The latest in what seems to be a steady series of budget twists is that increasing the federal debt ceiling is likely to be the first big fight of 2002.
First, a bit of history: The federal debt limit was last raised in 1997 as part of the budget deal between the Clinton administration and Congress. The size of that increase was based on the assumption that the deficit would steadily decline until the budget was balanced by the end of fiscal 2002.
When the deficit unexpectedly became a surplus four years ahead of schedule in fiscal 1998--and as the surpluses for fiscal 1999 and beyond kept growing to previously unimaginable levels--the debt-ceiling increase that was projected to get the government through fiscal 2002 suddenly seemed to be high enough to last through fiscal 2008. It appeared unlikely that President Bush, even if re-elected in 2004, would have to deal with this issue at all.
That all changed, however, as the projected big surpluses first started to decline last year and then changed to deficits. All of a sudden, the debt ceiling was not only too low to get the federal government through 2008, but it appeared inadequate even to cover all of 2002. This is why Treasury Secretary Paul O'Neill last week formally requested that Congress raise the debt ceiling by $750 billion as soon as it returns to work later this month.
All of which brings to the forefront a testy budget issue the administration and Congress had hoped and expected to avoid. It also forces Democrats and Republicans to deal publicly with a number of other high-profile budget issues early in the year, months before other procedural requirements would have required them to do so.
This will be a very different fight from the last time the debt ceiling was an issue. In 1995 and 1996, the new Republican majority in Congress tried to withhold an increase in the federal borrowing limit until the Clinton administration agreed to a variety of policy changes. That strategy was based on what was then the commonly accepted wisdom that the federal government would effectively be broke as soon as the old ceiling was reached and so would default on its obligations if the borrowing limit were not raised.
Thanks in part to skillful maneuvering by then-Treasury Secretary Robert Rubin and a great deal of misunderstanding about government borrowing that had built up over the years, that common wisdom on the debt ceiling turned out to be false. The federal government did not instantly turn into a fiscal pumpkin, as many had believed it would when the debt ceiling was not raised. The Clinton White House never felt the pressure that many in Congress had hoped to impose.
This relatively recent experience will almost certainly temper much of what some members of Congress might like to extract from the debt-ceiling debate this year. Threatening not to pass the legislation simply is not as much of a weapon as it was once thought to be.
In addition, it is virtually inconceivable that Congress will refuse to raise the government's borrowing limit with troops conducting military operations overseas and cash needed to pay for their expenses.
This does not mean that the debt-ceiling increase will be controversy-free, though.
In light of Senate Majority Leader Tom Daschle's speech last Friday about the Bush administration being to blame for the deficit, Democrats are likely to use the debate on the debt ceiling to try to force the White House to defend itself on the declining budget outlook--and to pressure congressional Republicans to defend the White House. Before agreeing to an increase, Democrats are likely to demand their pound of political flesh by insisting that O'Neill, Office of Management and Budget Director Mitch Daniels and others testify about why the debt-ceiling increase is needed.
Moreover, it is extremely unlikely that Democrats will agree to raise the debt ceiling by as much as the administration has requested; a $750 billion increase would be large enough to get the government through the 2004 election. It is far more likely that Democrats will choose to keep the government borrowing (and re-emerging deficit) issue alive through 2004 and this time agree to raise the ceiling by perhaps half of what the White House is seeking.
It is also possible that there will be more than one debt-ceiling increase this year. Democrats may be willing to agree only to a short-term increase to allow the government to keep borrowing until the budget is debated in May and June. The debt ceiling would then be raised by only enough to get through early next year, when the debate would continue and the administration would have to face the same issues again.
All in all, it should make for an interesting February...
