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What is the debt ceiling?
It’s basically America’s credit-card limit—the amount of debt, including interest, that the nation can incur. It began in 1917, when Congress passed a law allowing the U.S. government to borrow funding for World War I. The law allowed the U.S. Treasury to take on debt with one accountability measure: A debt cap that only Congress can set. The current debt ceiling limit has been reached.
When did we hit the limit?
We hit the limit on May 16, 2011. We’re borrowing against a federal employees' retirement fund to sustain ourselves, according to the U.S. Treasury Department. The agency estimates it won't be able to pay all federal government bills as of August 2.
What happens if there's no deal by August 2?
If Congress doesn’t raise the limit by August 2 then America may not able to pay its bills. Social Security and Medicare benefits, military salaries, tax refunds and many other commitments may not be paid. There are some who argue that the Treasury can “prioritize” payments on the national debt above other legal obligations, avoiding default. This is false. This would not prevent default, but would be default by another name, since the global community would recognize it as a failure by the United States to honor its obligations. It would bring about the same dangerous economic outcomes.
What is a default?
According to the U.S. Treasury, a default occurs when the federal government is unable to meet its legal obligations because of a lack of funds– including payments to holders of federal debt, , payments to recipients of Social Security and Medicare, tax refunds, salaries for federal employees, as well as many other commitments. The nation experienced a partial default in 1979.
A complete default would hurt the credit of the United States, result in dire consequences for the world economy, and leave our nation with an even larger deficit. Families would see interest rates rise, debt payments increase, Social Security checks withheld, and many government employees would be furloughed.
Has Congress raised the debt limit before?
In total, since 1960, Congress has raised, extended or tweaked the debt limit 78 times. The U.S. Treasury Department reported that 49 of those changes have occurred during Republican presidential administrations and 29 during Democratic ones. President George W. Bush approved a raise in the debt limit 7 times during his tenure. Actually, House Republicans voted to raise the debt limit in their budget (H.Con. Res. 34) in April of this year.
Why has Congress not been able to come to an agreement?
Republicans, who have a majority of votes in the House of Representatives, refuse to pass a debt limit increase without cutting critical government services. House Speaker John Boehner said that any deal must include a spending cut that is more than the debt limit increase. In other words, for the Speaker to agree to an increase of $2 Trillion we must make $2 Trillion in cuts.
We Democrats also agree that we must take a hard look at wasteful spending. However, programs like Social Security and Medicare can and must be protected. Also, we must close tax loopholes like the one that allows hedge fund managers to pay low taxes and not contribute their fair share. Ending loopholes is one way to raise revenues that must be considered. We cannot only cut our way out of debt. We have to raise more funds to finance critical government services and functions.
While both parties agree that the federal government must reduce government expenses, Democrats want a deal to include more tax revenue from those who can most afford to contribute. Republicans have refused to compromise on this point, stating their unwillingness to consider any even moderate tax increases.