A Debt Limit Primer

A DEBT LIMIT PRIMER FROM REPRESENTATIVE STEVE PEARCE:

Dear Friend,

People have been asking me, what is the debt ceiling? Similar to American families who have to take out a loan from the bank when  they need to spend more money than they have in their checking account, Congress must “take out a loan” when they need to spend more money than the country
makes.  When your banker tells you that you can’t borrow any more money, you
have reached your debt ceiling.  In Congress, they must approve a law that sets
the debt ceiling for government spending.  We have reached our debt ceiling at
$14.29 trillion.

Federal law requires Congress to approve the borrowing of any money needed to
pay for programs that it has authorized.  As spending for these programs grows,
so does the debt because the country does not currently make more money than it
spends.  When Congress approves the borrowing of money, they approve a certain
amount, very much like a limit on a credit card.  As the debt grows, it bumps
against the limit that Congress has approved, as it is doing now.

Several plans have been discussed to extend the debt ceiling and keep us from
crashing the economy:

President Obama—White House

On May 24th, 2011, the House of Representatives introduced a bill,
per President Obama’s request, to raise the debt ceiling without any spending
cuts or savings of any kind.  On May 31, 2011, 236 Republicans and 82 Democrats
voted against the bill, which did not pass the House.

Cut, Cap and Balance—House of Representatives

Cut, Cap and Balance was a plan put forward by House Republicans last week.
Under this bill, Congress would have enacted three things:

1)       An immediate cut in spending;

2)       A cap on future spending; and

3)       A balanced budget amendment, which would require Congress to create
its annual budget without spending more than it will receive in revenues during
that given year, must pass the House and the Senate and be sent to the
States.

Cut, Cap and Balance passed the House of Representatives on July 19, 2011 and
was voted down in the Senate on July 22, 2011.

Gang of Six—Senate

The Gang of Six is a bipartisan group of 3 Republican and 3 Democrat
senators.  Their deficit reduction plan is more complicated however, it
contained less cuts and included tax increases on many Americans.  A bill for
the Gang of Six plan was never introduced in the House or Senate.

Boehner Plan—House of Representatives

Mr. Boehner introduced this bill in the House on July 27, 2011.  The Budget
Control Act of 2011 (the Boehner plan) is similar to the Cut, Cap and Balance
plan as it would also:

1)      Cut spending;

2)      Cap future spending; and

3)      Require a balanced budget amendment, which would require Congress to
create its annual budget without spending more than it will receive in revenues
during that given year, pass the House and the Senate and be sent to the
States.

However, unlike Cut, Cap and Balance, it would require Congress to approve an
immediate increase of the debt ceiling for 6 months while a 12-member joint
committee finds additional ways to cut spending.  Those spending cuts must be
more than the second increase in the debt ceiling that Congress would vote on in
January.

 

I hope you find this information helpful as you follow our work to address
the nation’s debt crisis.

Sincerely,

Steve Pearce
http://pearce.house.gov/

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