NEW YORK (MainStreet) — After months of heated debate, the debt ceiling drama continues to unfold in Washington, and one way or another, the first part of this story will come to an end a week from Tuesday when the country officially hits its borrowing limit.
As we’ve come closer and closer to that deadline – and as the rhetoric about the consequences of failing to raise the debt limit have grown increasingly heated – more Americans have been forced to pay closer attention to a subject that in previous years they might otherwise have only followed peripherally, if at all.
Unfortunately, like all dramas the longer the debt ceiling debate goes on, the more complicated it seems to become. And if you’re someone who is just starting to pay attention the debate now, it may feel impossible to follow along. So MainStreet decided to break it down and offer you some cliff’s notes for the debate so far.
What: The debt ceiling currently stands at $14.3 trillion (and change) and represents the maximum amount of money the federal government is authorized to borrow in order to pay off its expenses. In essence, you can think of it as your credit card limit in that you can keep spending money you don’t have to pay off your bills until you max out. The two major differences though are that the U.S. has substantial preexisting commitments that must be paid for and the federal government can’t just charge off the excessive debt it owes to foreign countries in the way that consumers might with their creditors. So if the debt limit isn’t raised by the deadline, the government might have no choice but to cancel some Social Security and Medicare payments.
But in truth, the need to raise the country’s debt ceiling is nothing new. Since 1940, Congress has approved 91 debt ceiling bills, 73 of which raised the limit by varying amounts, while 11 other bills kept the limit constant and extended the period of time it was approved for. Indeed, the debt ceiling was raised 17 times under Ronald Reagan, seven times under George W. Bush and three times so far under President Obama.
What is different this time is just how much debt the country has and also the cast of characters inside and outside the beltway influencing the debate.
Why: If the country’s balance sheet were better, Washington wouldn’t be embroiled in this ongoing debate. But for much of the past decade, America has quite simply been living too deeply in the red.
As of the beginning of 2001, the U.S. was projected to have a budget surplus of more than $2 trillion by 2011. Instead, we’re more than $14 trillion in debt. So what happened? Much of this can be pinned on the tax cuts instituted under President Bush in 2001 and 2003, which account for a whopping 13% of the total change in the country’s debt projections. This, combined with the previous president’s initiatives to launch two wars in the Middle East, create an unfunded Medicare prescription plan and introduce a bailout program for troubled financial institutions, is responsible for much of the debt we have today.