While pundits speculate what actions President Obama and the Treasury Department might take to avoid the next standoff with Congress over raising the debt limit, it’s worth taking a moment to briefly examine history.
Debates over the nation’s debt have been a reoccurring fact of American political life since the country’s inception. That Congress is seeking to assert control over the nation’s debt is nothing new. In fact, in the 19th century, Congress was far more in control of the nation’s debt than it is today by authorizing borrowing for specified purposes or specifying which types of financial instruments the Treasury could employ, as well as other details of debt terms such as interests rates.
While Congress has always asserted some form of control over the nation’s debt as a means to assert its Constitutional powers with regards to taxing, spending and initiation of war, over the last century it has increasingly delegated independence of action to the Treasury Department. One of the most significant turning points in the relationship was the 1917 Second Liberty Bond Act, in which Congress granted the Treasury Department the authority to issue debt needed to fund government operations as long as the total debt did not exceed a stated ceiling. The Second Liberty Bond Act of 1917 helped finance the U.S. entry into World War I and gave the Treasury greater ability to respond to changing conditions and more flexibility in financial management while still retaining some Congressional control. In 1939, at the request of President Franklin Roosevelt and then-Treasury Secretary Henry Morgenthau, Congress enacted legislation that created the first aggregate limit covering nearly all public debt. On the eve of the U.S. entry into World War II, H.R. 5748, further delegated independence of action on the debt to the Treasury.
The expansion of federal government in the 20th century as a result of wars and increased involvement in the economy has coincided with an increased Congressional delegation to the Treasury, which in theory was supposed to make things easier since more direct Congressional acts to control spending had become tedious. The problem is that the establishment of a debt limit has done little to control the nation’s growing debt. According to the Congressional Research Service, between 1954 and 1962, the debt limit was reduced twice and increased seven times. Since March 1962, Congress has enacted 76 separate measures that have altered the limit on federal debt and since 2001, Congress has voted to raise the debt limit 11 times. And the debt and debt limit has risen under both Republican and Democratic Presidents alike.
We looked through our archives and found examples of presidents using the bully pulpit to justify or make the case for increasing the debt limit.
Before becoming president, Ronald Reagan criticized raising the debt ceiling in a 1964 speech supporting Republican presidential nominee Barry Goldwater, arguing that increased debt threatened the future prosperity and survival of the nation. However, upon assuming the presidency and in the face of budget stand-off in 1981, Reagan signed an increase in the debt ceiling to raise it above $1 trillion for the first time. In his first press conference as president, Reagan told reporters:
Yesterday Secretary of the Treasury Donald Regan sent to the Congress a request to raise the debt ceiling to $985 billion. This represents a dramatic jump of $50 billion over the previous debt ceiling. The administration took this action with great regret, because it's clear that the massive deficits our government runs is one of the root causes of our profound economic problems, and for too many years this process has come too easily for us. We've lived beyond our means and then financed our extravagance on the backs of the American people.
In the press conference, Reagan justified the request for an increase by noting areas in which he sought to freeze or limit federal government expansion and spending. Among other measures, Reagan touted:
Within moments of taking the oath of office, I placed a freeze on the hiring of civilian employees in the Federal Government. Two days later I issued an order to cut down on government travel, reduce the number of consultants to the government, stopped the procurement of certain items, and called on my appointees to exercise restraint in their own offices. Yesterday I announced the elimination of remaining Federal controls on U.S. oil production and marketing.
But even an administration committed to rolling back the federal government was unable to fully limit spending. By the end of his term, the debt limit nearly tripled to some $2.8 trillion.
President Bill Clinton faced a stand-off with the Republican-led Congress over the debt ceiling in 1995 and 1996. Clinton used his 1996 State of the Union Address to pressure Congress to rise above partisanship and extend the nation’s debt limit, warning that the government might temporarily stop mailing Social Security checks:
On behalf of all Americans, especially those who need their Social Security payments at the beginning of March, I also challenge the Congress to preserve the full faith and credit of the United States, to honor the obligations of this great nation as we have for 220 years, to rise above partisanship and pass a straightforward extension of the debt limit and show people America keeps its word.
The Obama administration has, at least for the time being, ruled out negotiating with the Republican-led Congress over raising the ceiling. It’s unclear whether President Obama or the Treasury will take independent actions to avert defaulting on the nation’s debts if Congress doesn’t act to raise the limit. However, like presidents before him, we can expect Obama to use the bully pulpit to press for Congressional action. Time will only tell whether Congress will be able to rein in authority it has delegated to Treasury and reassert more direct control over the nation’s debt limit and spending.