U.S. Debt Ceiling vs. U.S. Deficit

By MEGAN WILLIAMS/Staff Writer

The national debt ceiling, as the topic of discussion for the past two weeks, has raised eyebrows and confusion. These are from the misconceptions and nuances the national debt ceiling (or as it’s often called, “debt limit”) and deficit receive in discussion. 

To put it in perspective, when one searches the U.S. debt clock they are met with a nearly $32 trillion rapid debt increase. The debt represents the total outstanding amount of money borrowed to help pay national bills. 

Annually, when the government spends over than it takes in, that creates a deficit. A deficit is an “annual shortfall between the tax revenue that the government has to spend and its expenses,” said Professor Susan Doty, an Economics professor at UT Tyler. The annual deficit on the debt clock is the $ 1,567 trillion that was approved from the previous year by Congress. 

We automatically associate this debt increase with additional spending from the government.  However, once Congress votes to raise the debt ceiling, the increased borrowing pays for already-approved spending, not new spending. 

 

National Debt Ceiling

Established in 1917, the National Debt Ceiling was created by Congress as a legal “cap” of how much the Treasury could borrow. The debt ceiling is the cumulative total from past deficits and surpluses since its establishment. . The debt ceiling as we know is steadily increasing by the second. Every second the total amount borrowed increases; we must consider the interest owed.

Interest is the cost of borrowing money. Every annual deficit adds to the total debt, which increases interest owed. The U.S. interest owed is at a whopping $523,622 billion, which is viewable on the debt clock. The three big bills, along with interest owed, include Medicare/Medicaid, Social Security, and Defense/War. 

Who Owns the Debt?

What I have learned is that when the government runs a deficit, two sources of money are considered: internal and external. Using internal sources means to shuffle money within governmental accounts, such as borrowing from the Federal Reserve system or Social Security fund. External sources mean selling bonds to individual investors or foreign governments. The bond is expected to be paid back with interest from the government, so think of it as a loan.  

The two kinds of debt owned are intragovernmental and public. The federal reserve, social security and other government agencies own 22% of the debt. Individual investors, institutions and foreign governments own 78% of the debt.

When you think about that grand sum from the debt clock, that was from all approved spending made by Congress. If the government spends over for this year, we go into deficit, which adds to our substantial debt. When Congress adds a deficit, unfortunately it increases the debt ceiling. That is us spending over the budget, year after year, which creates a problem with bills that the government owes and has promised to pay. 

The Fiscal Ship Game

If you want to challenge yourself with creating a balanced budget of tax and spending options over the course of an imaginary 25 years, check out The Fiscal Ship game. This game was created by the Hutchins Center at Brookings Institution and the Serious Games Initiative at the Woodrow Wilson Center. Remember that this game is not about decreasing the debt ceiling we incurred.

The game is challenging, but the goal of making good choices surrounding budget decisions — just like in real life– is achievable. 

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