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Debt limit to rise to $8.18 trillion

With the passage of the debt ceiling increase, the government's borrowing limit has climbed by $2.23 trillion since President Bush took office: by $450 billion in 2002, by a record $984 billion in 2003 and by $800 billion this year.
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

The strict rules that once limited tax cuts and entitlement spending increases lapsed two years ago. Limits on spending lost their teeth. This year, Congress failed to pass a budget altogether.

Last night, with the federal government warning that it was on the verge of defaulting on its debts, the House rejected efforts to reimpose restrictions on tax cuts and spending, then joined the Senate to raise the federal debt limit by $800 billion, to $8.18 trillion.

The collapse of statutory restraints on the growing budget deficit has alarmed Wall Street, befuddled the Treasury Department and elicited calls for a rethinking of the way the government handles its authority to tax its citizens and spend those proceeds.

"The fact is, very little [budgetary restraint] is left in any real form or substance," said Robert D. Reischauer, a former director of the Congressional Budget Office, now president of the Urban Institute.

With last night's passage of the debt ceiling increase, the government's borrowing limit has climbed by $2.23 trillion since President Bush took office: by $450 billion in 2002, by a record $984 billion in 2003 and by $800 billion this year. Just the increase in the debt ceiling over the past three years is nearly 2 1/2 times the entire federal debt accumulated between 1776 and 1980.

A recession, a sluggish economy and five tax cuts in four years — coupled with soaring defense spending on wars in Iraq and Afghanistan and rising domestic spending — have turned record surpluses that Bush inherited into a record deficit of $413 billion in the past fiscal year.

Dollar's declining value
Economists and budget hawks fear that rising deficits are contributing to the steadily declining value of the dollar, which will increase consumer costs, and that those deficits eventually will drive up interest rates and slow the economy.

As the national debt continues to mount, Washington is having difficulty keeping up. In August, Treasury Secretary John W. Snow implored Congress to raise the debt limit to ensure that the Treasury could continue to borrow the money it needed to finance government operations and pay benefits such as Social Security. But with an election looming, lawmakers declined to act.

Last month, the government crashed into the debt ceiling, and the Treasury began borrowing from a civil service retirement fund. On Monday, the Treasury announced it had postponed an auction of short-term Treasury bonds because it was prohibited from borrowing the money. Yesterday, amid continuing uncertainty about Congress's intentions, the agency delayed revealing how many government securities it plans to sell next week. Treasury again warned that the government could default on its debt as soon as today if Congress did not act.

The House convened yesterday morning for a short debate on raising the debt ceiling, then promptly recessed to allow members to attend the opening of Bill Clinton's presidential library in Little Rock. Lawmakers reconvened last night to reject a Democratic motion to reimpose "pay as you go" budgetary rules that would force any increase in entitlement spending or cut in taxes to be funded by equal spending cuts or revenue raisers. Lawmakers later raised the debt ceiling.

Much of the drama amounted to "The Perils of Pauline," Reischauer said, with little real doubt that the damsel in distress on the railroad tracks would be rescued just before the train barreled down upon her.

A blank check?
On Wall Street, however, Congress's lackadaisical response raised eyebrows.

"There's generally a denial that the government would allow itself to default, but some of us are getting a little nervous," said David Wyss, chief economist at Standard & Poor's, the bond rating company, as he watched the House recess yesterday morning without a vote.

By passing such a huge increase in the debt limit, with no strings attached, Congress has effectively given the Bush administration a blank check to continue running large deficits, said Stephen S. Roach, chief economist at Morgan Stanley. "An open-ended license for this kind of fiscal irresponsibility is a recipe for disaster," he said.

Republicans and Democrats in Congress agree that the budget process is badly broken.

Sen. Judd Gregg (R-N.H.), who will chair the Budget Committee next year, said the measure of his success will be "putting in place a very definitive budget with strong enforcement mechanisms on the discretionary and entitlement [spending] side."

Beyond such vows, there is little consensus about what to do, said G. William Hoagland, the top budget aide to Senate Majority Leader Bill Frist (R-Tenn.). The deterioration of tough budgeting has been a slow and steady process. In the 1980s, the size of the annual budget deficit was limited, with rules to force automatic cuts if that ceiling was breached. In the 1990s, similar enforcement mechanisms tried to keep Congress from exceeding annual spending limits and from cutting taxes in such a way that increased the budget deficit. Those rules have now lapsed.

Hoagland said some effort will be made next year to strengthen the authority of the budget committees, possibly by bolstering their membership with party leaders and other committee chairmen. The committees could also be granted the power to usurp other committees' authority if they are not complying with the annual budget blueprint.

But congressional leaders thus far have shown little appetite to rein in deficits through such authority. This year, under White House pressure, House and Senate Republicans simply opted against adopting a 2005 blueprint for tax and spending policy, rather than accede to the wishes of Senate Republican moderates to reimpose pay-as-you-go rules.