The Debt Limit is a Tax on the Majority

Today the Senate voted 60-39 to increase the federal debt limit from $12.4 trillion to $14.3 trillion. No one is happy that we need to borrow another $1.9 trillion in the next year or two, but the alternative–default–is unthinkable. So let’s hope that the House follows suit when it votes next week.

As expected, today’s vote was entirely party line: 60 Democrats (including the two Independents who caucus with them) voted yea, while 39 Republicans voted nay; one R didn’t vote.

You might be tempted to look at these results and try to read into them some larger ideas about fiscal politics. Perhaps Democrats all voted to increase the debt limit because they are big spenders? Perhaps Republicans will recklessly risk default in their anti-government zeal?

I will leave to you, dear reader, to decide whether such claims have any merit. But please understand that the debt limit vote tells us absolutely nothing about them.

With rare exceptions, votes to increase the debt limit do not involve any real substance. Defaulting remains unthinkable, so the debt limit has to go up. The horse-trading before the final vote may have plenty of substance–this round included a welcome amendment bringing back statutory PAYGO rules as well as an almost-successful effort to create a budget commission–but the final vote is pure politics. The Senate has to deliver a debt limit increase. And that means that the Senate majority has to deliver the votes.

As a matter of politics, then, debt limit votes are a tax on the majority. The majority has to take the hit for increasing the limit, while the minority gets a free ride.

To test this view, I looked at Senate votes on the last five stand-alone increases in the debt limit (three other increases were part of the housing, TARP, and stimulus bills that passed in 2008 and 2009). The chart above shows the fraction of senators in each party who voted to increase the limit.

The results are striking: Back in 2004 and 2006, the Republicans (in red, but do I really need to say that?) controlled the Senate and thus bore the political tax of increasing the debt limit. In those two votes, the Rs accounted for 102 of 104 yeas. In 2009 and 2010, the situation was reversed, as the majority Democrats (yes, in blue) bore the political burden. In those two votes, the Ds (including the Is) accounted for 119 of 120 yeas.

And then there’s 2007, when the two parties shared the burden of boosting the debt ceiling. What explains that rare outburst of bipartisanship? Divided government. In 2007, President Bush had to work with a Democratic Congress to get the debt limit passed. With divided government, the pain had to be shared. In the other four years, however, the President was the same party as the Senate majority.

Bottom line: Sometimes it hurts to be in charge.

For a good summary of past debt limit increases, see this CRS report. For information on Senate votes, start here.

Wondering who the three aisle-crossers were? In 2004, Democrats John Breaux and Zell Miller voted yea. In 2009, Republican George Voinovich voted yea.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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