Meet John Doe: Raising the debt limit does not raise the nation’s debt

By Paul Gorski

Raising the nation’s debt limit does not raise the nation’s debt. It simply doesn’t. Here’s why.

Congress controls most U.S. federal government spending. The president has limited discretionary spending authority. While the president may request funding for projects, Congress votes on and passes the budget.

The Treasury Department is the check-writing arm of the federal government. The Treasury pays the bills Congress has previously authorized and is obligated to pay. Based on a 1917 law, the Treasury may pay bills from existing funds or borrow funds up to a certain limit, the “debt limit.” The debt limit is an arbitrary loan ceiling amount to pay existing bills, and can be set to any amount by Congress.

Keeping this simple, let’s say our federal bills for 2013 added up to $99, and Congress had previously authorized a debt limit of $100 for 2013. The Treasury wouldn’t need to ask for a higher debt limit, and would pay the bills, not to exceed the $100 cap.

Congress could, if it wanted to, authorize a new debt limit of $200 for 2013. The Treasury might say “thanks,” but it would still only write checks for the $99 owed, no more. The debt limit, our borrowing limit, would be higher, but our nation’s debt would not increase because of the higher debt limit. Debt limit myth debunked.

The problem we run into is that Congress is obligated to pay bills in amounts higher than the debt limit is set for. Example: let’s say we owe $125 in 2013, based on previous financial commitments, but the Treasury is limited to a $100 debt limit. So the Treasury asks Congress to borrow more money, enough to cover the extra $25. That’s where we are today.

The fiscal hawks out there are probably screaming, “See that’s where the debt is increasing, in loans and interest fees.” Yes, but no. The Treasury, in borrowing money, is shifting our existing debt obligation from the bills due now to a future loan payment. Now, we could choose not to pay the bills today and incur the equivalent of service fees and late payment penalties, increasing the debt, or borrow money to pay our creditors now, with future loan interest, increasing the debt. We’re moving the debt from one creditor to another. We still have the financial liability on our books. We still owe the debt, debt limit or not. Again, debt limit myth debunked.

So, the of act of raising the debt limit does not raise the nation’s debt. But the nation’s debt is growing. Congress is spending more money than it takes in. The nation’s debt has increased every year since 1952. Before 1951, the debt tended to increase, but there were some years when it dropped from previous years. A listing of annual national debt numbers is available from the U.S. Treasury Department at

Democrats are quick to point out that the debt limit was increased numerous times during the Ronald Reagan presidency, and that the national debt more than doubled during that time. However, Democrats in Congress had a lot to do with that. And although Bill Clinton was given credit for slowing the growth of the national debt during the 1990s, Republicans in Congress had much to do with that fiscal restraint. Managing the nation’s debt is a team effort.

While Congress has always had the responsibility to vote budgets up or down, it wasn’t until 1974 that Congress established a formal budget process of its own. Before then, the president offered a budget, Congress considered it, made changes, and passed the budget. Oddly enough, it was a few years later, in the late ’70s, when the national debt started rising at alarming rates. I’m not sure the congressional budget process is working very well.

For those of you thinking, “Cutting Social Security will help reduce the debt.” No, it won’t, as Social Security revenue and expenditures haven’t been part of the official debt calculation since 1990. At that time, legislators recognized that the then large Social Security trust fund numbers distorted the financials, reducing the debt and deficit figures, at least on paper. Including Social Security trust fund dollars made the debt situation look “rosier” than it was.

As a matter of record, when we’ve needed to borrow money to pay our congressionally authorized bills, we often borrowed from the Social Security trust fund. The Social Security trust fund had a surplus by design, in anticipation of future payouts. Almost 17 percent of our federal loan debt is owed to the Social Security trust fund. Add that 17 percent to other loans from government retiree accounts, and almost 25 percent of our national loan debt is owed to personal retirement trust fund accounts. The government gives IOUs to the fund managers of our retirement accounts.

The practice of borrowing from these retirement funds is becoming a problem. Because of our aging population, we are paying out more in retiree benefits, and repaying the loans from these accounts. But as the surpluses in these accounts dwindle, we lose the ability to borrow from these retirement accounts. We are paying the loans back to ourselves, but don’t have the cookie jars to borrow from anymore. The Treasury can no longer simply issue repayment “IOUs” as it has for many years, as the Social Security trust fund needs real dollars now to pay its beneficiaries, not promises.

Raising the debt limit to allow the Treasury to borrow money to pay our bills is not the primary problem. The problem is having Congress approve budgets that require the Treasury to ask for more money to pay these obligations.

It isn’t like Congress won’t raise the debt limit; it has to, it is unavoidable. Certain members of Congress are using the debt limit vote as a bargaining tool to change or abolish the Affordable Care Act. Congress is holding off on paying legitimate bills, while debating a completely different issue. It would be as if a family told its mortgage holder: “Oh, we’re not paying our mortgage until my wife and I agree on how much I can spend restoring cars and she can spend traveling with friends. We’ll get back to you when our negotiations are over.” Yeah right, like the bank would agree to that.

We have had revenue shortfalls for decades, so our debt is not new to Congress. Our debt problems pre-date the Affordable Care Act; presidents Reagan, Bush and Obama; and our wars in Vietnam, Iraq and Afghanistan. Stop looking for scapegoats: we should have a better strategic plan. Raise the debt limit, then work on the budget. Create a new congressional budget model that better anticipates future expenses and works to pay down the debt.

Paul Gorski ( is a Cherry Valley Township resident who also authors the Tech-Friendly column seen in this newspaper.

From the Oct. 16-22, 2013, issue

One thought on “Meet John Doe: Raising the debt limit does not raise the nation’s debt

  • Oct 16, 2013 at 1:46 pm

    Your metaphor of the bank, restoring cars, and travel expenses is not very good.

    Your conclusion “Raise the debt limit, then work on the budget” doesn’t seem right either, as nobody has had the motivation for YEARS and YEARS to “work on the budget”. Why would they now??

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