UPDATED!! Debt Ceiling Squabble
Last night, the president and Congress overcame their disagreements to end the government shutdown and avoid the possible debt ceiling (also called the debt limit) crisis. Today was the deadline announced by the United States Treasury that the government would have lost its ability to borrow money, relying only on incoming taxes for revenue.
The late night agreement ended a sixteen day government shutdown and eased concerns about the financial and economic problems that might have occurred if the debt limit was not raised again. As we wait to learn more about the consequences of these latest government crises, lets understand what the debt ceiling fight was all about.
What is the Debt Ceiling?
The president and Congress together control the finances of the government. This includes what it earns (taxes) and what it spends (programs and services). According to the Constitution, the president may suggest ways to spend the federal government’s money through his yearly budget. Congress, however, has the constitutional power to determine how the government spends its money.
Once a federal budget is approved, the president is required by law to spend the budgeted money. The government has many programs such as Medicare, Medicaid, military operations, food stamps, and much, much more that it must fund. If the final budget has more spending committed than taxable revenue, the president must borrow money to spend the budget. The debt ceiling is a maximum amount of money that Congress says can be borrowed.
The problem is, Democrats and Republicans have conflicting opinions about the role of government, the proper amount of government spending, and the types of programs that the government should spend money upon. This leads to political battles. Watch the video below to learn more about the debt ceiling.
What Were the Possible Outcomes?
- Taxes Go Up – This is usually an unpopular choice with the voting public and with the politicians running for reelection. It is usually not the preferred choice–especially by many Republican members of Congress.
- Spending is Slashed – This is usually unpopular with Democrats, and with the voters who depend upon government aid for medical assistance, after-school child care, and many other social and health services.
- The U.S. Defaults on Loans – When people or business fail to repay on a loan, it is called “defaulting.” If a person defaults on a loan, the bank can “repossess” (take back) the item they’ve stopped paying for. Defaulting on loans also hurts a person’s (or a nation’s) credit rating. This weakens the ability to take out any more loans in the future. If the United States defaults on its financial obligations, it could mean a lowered value of the dollar, higher unemployment, and might trigger a bond market crisis throwing us back into a recession.
- The Debt Ceiling is Raised – The debt limit is not a credit card for future spending, but for paying bills the United States already owes. The debt ceiling is not in the Constitution. It was created in 1917. Yesterday, the debt limit of the United States was $16.699 trillion. That limit was officially reached in May, but the U.S. Treasury put measures into place that allowed the country to keep paying its bills. The debt limit has been raised more than 70 times since the inception of the debt limit. Many believe Congress’ unwillingness to raise it this time is a political maneuver the Republicans are using a way to negotiate what they want.
Stay Tuned . . .
The agreement signed on October 16 extends the Treasury’s borrowing authority until February 7, 2014. It also funds the government until January 2014, ending the shutdown of federal employees that began on October 1. The Senate passed the agreement by a vote of 81 to 18 and the House of Representatives passed the agreement by a vote of 285 to 144.
But these political disagreements haven’t magically disappeared. Many conservative Republicans are still angry about the way that the government is funding programs and the United States might find itself discussing these issues again . . . in just a few short months.
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