WASHINGTON (MarketWatch) — Congress resists a White House request to raise the limit on how much the U.S. can borrow. The president warns of disaster. And the fight goes down to the wire. Sounds like the current budget standoff, right? Or the famous dustup between President Clinton and a Republican Congress in 1995-1996? Try 1962. That’s when President John F. Kennedy pushed a conservative-leaning Congress to raise the federal debt limit by several billion dollars, implying that failure to do so could harm the military. Some Republicans later accused the administration of political “blackmail.”
Tussles over the U.S. debt ceiling, usually one of the most obscure issues in Washington, have a long history. The debt limit has been raised dozens of times since the mid-1950s and every president since Dwight D. Eisenhower has had to cajole a reluctant Congress. Conservative lawmakers have done most of the carping, even giving trouble to presidents of their own ilk. Republicans Eisenhower, Ronald Reagan and George W. Bush all took flak from normal allies in Congress. In many cases Congress has tried to force presidents, especially members of the other party, to accept unpalatable conditions in exchange for approval. Rarely have they succeeded.
In 1979, for example, some lawmakers tried to attach a balanced-budget amendment to a debt-ceiling increase. They had as much success as the current Republican House, whose effort to push the same amendment was shot down last week. Yet in one sense the latest showdown is different from all the others. The gulf between the White House and Congress is wider than ever — not only because of a huge ideological chasm but also because the nation’s debt is growing so dangerously fast. It’s now set to top $14.3 trillion.
“I’d say this is the worst debt-ceiling crisis in U.S. history because it is linked to the most serious fiscal crisis since the Civil War and the debt ceiling is, of course, a 20th century concoction,” said economist historian Robert Wright of Augustana College in South Dakota. He is the author of “ One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe .”
World War roots
The origins of the debt limit trace to World War One. For the first 125 years of the nation’s history, Congress authorized each sale of Treasury bonds to pay for specific projects, such as construction of the Panama Canal. The Treasury also faced restrictions on the kinds of debt it could issue. Yet the growing size of government at the onset of the war rendered the old manner of handling the public debt obsolete. In 1917, Congress gave the Treasury more flexibility on how much debt it sold and in what form. The law was further simplified in 1939 on the eve of World War Two. Congress gave the Treasury almost unlimited power to decide what securities to sell and how to best manage the nation’s debt, subject to an overall cap.
The limit didn’t pose much problem until President Dwight D. Eisenhower took office. In July 1953, Ike asked the Republican-controlled Congress to raise the debt limit from $275 billion to $290 billion. His own party didn’t get around to passing an increase until one year later — and only to $281 billion. Lawmakers wanted to send a message to keep spending on the low side, according to contemporary accounts. Moves to raise the debt ceiling became an annual staple in the 1960s as federal spending rose to pay for the Vietnam war and the social programs created under The Great Society.
Still, Republicans and Southern Democrats used debt-ceiling requests to attack the Kennedy and Johnson administrations, even as many of them also voted to boost spending in Congress.
By the 1970s political challengers often used the debt limit as a launching pad to attack incumbents, but few voters actually paid attention. What incumbents disliked even more was all the time eaten up by constant debt-limit votes. The standoff in 1979 was a tipping point. Congress gave in to President Jimmy Carter’s request to raise the limit — but not until his Treasury secretary warned that seniors might not get Social Security checks. Such veiled threats have become a time-honored tactic of both Democratic and Republican presidents.
Democratic Rep. Dick Gephardt created a rule to make debt-ceiling increases automatic each time Congress passed a budget that exceeded the cap. “The debt-ceiling vote was always a kind of joke,” said Bill Frenzel, a Republican congressman from 1971 to 1991. “Gephardt felt like we were wasting time on this thing.” It didn’t hurt that the rule protected some lawmakers from potentially painful votes, especially as U.S. debt soared. The debt limit had nearly tripled in 20 years to $879 billion by the end of the Carter presidency in January 1981.
Despite the Gephardt rule, Congress continued to bicker over the debt ceiling. The White House would warn of default, Congress would drag out a vote, and the Treasury would take extreme measures to keep the U.S. under the cap. The Washington rite exasperated many outside observers.
“Each time government borrowing gets close, the ceiling is raised — but not without costly eleventh-hour shenanigans that force the Treasury into devious financing,” a New York Times editorial railed in 1987. In another standoff two years later, a Times editorial complained that “the fight to raise the debt ceiling is a periodic ritual on Capitol Hill, and every battle is surrounded by predictions of fiscal ruin.”
The 1985 battle was worrisome enough that Congress actually passed new rules to give the Treasury more authority to use tricky maneuvers to stave off default. Future Treasury secretaries in both parties would use the new authority to full effect. Until the mid-1990s, however, squabbles over the debt limit were low-level conflicts that rarely caught the public eye. Congress always raised the limit before a default occurred. Even JFK’s fight with Congress was a brief, tame affair that barely created a public ripple.
“Usually it doesn’t work like this,” said Anita Krishnakumar, a St. John’s University law professor who has written about the history of the debt limit. “Calmer heads prevail.”
That all changed in 1995, the precursor to today’s tense stalemate. For the first time ever, a Republican-dominated Congress refused a White House request for a debt-limit increase unless it slashed spending. The result: The federal government mostly shut down. The off-and-on dispute dragged into 1996, forcing Treasury Secretary Robert Rubin to employ every tool in his arsenal to prevent default.
Eventually Congress caved in to President Bill Clinton, who was viewed as the clear political winner. Future Congresses continue to haggle over the debt ceiling — extended delays occurred in 2001, 2003, 2004 and 2005 — but until now none of them were willing to declare open warfare on the White House again. The bitterness of the current dispute has led some to call for abolishing the debt limit, but periodic votes do serve to make politicians accountable to voters for their spending and borrowing decisions. What’s more, the Constitution entrusts the House with primary control over the federal purse strings. Some warn against shifting more power to 1600 Pennsylvania Ave.
“Congress does have to be in charge of borrowing,” Krishnakumar said. “If you eliminate this role, you give total authority to the president.”
Of course, there’s a simple way to avoid future smack downs. Washington could get its act together, experts say, and start to whittle down the nation’s massive debt. Even if they succeed, don’t expect the debt limit to be lowered. Harry “Give ’Em Hell” Truman was president the last time that happened — in 1946.
Jeffry Bartash is a reporter for MarketWatch in Washington
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