Geithner extends debt ceiling deadline
Treasury Secretary Timothy Geithner testifies during a House Financial Services Committee hearing on Capitol Hill in Washington, D.C. about entities that support the mortgage market.
Tess Vigeland: Treasury Secretary Tim Geithner is postponing the day of reckoning for the nation's debt ceiling. Thanks to an unanticipated boost in tax revenues, it'll be August instead of mid-May.
Yesterday Geithner wrote to Congress, begging members to raise the ceiling as fast as possible so the government can continue to pay its bills on time. Politicians are using the debt limit as a football in the larger fight over fiscal policy. But why do we have a debt ceiling in the first place?
Marketplace's David Gura has some answers from Washington.
David Gura: Let's start with a definition.
Bill Gale: The debt limit is the maximum amount of debt that Congress allows the federal government to take on.
Bill Gale is an economist at the Brookings Institution. In the U.S., Congress has the "power of the purse." When the government isn't collecting enough revenue, it has to borrow to cover the programs Congress authorizes. But Congress sets a limit on how much debt the government can rack up. Donald Ritchie, the U.S. Senate Historian, tells me Congress has controlled spending from the very beginning.
Donald Ritchie: Congress approved things in advance -- when they were facing a problem, when they'd gone into war, when there was an economic crisis, when they needed to raise money, they turned to Congress and Congress appropriated a loan or some sort of bond drive or something to raise the funds for that particular occasion.
But that changed in 1917. World War I was expensive, and no one knew how long it would last. So Congress said, look, we'll give the government more latitude to borrow money as it goes along, but within reason.
Ritchie: If you go beyond that, we can pass a short-term increase, but we'll just assume that you'll spend up to that amount.
At first, there were small increases. But over the years, the government had to borrow big bucks, for World War II and Vietnam, Iraq and Afghanistan. Since 1962, Congress has raised the debt ceiling 74 times. Now, it hovers around $14 trillion. Bill Gale explains how we got to where we are.
Gale: Congress has authorized the government to spend money.
For highways, for Medicare, for the wars we're fighting.
Gale: They've authorized them to cut taxes.
The so-called Bush-era tax cuts, which President Obama extended a few months ago.
Gale: But Congress has not authorized the government to borrow the money to make up the difference.
I asked Bill Gale if Congress raising the debt ceiling is like my bank, agreeing to boost my credit limit.
Gale: It's not like the credit card raising your credit limit; it's like you authorizing yourself to pay the credit card debt that you put on the bill.
The government has to pay its bills. But a number of politicians say it would be irresponsible to raise the debt ceiling. Gale says they're either ignorant -- or "deceiving the American public."
Gale: Not raising the debt limit right now wouldn't reduce the path of future spending. It wouldn't increase future tax revenues. Those are separate decisions that still have to be made.
According to Gale, this whole debate about the debt ceiling is about one thing: politics.
Gale: The party that controls the White House is always in favor of increasing the debt limit, because they have the job of actually paying the bills that Congress authorizes the government to spend. The opposition party always uses it to score political points.
And Gale says this time is no different. He expects Congress will vote to raise the ceiling again. But in the meantime, it's become a vehicle -- some say inappropriately -- to debate the role of government itself.
In Washington, I'm David Gura for Marketplace.