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POLICY INSIGHT
BEYOND THE NUMBERS

The Craziness of the Debt Limit Debate

Matt Miller, evoking this scene from the 1980 movie The Shining, contemplated writing a column consisting of the following sentence repeated 30 times:  “The House Republican budget adds $6 trillion to the debt in the next decade yet the GOP is balking at raising the debt limit.”  The real situation is even crazier. Miller’s $6 trillion figure is the amount by which “debt held by the public” would increase under the House budget.  But a different debt measure, “debt subject to limit,” would increase by almost $9 trillion under that budget.  The former measure, which is basically the sum of all past budget deficits minus surpluses, is the right measure to use for assessing the government’s financial condition and the impact of federal borrowing on financial markets, so kudos to Matt for using it.  The latter, however, is what matters for the debt limit debate. Debt subject to limit is a close cousin of “gross debt,” which as I discuss here, is a deeply flawed measure.  In a nutshell, both include money the federal government owes to itself — such as the money the Social Security trust fund has lent to the Treasury in years when Social Security’s earmarked revenues exceeded expenditures.  And as the Congressional Budget Office (CBO) said recently, neither is “a meaningful measure of the government’s future commitments.” Between 1998 and 2001, for example, debt subject to limit continued to grow — even though the country was running budget surpluses and retiring some of the debt held by the public — because the Social Security trust fund was running large surpluses and lending them to the Treasury. The Social Security and Medicare trust funds are projected to grow over the next decade, and their expanded holdings of Treasury securities will add to the debt subject to limit.  That’s why debt subject to limit would grow even faster than debt held by the public under the Ryan budget. Matt Miller is absolutely right that it is hypocritical for Members of Congress to vote for the Ryan plan while railing against an increase in the debt limit that the Ryan plan itself would require.  Engaging in brinksmanship over the debt limit is extremely dangerous as well — and, since debt subject to limit is such a severely flawed measure of the government’s financial condition, just plain crazy.