Kavan Choksi Provides a Brief Understanding of the United States Debt Ceiling

Debt limit or ceiling is meant to limit the total sum of money the United States government can borrow to pay its bills. As per Kavan Choksi, the government may borrow funds to pay for federal employees, the military, Social Security and Medicare. It also has to pay interest on the national debt and tax refunds. The US Congress votes to raise or suspend the ceiling so it can borrow more every now and then. Historically, it has been a formality for Congress to raise the limit as needed. However, in the recent years, as the parties have become more polarised, they often do not seem to agree on the terms.

Kavan Choksi shares insight into the United States debt ceiling

The U.S. Congress sets a limit on how much the government can borrow, known as the debt ceiling. If this ceiling is not raised or suspended when necessary, the government will not be able to issue new debt to finance its obligations, potentially leading to a default.

In case the debt ceiling is hit, the federal government shall be unable to increase the amount of its outstanding debt. Hence, paying its bills will become trickier. Much like many households, the government is reliant on debt to fund its obligations, as it does not have sufficient income to fund its expenses. The debt ceiling would not be a huge issue in case U.S. revenues, like tax proceeds, did exceed its costs. However, the U.S. hasn’t run an annual surplus since 2001.

The Treasury does have temporary options to pay bills. It may use cash on hand or spend any incoming revenues, like those from the recently concluded tax season. The Treasury can also use so-called “extraordinary measures,” which involves shifting funds around behind the scenes, and freeing up cash for the federal government in the short term.  Such steps help prevent a potential calamity, a default.

Kavan Choksi mentions that the total debt accumulated by the United States government has been growing with each budget deficit since several decades. As Congress wanted to issue war bonds in 1917, they faced resistance from legislators who opposed adding debt or simply opposed entering the war. The debt limit was essentially created as a device to move the bonds bill. The initial limit was a few billion dollars, which while being a lot of money, was not enough for the tasks to be done ahead. As the limit proved to be inadequate, Congress raised it. The limit was raised time and again, whenever necessary. In 1939, anticipating U.S. entry into the Second World War, Congress ended up restructuring the debt and raising the limit became more or less routine.

Since the 1960, the limit has been lifted more than seventy times. Democrats have been in the White House for 30 of those years and worked with Congress to get 29 of those increases. On the other hand, Republican presidents have done it 49 times. For most of these instances, raising or suspending the limit was the last stitch in the federal budget and spending process.