As Congress and the President continue to negotiate terms on the debt ceiling before the August deadline, some may ask: what exactly is the debt ceiling?
Created by Congress in 1917, the debt ceiling limits the total amount of money the federal government can borrow by law. While Congress has the power of the purse and authorizes new spending, the debt ceiling limits the ability of the Treasury Department to finance the legal spending obligations that Congress and the President have already made. Failure to pay for those obligations would result in the United States defaulting and setting off a string of events that would be catastrophic for our economy. It is equally clear that continuing to borrow without significant spending cuts and substantial budget reform is a serious threat to economic growth and job creation.
Interest on U.S. Treasury securities plays a large role in setting the benchmark for interest rates on other financial services products we all use, such as mortgages, business loans, credit cards, car loans, and student loans. So, if the federal government were to default on its debt obligations, the cost of borrowing for the federal government would increase substantially, which would in turn increase the cost of borrowing for the rest of us. Furthermore, a debt default could stop, limit or delay payments from the federal government, such as tax refunds, salaries to our men and women in uniform and Social Security and Medicare benefits.
While defaulting on the federal debt would have serious consequences for our economy and every American, we cannot continue spending without reform. It is simply not acceptable to raise the debt limit in a “clean” vote as called for by the President and some Democrats in Congress without spending reforms. This would allow the government to continue spending money we do not have, and would irresponsibly kick the can down the road on addressing our enormous deficit and debt.
The debt limit is not the real problem; the real problem is that, today, the federal government borrows forty cents of every dollar it spends. This is unacceptable and unsustainable. It is time to put a long-term plan in place for a turnaround that gets our fiscal house in order.
The original purpose of the debt ceiling was to force Congress to consciously approve more borrowing and therefore the periodic vote should act as a check and balance against runaway deficits and debt. Unfortunately, for too long Washington has treated the debt limit as a routine action, as opposed to the serious check and balance it was supposed to be.
Just like a family or business that finds itself in deep debt, we need to determine and follow through on a realistic workout plan to balance our budget and pay down our debt to solve our long-term spending problems in a responsible way.
My colleagues and I are demanding agreement to such a long-term spending reform plan from President Obama before we consider any increase to the debt limit.
House Republicans will not back down from our demand to begin addressing our debt crisis now. The debt limit is serving its intended purpose by giving us the opportunity to make these changes now, before it is too late.