Increasing the Public Debt Limit

INCREASING THE PUBLIC DEBT LIMIT-Continued -- (Senate - November 17, 2004)

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Mr. GRASSLEY. Mr. President, I rise in support of S. 2986, a bill to increase the Federal debt limit.

I support this increase because it is necessary to preserve the full faith and credit of the U.S. Government.

Without an increase in the debt limit, our Government will face a choice between breaking the law by exceeding the statutory debt limit, or breaking faith with the public by defaulting on our debt. Neither choice is acceptable.

To understand why we are here today seeking to increase the debt limit, it is necessary to explain a few things about the Federal debt.

Under current law, there is a statutory limit on the amount of debt that can be issued by the Federal Government. This limit which now stands at $7.384 trillion applies to virtually all of the debt issued by the U.S. Government.

There is only one debt limit, but there are two types of debt-debt held by the public and debt held by the various Government trust funds.

The amount of Federal debt held by the public is determined by the Government's annual cash-flow. When total spending exceeds total taxes, the Government has a budget deficit.

To finance this deficit, the Government borrows from the public by selling debt, such as Treasury bills, notes, and bonds.

We will hear a lot of criticism that President Bush's tax cuts are responsible for our rising public debt. But the facts show otherwise.

When President Bush took office in 2001, the Federal debt limit was $5.95 trillion.

The debt limit was increased to $6.4 trillion in 2002 and to $7.384 trillion in 2003.

Assuming we increase the debt limit again today, it will be $8.184 trillion.

Thus, the Federal debt limit will have increased $2.234 trillion since President Bush took office in 2001.

However, the tax cuts that have been enacted since 2001 total less than $700 billion through the end of the most recent fiscal year, and that includes the interest cost as well.

Thus, the President's tax cuts account for less than 30 percent of the increase in the Federal debt limit.

The rest of the increase in public debt is due to the recession, the war in Iraq, and homeland security.

In addition to the debt held by the public, the Federal debt limit also applies to the debt held by various Government trust funds-such as Social Security and Medicare.

Whenever a trust fund program collects more than it spends, the surplus is invested in special issue Treasury securities. These special securities count toward the debt limit.

However, it is important to understand the amount of debt held by the trust funds does not reflect the Government's unfunded obligations.

For example, the Treasury Department reports that the total amount of Federal debt held by all of the trust fund programs is just over $3 trillion.

However, the Social Security and Medicare trustees report that the unfunded obligation of Social Security and Medicare is more than $72 trillion.

Given these facts, it should be obvious to everyone that the Federal debt limit provides a misleading and inaccurate picture of the Government's future liabilities.

Efforts to use the statutory debt limit to control Government debt and deficits cannot succeed because it ignores the long-term budget problem.

Indeed, even Federal Reserve Chairman Alan Greenspan has suggested the debt limit has outlived its usefulness and should be replaced with a more accurate and useful alternative.

I would welcome the opportunity to work with my colleagues to develop such an alternative.

However, pending the outcome of such an effort, I would strongly urge every Senator to support this bill.

Testimony of Chairman Alan Greenspan in the Federal Reserve Board's semiannual monetary policy report to the Congress before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, February 11, 2003:

In the Congress's review of the mechanisms governing the budget process, you may want to reconsider whether the statutory limit on the public debt is a useful device. As a matter of arithmetic, the debt ceiling is either redundant or inconsistent with the paths of revenues and outlays you specify when you legislate a budget.

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