Facing down the debt limit

Written by Joe Pitts on July 18, 2011, 12:44 PM

There's a video making its way around the Internet trying to visualize what $1 trillion looks like. One hundred million dollars in $100 bills would fit neatly on a wooden pallet. Ten of these pallets would be $1 billion. It would take 10,000 of these pallets to make $1 trillion. You would need quite a warehouse to fit all those bills. You would need more than 14 warehouses to visualize our current national debt, $14.3 trillion.

[Please see bottom of this post for the video being referenced]

Just like a home mortgage, the government pays regular interest to lenders. Debt is bought and sold on open markets. While U.S. banks and citizens own the majority of this debt, foreign holdings have increased to more than 47 percent. We owe countries like China and Japan significant sums of money.

While we certainly owe a lot, we cannot forget that the United States is still the world's largest economy. Our annual Gross Domestic Product is still larger than our debt, $14.6 trillion in 2010.

The great debate in Washington now is whether our nation should take on any more debt. This year, for every dollar in spending, 42 cents will be borrowed. According to the U.S. Treasury Department, the statutory debt limit set by Congress has already been reached. Right now, Treasury is avoiding potential default by suspending investment in government funds, including employee retirement funds.

There is some debate about whether the debt limit should be raised. Some conservatives say that the Treasury Department could avoid default by prioritizing interest payments. There are some liberals who say that debt limit legislation is unconstitutional and Treasury could act without Congressional approval.

While Treasury may have some flexibility in what government accounts it will pay, we have to consider what may go unpaid without an increase in the debt limit. There may be delays in Social Security or Medicare payments. We may not have the resources to pay our troops in the field, or pay for their equipment.

There are other consequences. Each of the debt rating agencies has indicated that they would downgrade the rating for U.S. debt if the limit is not raised. Our current AAA rating means that we pay low interest rates on debt. Just a small downgrade could mean trillions more dollars in debt service over the coming years.

Some may wonder if there is a way to cut spending enough this year to avoid a debt limit increase? Under President Obama's budget, the debt for this year is projected at $1.3 trillion. The most severe spending cut plan in Congress, proposed by Sen. Rand Paul (R-Ky.) cuts only $500 billion.

What do we need to do? The debt rating agencies have threatened to downgrade debt if the limit is not raised, but they have also indicated that our deficit is simply too large. We could also be downgraded if we do not take actions to restore fiscal order.

I support the Cut, Cap and Balance Plan to deal with our debt. This means we need to cut spending now. The House is already working through this year's appropriations bills. These bills will reduce non-security annual appropriations to below 2008 levels.

This year's appropriations bills are a good start, but we need to keep finding savings in the coming years. This means putting in place caps on spending that will reduce spending to sensible levels.

Finally, we need a solid long-term solution to prevent future Congresses from getting us back into the same mess. A balanced budget amendment to the U.S. Constitution would place the same burden on the federal government as most state governments.

Voting to increase the debt limit without long-term solutions would be irresponsible. I believe that it is possible for us to reach a bipartisan agreement that would set our nation on a better course. I was a member of the House Budget Committee my first four years in office. During that time, we balanced the budget despite having government split between the political parties.

We have different philosophies of government, but we all recognize that our current debt situation is unsustainable. Now is the time to come together and recognize that we are spending too much. If we act responsibly now, we have a chance to make lasting change.

U.S. Rep. Joe Pitts is a Republican who has represented Pennsylvania's 16th Congressional District in parts of Berks, Chester and Lancaster counties since 1997.

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