The 2013 United States debt-ceiling crisis centered on the raising of the federal government
debt ceiling
A debt limit or debt ceiling is a legislative mechanism restricting the total amount that a country can borrow or how much debt it can be permitted to take on. Several countries have debt limitation restrictions.
Description
A debt limit is a l ...
, and is part of an ongoing political debate in the
United States Congress
The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
about
federal government spending and the
national debt
A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
. The crisis began in January 2013, when the United States reached the debt ceiling of $16.394 trillion that had been enacted following the
2011 debt ceiling crisis.
Members of the
Republican Party in Congress opposed raising the debt ceiling, which had been routinely raised previously on a bipartisan basis without conditions, without additional spending cuts. They refused to raise the debt ceiling unless President Obama would have defunded the Affordable Care Act (Obamacare), his signature legislative achievement.
The US Treasury began taking extraordinary measures to enable payments, and stated that it would delay payments if funds could not be raised through extraordinary measures, and the debt ceiling was not raised. During the crisis, approval ratings for the Republican Party declined.
The crisis ended on October 17, 2013 with the passing of the
Continuing Appropriations Act, 2014
The Continuing Appropriations Act, 2014 (; ) is a law used to resolve both the United States federal government shutdown of 2013 and the United States debt-ceiling crisis of 2013. After the Republican-led House of Representatives could not agr ...
, although debate continues about the appropriate level of government spending, and the use of the debt ceiling in such negotiations.
Background
After the passing in early January 2013 of the
American Taxpayer Relief Act of 2012
The American Taxpayer Relief Act of 2012 (ATRA) was enacted and passed by the United States Congress on January 1, 2013, and was signed into law by US President Barack Obama the next day. ATRA gave permanence to the lower rates of much of the "Bu ...
to avert the projected
fiscal cliff
The United States fiscal cliff refers to the combined effect of several previously-enacted laws that came into effect simultaneously in January 2013, increasing taxes and decreasing spending.
The Bush tax cuts of 2001 and 2003, which had been ex ...
, political attention shifted to the debt ceiling.
The debt ceiling had technically been reached on December 31, 2012, when the
Treasury Department commenced "extraordinary measures" to enable the continued financing of the government.
The debt ceiling is part of a law (Title 31 of the United States Code, section 3101) created by Congress. According to the
Government Accountability Office
The U.S. Government Accountability Office (GAO) is a legislative branch government agency that provides auditing, evaluative, and investigative services for the United States Congress. It is the supreme audit institution of the federal govern ...
, "The
debt limit
A debt limit or debt ceiling is a legislative mechanism restricting the total amount that a country can borrow or how much debt it can be permitted to take on. Several countries have debt limitation restrictions.
Description
A debt limit is a l ...
does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred."
It does not prohibit Congress from creating further obligations upon the United States. The ceiling was last set at $16.4 trillion in 2011.
On January 15, 2013,
Fitch Ratings
Fitch Ratings Inc. is an American credit rating agency and is one of the " Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) ...
warned that delays in raising the debt ceiling could result in a formal review of its credit rating of the U.S., potentially leading to it being downgraded from AAA. Fitch cautioned that a downgrade could also result from the absence of a plan to bring down the deficit in the medium term. Additionally, the company stated that "In Fitch's opinion, the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline."
Debate
In a press conference held on January 14, 2013, President Obama stated that not raising the debt ceiling would cause delays in payments including benefits and government employees' salaries and lead to default on government debt.
[ President Obama urged Congress to raise the debt ceiling without conditions to avoid a default by the United States on government debt. Raising the debt ceiling was also supported by ]Ben Bernanke
Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Fed, he was appointed a distinguished fellow at the Brookings Institution. Durin ...
, chairman of the Federal Reserve.
Republican Speaker of the House, John Boehner
John Andrew Boehner ( ; born , 1949) is an American retired politician who served as the 53rd speaker of the United States House of Representatives from 2011 to 2015. A member of the Republican Party, he served 13 terms as the U.S. represe ...
and the Senate Republican minority leader, Mitch McConnell
Addison Mitchell McConnell III (born February 20, 1942) is an American politician and retired attorney serving as the senior United States senator from Kentucky and the Senate minority leader since 2021. Currently in his seventh term, McConne ...
as well as other Republicans argued that the debt ceiling should not be raised unless spending is cut by an amount equal to or greater than the debt ceiling increase. Republicans also argued that the Treasury can avoid debt default by prioritizing interest payments on government debt over other obligations.[ ]Heritage Action for America
Heritage Action for America, more commonly known simply as Heritage Action, is a conservative policy advocacy organization founded in 2010. Heritage Action, which has affiliates throughout the United States, is a sister organization of the conser ...
, the Family Research Council
The Family Research Council (FRC) is an American evangelical activist group and think-tank with an affiliated lobbying organization. FRC promotes what it considers to be family values. It opposes and lobbies against: access to pornography, emb ...
and the Club for Growth
The Club for Growth is a 501(c)(4) conservative organization active in the United States, with an agenda focused on cutting taxes and other economic policy issues. Club for Growth's largest funders are the billionaires Jeff Yass and Richard U ...
argued that a rise in the debt ceiling should be accompanied by a plan to balance the budget within ten years, through reduced spending in the discretionary budget as well as for entitlements.
Several Democratic House members, including Peter Welch
Peter Francis Welch (born May 2, 1947) is an American lawyer and politician who is a United States senator-elect from Vermont, and the current U.S. representative for since 2007. A member of the Democratic Party, he has been a major figure in ...
, proposed removing the debt ceiling altogether. This proposal found support from some economists such as Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics
The Peterson Institute for International Economics (PIIE), known until 2006 as the Institute for International Economics (IIE), is an American think tank based in Washington, D.C. It was founded by C. Fred Bergsten in 1981 and has been led by ...
. A survey of 38 economists found that 84% agreed that a separate debt ceiling that is periodically increased could lead to uncertainty and poor fiscal outcomes.
Debt ceiling suspension
In mid-January, Paul Ryan
Paul Davis Ryan (born January 29, 1970) is an American former politician who served as the List of Speakers of the United States House of Representatives, 54th speaker of the United States House of Representatives from 2015 to 2019. A member o ...
, Chairman of the House Budget Committee
The United States House Committee on the Budget, commonly known as the House Budget Committee, is a standing committee of the United States House of Representatives. Its responsibilities include legislative oversight of the federal budget process, ...
, floated the idea of a short-term debt ceiling increase. He argued that giving Treasury enough borrowing power to postpone default until mid-March would allow Republicans to gain an advantage over Obama and Democrats in debt ceiling negotiations. This advantage would be due to the fact that postponing default until mid-March would allow for a triple deadline to be in March: the sequester
Sequestration or sequester may refer to:
Law and government
* Sequestration (law), the seizure of property for creditors or the state. See also Committee for Compounding with Delinquents
* Jury sequestration, the isolation of a jury
* Bankruptcy, ...
on March 1, the default in the middle of the month, and the expiration of the current continuing resolution
In the United States, a continuing resolution (often abbreviated to CR) is a type of appropriations legislation. An appropriations bill is a bill that appropriates (gives to, sets aside for) money to specific federal government departments, ag ...
and the resulting federal government shutdown on March 27. This was supposed to provide extra pressure on the Senate and the President to work out a deal with the Republican-led House.
Shortly after that, the House learned that the Senate had not passed an independent budget plan since April 2009. House Republicans quickly came up with an idea that would suspend the debt ceiling enough to allow time for both chambers of Congress to pass a budget.
On February 4, 2013, President Obama signed into law the "No Budget, No Pay Act of 2013
The No Budget, No Pay Act of 2013 (; ) is a law passed during the 113th United States Congress. The Act temporarily suspended the US debt ceiling from February 4 to May 18, 2013. It also placed temporary restrictions on Congressional salaries.
B ...
", which suspended the U.S. debt ceiling through May 18, 2013. The bill was passed in the Senate one week previously by a vote of 64–34, with all "no" votes from Republican senators, who were critical of the lack of spending cuts that accompanied an increase in the limit. In the House, the bill passed the week before by a vote of 285–144, with both parties voting in favor. In the House, Republican representatives attached a provision to mandate the temporary withholding of pay to members of Congress if they did not produce a budget plan by April 15. Pay would be reinstated once a budget was passed or on January 2, 2015 (the last day of the 113th Congress), whichever came first. Under the law, the debt ceiling would be set on May 19, 2013 to a level "necessary to fund commitment incurred by the Federal Government that required payment."
Developments during suspension
On March 1, the sequester
Sequestration or sequester may refer to:
Law and government
* Sequestration (law), the seizure of property for creditors or the state. See also Committee for Compounding with Delinquents
* Jury sequestration, the isolation of a jury
* Bankruptcy, ...
, cutting $1.2 trillion over the next decade, went into effect after the parties failed to reach a deal. On March 21, the House passed a FY 2014 budget that would balance the United States budget in 2023. This was a shorter period than envisaged in their 2013 budget, which balanced in 2035, and the 2012 budget, which balanced in 2063. It passed the House on a mostly party-line 221–207 vote. However, later that day, the Senate voted 59–40 to reject the House Republican budget. On March 23, the Senate passed its own 2014 budget on a 50–49 vote. The House refused to hold a vote on the Senate budget. On April 10, the President released his own 2014 budget, which was not voted on in either house of Congress. Throughout March and April, there were several developments that reduced the sequester's impact. The bill that extended the government's continuing resolution to September 30 lessened the sequester's effect on defense, and later bills removed furloughs for air traffic control and food service industries.
Debt ceiling reached again
On May 19, the debt ceiling was reinstated at just under $16.7 trillion to reflect borrowing during the suspension period. As there was no provision made for further commitments after the ceiling's reinstatement, Treasury began applying extraordinary measures once again.
Despite earlier estimates of late July, Treasury announced that default would not happen "until sometime after Labor Day
Labor Day is a federal holiday in the United States celebrated on the first Monday in September to honor and recognize the American labor movement and the works and contributions of laborers to the development and achievements of the United St ...
". Other organizations, including the Congressional Budget Office
The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.
Inspired by California's Legislative Analyst's Office that manages ...
(CBO), projected exhaustion of the extraordinary measures in October or possibly November.
On August 26, 2013, Treasury informed Congress that if the debt ceiling was not raised in time, the United States would be forced to default on its debt sometime in mid-October.
On September 25, Treasury announced that extraordinary measures would be exhausted no later than October 17, leaving Treasury with about $30 billion in cash, plus incoming revenue, but no ability to borrow money. The CBO estimated that the exact date on which Treasury would have had to begin prioritizing/delaying bills and/or actually defaulting on some obligations would fall between October 22 and November 1.
October 2013 debt ceiling debate
Obama and Republicans disagreed on the terms of raising the nation's debt limit, and even as to whether the debt limit should even be a subject of negotiation.
House Republicans described a number of policies they wanted to enact before they would agree to increasing the debt ceiling beyond October 2013:
:* Long term debt ceiling increase (allowing Treasury to borrow for the rest of Obama's term): privatize Medicare and/or Social Security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specificall ...
.
:* Medium term debt ceiling increase (allowing Treasury to borrow until sometime in 2015): cut food stamps, use the chained consumer price index (CPI), tax reform, agree to enact block-grant Medicaid or a large raise in the retirement age.
:* Short term debt ceiling increase (postponing default until sometime in the first half of 2014): means testing of Social Security, a small raise in the retirement age or ending agricultural subsidies
An agricultural subsidy (also called an agricultural incentive) is a government incentive paid to agribusinesses, agricultural organizations and farms to supplement their income, manage the supply of agricultural commodities, and influence the ...
.
Obama, in turn, asserted that the 2013 sequestration cuts already represent a budget compromise, and that he does not intend to negotiate further on the issue of debt repayment. However, the president said that he would be willing to negotiate on almost any issue after a clean bill to reopen the government and increase the debt ceiling has been passed.
In September 2013 the House of Representatives drafted a bill that would postpone default for approximately twelve months from its passage. The bill also included a one-year delay in implementation of the Patient Protection and Affordable Care Act
The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presi ...
, a requirement for both houses of Congress to vote on tax reform plans by the end of 2013, and a fast-track process to begin construction of the Keystone XL Pipeline
The Keystone Pipeline System is an oil pipeline system in Canada and the United States, commissioned in 2010 and owned by TC Energy and as of 31 March 2020 the Government of Alberta. It runs from the Western Canadian Sedimentary Basin in Albert ...
. However, the bill was not voted on by the House or Senate due to some members of the House Republican caucus believing that the bill did not make deep enough spending cuts to be worthy of Republican support.
The US Government went into a partial shutdown on October 1, 2013, with about 800,000 Federal employees being put on temporary leave. Treasury Secretary Jack Lew
Jacob Joseph Lew (born August 29, 1955) is an American attorney and politician who served as the 76th United States Secretary of the Treasury from 2013 to 2017. A member of the Democratic Party, he also served as the 25th White House Chief of S ...
reiterated that the debt ceiling would need to be raised by October 17.
In early October 2013, the House drafted a bill that would raise the debt ceiling without conditions through November 22, but keep the partial government shutdown in place. However, it died due to insufficient support among both House Republicans and House Democrats.
Resolution
On October 16, the Senate passed the Continuing Appropriations Act, 2014
The Continuing Appropriations Act, 2014 (; ) is a law used to resolve both the United States federal government shutdown of 2013 and the United States debt-ceiling crisis of 2013. After the Republican-led House of Representatives could not agr ...
, a continuing resolution
In the United States, a continuing resolution (often abbreviated to CR) is a type of appropriations legislation. An appropriations bill is a bill that appropriates (gives to, sets aside for) money to specific federal government departments, ag ...
, to fund the government until January 15, 2014, and suspending the debt ceiling until February 7, 2014, thus ending the 2013 United States federal government shutdown and debt-ceiling crisis.
It set up a House–Senate budget conference to negotiate a long-term spending agreement, and strengthened income verification for subsidies under the Patient Protection and Affordable Care Act
The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presi ...
. The Senate vote was 81–18 in favor, with 1 member absent due to illness. The House passed the bill unamended later that day, by a vote of 285–144, with 3 members absent due to illness. The President signed the bill early the next morning on October 17. Under the resolution, the debt ceiling debate and partial government shutdown were postponed, with federal workers returning to work on October 17.
On January 14, 2014, the House and the Senate Appropriations Committees agreed on a spending plan that would fund the federal government for two years. A bill extending the previous continuing resolution through January 18 was also passed. On January 16, 2014, Congress passed a $1.1 trillion appropriations bill that will keep the federal government funded until October 2014. President Obama signed the appropriations bill into law on January 18.
On February 7, 2014, the debt limit suspension expired and treasury began applying extraordinary measures once again, warning that such measures would not last beyond February 27 due to large tax refunds that would need to be paid during February. On February 11, after finding insufficient support for various conditions for increasing the debt ceiling, the House passed a bill suspending the debt ceiling without conditions through March 15, 2015. The Senate passed the bill unamended on February 12, 2014, and it was signed into law as Public Law 113-83 by the President on February 15.
Reaction
Effect on United States debt rating
Just as during the 2011 debt ceiling crisis, the 2013 crisis caused rating agencies to re-evaluate the rating of US government debt. On October 15, Fitch Ratings
Fitch Ratings Inc. is an American credit rating agency and is one of the " Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) ...
placed the United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
under a "Rating watch negative" in response to the crisis. On October 17, Dagong Global Credit Rating
Dagong Global Credit Rating () is a state-owned credit rating agency based in China.
History
The company was established in 1994, following approval by the People's Bank of China and the State Economic and Trade Division of the People's Republ ...
downgraded the United States from A to A−, and maintained a negative outlook on the country's credit.
Effect on the U.S. Stock Market
According to a Morningstar analysis of debt-ceiling and government shutdown situations, the U.S. stock market remained relatively unchanged during the 2013 crisis period.
Political aftermath
In the immediate aftermath of the crisis opinion polls showed approval to drop for the Republican Party. Polls showed that Americans blamed the Republicans more for the shutdown than President Barack Obama by a margin of 22 points (53 percent to 31 percent). Another poll showed a 74% disapproval rating of the way Republicans handled the crisis while 61% disapproved of the way Democrats handled the budget talks. According to a Gallup Poll
Gallup, Inc. is an American analytics and advisory company based in Washington, D.C. Founded by George Gallup in 1935, the company became known for its public opinion polls conducted worldwide. Starting in the 1980s, Gallup transitioned its bu ...
, "60 percent of respondents said that a third major party is needed to represent the American people", an all-time high.
See also
* Budget Control Act of 2011
The Budget Control Act of 2011 () is a federal statute enacted by the 112th United States Congress and signed into law by US President Barack Obama on August 2, 2011. The Act brought conclusion to the 2011 US debt-ceiling crisis.
The law inv ...
* European sovereign debt crisis
The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone membe ...
* History of United States debt ceiling
The history of the United States debt ceiling deals with movements in the United States debt ceiling since it was created in 1917. Management of the United States public debt is an important part of the macroeconomics of the United States economy ...
* 2007–2008 financial crisis
*
* United States federal government credit-rating downgrades
* 2011 United States debt-ceiling crisis
The 2011 United States debt-ceiling crisis was a stage in the ongoing political debate in the United States Congress about the appropriate level of government spending and its effect on the national debt and deficit. The debate centered on the ...
* 2013 United States federal government shutdown
* 1995–1996 United States federal government shutdowns
References
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2013 in economics