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.

4 thoughts on “The Debt Limit is a Tax on the Majority”

  1. Donald,

    Re: 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.

    Actually, there is a third option, one that does not cause or risk default yet provides another shot at creating the budget commission: a smaller, shorter-term measure to increase the debt limit, but require another vote in the very near future — as in a month or two prior to the November elections perhaps — on increasing the debt limit. That’s what Conrad and others achieved last December, giving them the shot at the commission earlier this week, and it’s an option that could have done so again (if it had been offered and passed, of course).

    Instead, per CNN:

    Conrad and several of the moderate Democrats who had been resisting the increase earlier ended up voting for it on Thursday.

    Conrad said he got written assurances that Reid and House Speaker Nancy Pelosi, D-Calif., would bring the presidential commission’s recommendations to a vote before the end of the year.

    As for Pelosi’s written commitment, I hope the paper it’s written on is worth something, because otherwise Conrad may be holding something completely worthless. If I were Conrad I wouldn’t go around waving it in the air a la Neville Chamberlain and claiming to have achieved “fiscal responsibility for our time”

  2. The debt limit is always used for political gamesmanship. The real choices are made when Congress votes to enact or continue spending programs like SCHIPS, WIC, Medicare, etc. The discretionary spending is only a small part of the budget, the majority of spending is mandatory, on Medicare and the like. Without cuts to social programs, there’s no way to bring the budget into balance.

    As for Conrad and the commission, wouldn’t be surprised if they recommended huge tax increases. The whole purpose of the commission is to provide political cover for the Senators not involved in the commission. They’ll say something like, “I’m only doing what the commission recommended, they’ve studied the matter thoroughly and I have to vote for a tax increase”. Hahaha, right. That’s why Republicans didn’t want to be a part of the commission at all. Why have a good number of your senators take blame when they have no real power in the commission? The way it’s structured, Democrats have the majority and will control the outcome. There’s no reason to get involved in that commission when everyone knows it will recommend tax increases.

    1. BJ Feng,

      Re: Why have a good number of your senators take blame when they have no real power in the commission?

      Is your objection based on that premise alone OR do you object simply on the basis that a recommendation from a commission would almost surely include tax increases* and would provide political cover for those tax increases and thus make their passage more likely?

      1) Would you favor or oppose a commission if Republicans had equal representation and equal power?

      2) What if Republicans would have enough power to block any recommendation that did not get a majority of the votes of Republican commission members?

      3) Do you think it’s realistic (politically) to think that, if the right blocks any compromise that includes both tax increases and reductions in projected spending, there is a decent chance that the long-term fiscal imbalance problem will be solved entirely by reducing projected non-Defense spending (or even all on the spending side including Defense)?

      * It’s important to note, by the way, that much of what would be viewed by most people as tax increases — reduction/elimination of tax deductions/credits such as those pertaining to mortgage interest or health insurance benefits — would really be, in effect, reductions in spending (subsidies), because in terms of effect on all involved, that’s the nature of tax expenditures.

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