and put it there. That still is a third step. So instead of doing this third step every few weeks or every few months, every year or so we have to go through this debt limit situation.Phil Wallach:And it's not always so newsworthy, because sometimes neither party is all that interested in fighting over it—Congress puts through a raise of the limit in a bipartisan manner, and life goes on as before. So it doesn't have to be a moment of drama.  But ever since the standoff in 2011 especially, there's been a lot of attention to the debt limit, and a lot of sense that this is just a fight waiting to happen every time we come up against it.Kevin Kosar:We often hear the demand by some elected officials—presidents, members of Congress, etc.—that they want to "clean debt limit increase". What do they mean? And are these "clean increases" the norm?  Phil Wallach:So a clean increase would be if legislators introduced a bill that was very short and very simple, and all it did was raise the amount of money that the debt limit is set at. Or something they've resorted to in recent years is: instead of choosing an amount, a dollar amount, they suspend the limit until a certain date. And that's a different way of getting at the same thing of saying, “We're going to be able to issue the debt we need through this time period instead of up to this amount.” And so Congress has sometimes passed bills that are more or less “clean increases.” I wouldn't say that's the norm, though. Most of the time, whoever is not in the White House uses debt limit raises as a chance to hold the White House's feet to the fire a little bit on spending that they don't like, or on debt accumulation generically. If you go back to 2006, for example, the Democrats gave the George W. Bush administration a bit of a hard time on raising the debt limit then. It wasn't a big fight, in the end; the Republicans and Democrats got together and passed it in the end. But for example, Senators Joe Biden and Barack Obama, both voted against that increase as a