I’m just a poor humble lawyer with an accounting degree but I’ve no idea how governmental finance works, so could someone please explain to me why the US government has to enact both a budget AND a separate debt ceiling. One would think they would be interrelated and enacted together, but obviously they’re not. Could some smart person here explain that to me? Thanks.
Mods, could you kindly fix my typo in the subject heading. It should be “explain” rather than “explained”. Thanks. :smack:
Before the debt ceiling, Congress had to pass laws every time the government borrowed money. At a certain point, they decided to allow the government to borrow whenever it needs it, up to a set ceiling. You have to pass a budget each year, but, in general, the debt ceiling doesn’t have to be changed (nowadays, it does, but there are unusual times financially).
The budget says how much the government plans to spend on each and every thing throughout the year (not including supplementary appropriations that will be made later.) But it doesn’t say how the government will come up with this money. Some of it will come from taxes, and some will have to be borrowed. The government doesn’t know exactly how much tax revenue they’re going to get every year (though they can make predictions with a certain degree of confidence) and they don’t know what emergency expenditures will arise after the main budget passes.
So they give the US Treasury Department the power to collect taxes according to the law and to issue as much debt as is required. But they don’t want the Treasury to go nuts and issue huge amounts of debt against the will of Congress, so there is a set ceiling enacted by statute. If the Treasury then wants to issue more debt, Congress has to change the ceiling.
The easiest answer is that US Congress chooses to operate in this fashion. Plenty of governments do not. There is no technical reason as to why they should.
There are actually two kinds of budgets that the government is supposed to pass.
One is the budget resolution. After the President submits his budget proposal each February, Congress is supposed to take that document and turn it into a blueprint for its spending and revenue priorities. The budget resolution is not law. It does not directly spend or raise any money, but it can direct that Congress take certain actions in how it should prioritize spending and revenue. Think of this as like a household budget that you draw up: it says that you will spend $2000 a month on your mortgage, $350 a month on your car, etc., but simply drafting up that budget doesn’t actually transfer a single cent to your bank or car dealer. Therefore, the budget resolution is a total look at the budget picture, and will estimate how much of a deficit or surplus (ha!) the government will have each year.
The other “budget” is the appropriations process. Ideally, one the budget resolution decides how much money the government will spend in a year, Congress must pass various appropriations bills to actually make money available for most government functions: defense, highways, NASA, etc. (Entitlements, like Social Security or Medicare, are programs on autopilot: laws do not have to be passed each year to provide funds for entitlements.) Appropriations bills are analagous to your employer direct-depositing funds to your checking account. The money is now available and the Executive branch can go out and spend it in accordance with law.
It is not guaranteed that Congress must pass a budget resolution each year. Congress must pass appropriations bills or the government shuts down.
Now to the specific question: since the budget resolution has the overall look at spending, revenue, and deficits, Congress is generally informed on how much debt is racking up. In the past, there has been a correlation between passing the budget resolution and increasing the debt limit (you can google the Gephardt Rule).
However, that link between the budget resolution and the debt limit is a political football. Republicans who are deficit hawks have sought to make it more politically painful to pass increases to the debt limit, and sought to separate the debt limit increases into a separate vote.
To the even more general question, however, the 14th Amendment is generally interpreted to require that Congress authorize by law the amount of debt the government can issue.