December 14, 2009

December 14, 2009 | Factsheet on Budget and Spending

The Debt Limit: When Is Enough Enough?

 Why the Debt and the Debt Limit Matter

  • $12,000,000,000,000: The total federal debt has reached a whopping $12 trillion. About $7.6 trillion is debt held by the public, which has been borrowed from citizens and foreign countries, and $4.4 trillion is debt held by the government, which has been borrowed primarily from the Social Security trust fund.
  • Debt Is Earning Interest That Taxpayers Must Pay: Public debt holders are paid annual interest from the federal budget, which must be paid with taxpayer dollars. In 2009 interest payments amounted to $209 billion.
  • Too Much Debt Will Slow the Economy: Government borrowing reduces resources available for private investment, leading to lower productivity, wages, and economic growth.
  • Debt LimitOnly Getting Worse: The recession and excessive spending have caused the debt held by the public to grow sharply to 56% of the economy, topping the historical average of 36%. To make matters worse, entitlement programs will double in size over the next few decades and cause the national debt to reach 320% of the economy.
  • Raising the Debt Limit: Congress will vote to determine the limit for the federal debt, which currently stands at $12.1 trillion. Since the national debt has hit $12 trillion, Congress plans to raise the debt limit.

Congress Plans to Quietly Raise the Debt Limit

  • Congress Hopes Americans and Credit Markets Don't Notice: To avoid scrutiny, congressional leadership will likely try to sneak the debt limit increase into a "must-pass" measure, such as the defense appropriations bill. Doing so would limit necessary debate on the debt in the hopes that taxpayers and creditors would not respond.
  • Increase Would Be Largest in History: Because this will be a difficult vote, the majority's leadership has suggested raising the limit enough to avoid another vote on the debt limit before the November 2010 elections. The estimated $1.8 trillion increase would be the single-greatest increase of the debt limit in history.

Time to Take the Debt Seriously

  • In Order to Reign in the Debt, Tackle Entitlements: To avoid perpetual trillion-dollar debt limit increases, Members of Congress should finally address the long-term budget problems posed by Social Security, Medicare, and Medicaid.
  • Create a Bipartisan Commission: A growing number in Congress--led by Senators Kent Conrad (D-ND) and Judd Gregg (R-NH) and Representatives Frank Wolf (R-VA) and Jim Cooper (D-TN)--want to tie a vote on the debt limit to the creation of a bipartisan commission that would recommend real reforms to get the nation's debt under control.
  • A Debt Commission Would Be a Step in the Right Direction: A commission would make it politically and procedurally possible for Congress to move on such a difficult issue. An effective commission would put entitlement spending on long-term budgets, which would prevent the debt from growing on autopilot. It would also make Congress think about the long-term obligations posed by entitlements, which now equal $44 trillion.
  • If Not Now, When?: Failure to act now will guarantee that future Congresses will have to raise the debt limit many more times and that future generations will pay the price. Congress must prove it is up to the task by debating the issue on its own merit and taking this hard vote without the subterfuge of burying it in "must-pass" legislation.

For more information, please visit: www.heritage.org

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