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Government shutdown Q&A: Why it's about to get more complicated

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Like many bad things in life, the current standoff over money to keep federal programs running has proved easier to stumble into than to get out of. Now the stalemate is about to get more complex. The reason: Congress has a second deadline to deal with. This one involves the federal debt limit.

Senate Majority Leader Harry Reid of Nevada, who has been the chief Democratic strategist in the current standoff, explicitly linked the two issues in comments Wednesday evening after a meeting at the White House. “We have a debt ceiling staring us in the face,” he said in explaining the Democrats’ position. Republican leaders also have begun discussions about how to sell a debt-ceiling increase to their members.

Here’s what you need to know:

What is the debt ceiling?

The U.S. has had a debt every year of the country’s history except for 1835. In World War I, Congress for the first time passed a law to limit how much debt the government could have. That limit has been raised many times since and now stands at $16.7 trillion.

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Why does the limit need to be raised?

The government spends more than it raises in taxes and other revenues — that gap is the annual budget deficit, and the government borrows money to cover it. The government has run a deficit in all but four years since 1970. The annual deficit has shrunk a lot recently, but it’s still sizable. Whenever the government has to borrow, the debt grows. The debt hit the current limit in May. Since then, the government has used various accounting measures to conserve cash, but the extension those  techniques provided will only last a little while longer. Then, either Congress has to raise the limit, or the government will no longer be able to pay all the nation’s bills.

What’s the deadline?

Treasury Secretary Jack Lew has told Congress that the current “extraordinary measures” will provide enough cash only until Oct. 17. After that, Lew said in a letter on Tuesday, “it would be impossible for the United States of America to meet all of its obligations for the first time in our history.”

Would the government be unable to pay bills immediately?

Probably not, but the risk would be real. The government will still have income from tax revenues — about $30 billion each day. Over time, however, that income will cover only about two-thirds of the bills that come due. The government’s bills are not spread evenly throughout the month — some days’ needs are much bigger than others. The uneven nature of expenses makes it hard to know for sure on which day the crunch would hit. A nonpartisan outside group, the Bipartisan Policy Center, estimates that the date for nonpayment of some bills would fall between Oct. 18 and Nov. 5.

What would happen if the government couldn’t pay all its bills?

No one really knows because Congress has never refused to raise the debt ceiling. But economists, business leaders and others warn that any hint of a U.S. default on its obligations could severely rattle financial markets, cause interest rates to rise and, perhaps, trigger another financial crisis. In a report Thursday morning the Treasury Department warned of “catastrophic economic consequences” if the debt ceiling were not raised on time, as Times staff writer Jim Puzzanghera reports.

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Could the government pay some bills but not others?

Government lawyers say they lack legal authority to pick and choose. Moreover, decisions to pay bondholders but delay Social Security checks, or to pay for Medicare but not military supplies would be politically almost impossible. Instead, what the Treasury has considered doing is paying as many bills as possible and postponing some payments until more cash accrues. The problem, of course, is that the amount of unpaid bills accumulates fast under that system and quickly would become unmanageable.

Given the risks, why is raising the debt ceiling difficult?

Some members of Congress disapprove of debt on principle and therefore always vote against increasing the limit. Others know that a vote for “more debt” makes an easy 30-second negative campaign ad even though the increase is needed to pay bills the government already has incurred. Still others want to use the occasion as an opportunity to push for concessions on other issues. For all those reasons, the history of debt-limit votes shows that getting to yes has often proved difficult.

If getting a vote on the debt ceiling is hard, why would congressional leaders want to add that issue to the current mix?

Timing, in part. At this point, with the House and Senate stalemated over providing money for government agencies and the deadline nearing for dealing with the debt ceiling, solving only one problem would mean moving from one crisis directly into another. Moreover, some congressional leaders hope that widening the scope of the issues under debate will provide more room to come up with a deal.

What happened the last time this came up?

In July 2011, Congress deadlocked over the debt. Amid dire warnings that a first-ever default by the U.S. government could plunge the economy back into recession, they reached a last-minute deal. That agreement included across-the-board spending cuts and a procedure under which Congress allowed President Obama to raise the debt ceiling on his own. Each chamber could then vote to reject the debt increase, but unless both houses overrode a presidential veto, the increase would stick. That way, members of Congress could go on record as having opposed to the debt, but nothing would happen and no one would get hurt. When that deal expired, Congress this spring passed a new measure that simply suspended the debt ceiling for a while so that members would not have to vote to increase it.

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If members of Congress hate to vote on the debt ceiling, why don’t they just get rid of it?

One of the things members of Congress hate even more than voting on the debt ceiling is giving up power. And the periodic need to raise the debt ceiling gives them potential power over the executive branch.

A $16.7-trillion limit sounds like a lot of money. Is all that debt bad for the country?

That’s a hotly debated topic. Many Americans don’t like the idea of large debts. Economists, however, generally agree that the total dollar value of the debt matters less than the relationship of the debt to the size of the economy. Having too much debt clearly can hurt a country. But whether the U.S. is anywhere near the tipping point remains a matter of disagreement. Relative to the size of the economy, the U.S. debt just after World War II was considerably bigger than it is today. The economy still grew very fast. In fact, although the amount of debt continued to grow through the 1950s and '60s, the debt burden shrank relative to the size of the economy because growth was so fast. That doesn’t mean debt is harmless, but does indicate that the relationship between debt and economic problems is not simple.

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Twitter: @DavidLauter

david.lauter@latimes.com

Copyright © 2014, Los Angeles Times
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