Some commentators have criticized use of the phrase “blank check” to describe the recent vote to suspend the debt limit for more than a year. They argue that the debt limit suspension merely means that the Treasury is allowed to borrow for the purpose of covering spending Congress already approved.
That is only part of the story. Here is why the “blank check” analogy applies.
A Debt Limit Suspension Waives the Debt Limit
Contrary to widespread reporting by the media, Congress did not actually increase the debt limit on February 12. Instead, Congress rendered the debt limit statute inoperative, thereby waiving the debt limit, through March 15, 2015. This means that there is no debt limit in place to control borrowing for more than an entire year.
When the debt limit suspension ends, the debt limit is automatically increased to reflect the amount of borrowing that occurred since the last debt limit bound the Treasury. However, because there is no actual dollar-denominated limit on the national debt during the suspension period, taxpayers will not know for certain just how much more borrowing Congress authorized.
The debt limit last bound the Treasury on February 8, when the agency reported the new limit at more than $17.2 trillion. The Bipartisan Policy Center estimates that, absent major changes in spending policy, the debt limit suspension will result in a $1 trillion increase in the debt limit on March 15, 2015.
Why a Suspension Is Like a Blank Check
If Congress had simply increased the debt limit by $1 trillion, it would have limited the Treasury to borrowing an additional $1 trillion to finance federal spending. This is similar to Congress handing the executive a check for $1 trillion to be cashed with future taxes. Otherwise, the Treasury would be restricted to spending only the cash it receives from current tax revenues. This is because the Constitution specifies in Article I, Section 8, Clause 2, that Congress shall have power “to borrow Money on the credit of the United States.”
When Congress suspended the debt limit through March 15, 2015, it did not limit the Treasury’s borrowing at all. The debt limit will not bind the Treasury until midnight on the day the suspension expires. This is like Congress handing the executive a blank check with an expiration date. The blank check authorizes the Treasury to borrow as much as needed to finance all government spending authorized by law to occur during the period of the suspension. With a debt limit suspension, Congress effectively abdicates its constitutional power to control the borrowing of the federal government.
Why the Debt Limit Matters
Many policy analysts argue that the debt limit is an archaic construct and that because Congress authorizes all spending, it does not make sense to have a separate limit on borrowing. Ideally, congressional decisions to spend and borrow would be aligned. However, the vast majority of federal spending was authorized decades ago and is now growing on autopilot.
Congress authorizes only about one-third of federal spending in any given year. That is the portion of the budget that is discretionary. Two-thirds of federal spending is mandatory and goes to finance long-standing entitlement programs such as Social Security, Medicare, and Medicaid, in addition to interest on the debt. These programs were authorized many Congresses ago, and they are the key drivers of expanding federal spending and debt.
The Framers of the Constitution granted the power to borrow to the legislative branch, thereby denying it to the executive branch as an additional check on public debt. As Michael W. McConnell of Stanford Law School explains:
Article One, Section Eight, Clause Two allows Congress to borrow money on the credit of the United States. It imposes no limit, but note that granting this power to the legislative branch denies it to the executive. Under the unwritten British Constitution prior to the Glorious Revolution, the king could borrow money as a matter of his own prerogative authority, which kings frequently did, with disastrous results.
The British experience in the century prior to the Constitution suggested that parliamentary control over borrowing was a real, substantial, and effective check on excessive public debt. And so the framers imitated that. Some people thought, last summer, that President Obama should raise the debt ceiling on his own authority, which would have violated this fundamental constitutional principle. But Obama is only president of the United States. He is not King Charles II.
When past Congresses authorized Social Security, Medicare, and Medicaid, they did not project their cost several decades later. Obamacare is a recent example wherein the Congressional Budget Office (CBO) predicted that the law would reduce the deficit within one decade of its enactment, while the Government Accountability Office predicted that the law would add several trillions to the deficit over a 75-year period. Even if Congress tried to account for the cost of program spending for several generations, forecasters are unable to accurately predict expenditures far into the future. The CBO can hardly provide accurate forecasts merely one year out.
The Debt Limit to Control Excessive Spending
The debt limit also has important incentive effects to control excessive spending by Congress, which work only when Congress puts an actual limit on the debt. If Congress authorizes $1 trillion in additional borrowing, the size of the projected deficit in large part determines when Congress will reach this limit. With a debt limit suspension, Congress can authorize more spending without having to worry about reaching the debt limit any sooner than the date on which the suspension expires.
A vote to increase the debt ceiling is a highly public affair and an opportunity to hold Congress and the President accountable for failing to control spending and waste and for authorizing money for pork projects. An actual debt limit forces Congress and the President to confront the debt limit more frequently. The fact that Congress has not increased the debt limit by an amount so large that it would not reach it for years is testament that constituents pay attention to debt limit votes and seek to hold their officials accountable for excessive borrowing.
The Debt Limit as Action-Forcing Fiscal Tool
The debt limit allows Congress to exercise its power of the purse in making vital course corrections when confronted with the results of unsustainable spending decisions. As such, the debt limit presents a decisive, action-forcing moment for Congress to take charge of the automatic spending increases that are driving the U.S. spending and debt crisis.
The fact that Congress has not been willing to force spending reforms does not lessen the importance of the debt limit as an action-forcing mechanism to prevent a future fiscal crisis. Congress should cut spending and reform the entitlement programs to put the budget on a path to balance before increasing the debt limit again.
—Romina Boccia is the Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.