On September 8, the national debt increased by over $300 billion, surpassing $20 trillion for the first time in history -- a symbolic reminder of the federal government’s flawed fiscal policy. But how exactly did we get to this point, and why was there such a sharp increase in a single day?
The debt limit changes over the last couple of years are integral to the story. The debt limit is a legislative creation that prevents the Treasury Department from borrowing money above a set amount. The limit was temporarily suspended in November of 2015, allowing the Treasury to freely borrow whatever was needed to meet federal obligations until March 16, 2017.
Once the suspension expired in March, the debt limit was automatically reinstated and Treasury was forced to stop borrowing at an amount just below $20 trillion. Because the federal government was required by law to continue spending more money than it raised in tax revenues, Treasury utilized so-called “extraordinary measures,” such as delaying contributions to federal employee retirement funds, to avoid missing payments and jeopardizing our nation’s creditworthiness.
On Sept. 8 President Trump signed bipartisan legislation to once again suspend the debt limit. Treasury was finally able to complete all the transactions postponed by the use of extraordinary measures, and the national debt surged by over $300 billion in a day. This series of events serves as a microcosm of our debt story at large: the debt may have surged in one day, but the policies that led up to it had been racking up obligations months ahead of time.
It is important to understand that the national debt is the result of policy decisions made in the past. A structural mismatch between spending and revenues requires the government to borrow the difference; only by correcting that imbalance through spending reductions and/or revenue increases can policymakers ease our growing debt burden.
Attempts to avoid these hard choices only delay the inevitable. The lesson is clear: Rather than focusing on the debt number itself, policymakers should address the underlying fiscal policies that feed into it. That means addressing the fiscal pressures on programs like Social Security and Medicare, containing health care costs, and ensuring the tax system efficiently raises adequate amounts of revenue.