Ugly Going On 80: Debt Limit Fights Have Been Bitter Since 1941

The statutory debt ceiling has its origins in World War I when Congress streamlined federal borrowing by delegating some of its authority to the Treasury Department. And for several decades, the innovation developed smoothly, with lawmakers granting the executive branch more control over the amount and terms of federal borrowing.

It took almost a quarter-century for things to get ugly.

In 1941, less than a year before the United States entered World War II, Democrats and Republicans in Congress squared off in a bitter but ultimately minor conflict over federal borrowing. It was not a high-stakes battle because the outcome was never in doubt; President Franklin D. Roosevelt clearly had the votes to get the extension he wanted.

But the debt limit fight of 1941 was still important. It was the first serious conflict over extending the debt ceiling since its inception 24 years earlier.

More important, it also set the pattern for later debt limit fights. The fiscal hawks of 1941 pioneered many of the arguments about “responsibility” and budget reform that still make headlines today.

Many might recall that the Gramm-Rudman-Hollings budget process reform was enacted in 1985 in the company of a debt limit extension. And that the Simpson-Bowles Commission on fiscal responsibility appeared with a debt limit extension in 2010.

But fewer probably realize that the 1941 debate also brought calls for a blue-ribbon fiscal commission. The linkage of debt ceiling extensions with budget reform proposals is not something new, or even moderately old — it dates to the first debt ceiling fracas.

Similarly, arguments for repealing the debt ceiling are not the product of recent frustration with the process of extending the limit. While increased partisanship and congressional dysfunction have certainly fueled the fire, critics have been challenging the utility of a statutory debt ceiling for a long time.

Indeed, Roosevelt questioned its “significance” in his 1941 budget message — much to the chagrin of fiscal conservatives in both parties.

Origins

After establishing the first statutory debt ceiling in 1917, Congress continued to loosen the remaining strictures on federal borrowing over the next two decades. Treasury enjoyed greater freedom to manage the replacement of older debt with cheaper new issues, although separate limits continued to apply to various debt instruments.

In 1939 Congress took a more decisive move, eliminating several remaining restrictions on the debt instruments issued by Treasury and replacing them with a more comprehensive aggregate limit of $45 billion that covered nearly every type of federal debt. That figure was about 10% higher than total debt at the time.

The wiggle room, however, soon disappeared. The outbreak of war in Europe forced the United States to undertake an expensive rearmament program, which in turn prompted Treasury to seek a series of extensions to the debt ceiling. One request came in early 1941, and it proved to be controversial.

On January 3 Roosevelt delivered to Congress his annual budget message, outlining his plan for new defense spending as well as the means to pay for it.

“The necessity for loading the present Budget with armament expenditures is regretted by every American,” he said. “A wry turn of fate places this burden of defense on the backs of a peace-loving people.”

Taxes would play a key role in funding the program, Roosevelt assured lawmakers, but they would be insufficient — additional borrowing was inevitable, which in turn made a debt limit increase unavoidable. While Roosevelt left to Treasury the details of requesting such an increase, he took a moment to question whether the entire exercise was even worthwhile.

Just a Fiscal Monitor?

“The Congress, by making appropriations and levying taxes, in fact, controls the size of the debt regardless of the existence of a statutory debt limit,” Roosevelt told lawmakers. “If the Congress, subsequent to the establishment of a statutory debt limit, makes appropriations and authorizations which require borrowing in excess of that limit, it has, in effect, rendered that prior limit null and void.”

This argument from 1941 sounds very much like the arguments being made in 2021: that federal debt is a function of routine fiscal budget decisions on Capitol Hill, not the statutory debt limit that comes on the heels of those decisions. And that observation led Roosevelt to the same conclusion reached by many fiscal experts.

“In the first 130 years of our national life, the Congress controlled the debt successfully without requiring such a limit. In view of these facts, I question the significance of a statutory debt limit, except as it serves as a fiscal monitor,” Roosevelt pointed out.

Fiscal hawks, both in Congress and on editorial pages around the country, rejected Roosevelt’s assessment of the debt limit. “The suggestion made by the President in his budget message today to abolish completely the statutory debt limitation fixed by Congress is dangerous and will be an additional incentive to extravagance,” objected Sen. Harry F. Byrd, a Virginia Democrat famous for his fiscal conservatism (as well as his later defense of school segregation).

Byrd insisted that the debt limit encouraged responsibility on both sides of the budgetary equation. “What we need today is to curtail drastically non-defense spending and raise more money from current taxation, rather than lay an emphasis on increasing the public debt,” he said.

Rep. Frank Crowther, a Republican from New York, shared Byrd’s feelings about eliminating the debt ceiling. “I don’t think the time has come to say ‘the sky is the limit’ on the national debt,” he told reporters.

The New York Times

NYT
, meanwhile, embraced Roosevelt’s description of the debt limit as a “fiscal monitor” but insisted that such a function was vital, not irrelevant.

“It is like an automatic signal system, an alarm set to ring at a certain moment,” the editors wrote on January 10. “It is a self-imposed limitation to forestall the limitation that must otherwise in the end be forcibly imposed by circumstances.”

The Great Debate

When the debt limit extension finally made its way to Congress, Democratic leaders wrapped the legislation in the patriotic rhetoric of national defense. Treasury required an increase in its borrowing authority to ensure the “flexibility of its financing operations,” the House Ways and Means Committee majority explained in its report on the legislation. “Flexibility is essential to the successful operation of the vast financial program necessary to arm and defend the United States and guarantee its national security in the world of today.”

Later, during floor debate, Ways and Means Committee Chair Robert L. Doughton of North Carolina emphasized the routine nature of any debt limit extension — and its lack of effect on overall debt burdens.

“The bill neither appropriates nor authorizes the expenditure of any funds,” Doughton told his colleagues. “Its sole purpose is to enable the Treasury, under such restrictions and limits as the bill sets forth, to secure the necessary funds to finance the program which the Congress has authorized or will authorize by further legislation.”

Republicans, however, took a different view of the debt limit bill. In their minority report, GOP members of the Ways and Means Committee seized the opportunity to flay Roosevelt for the New Deal’s fiscal irresponsibility.

Roosevelt had taken office “under a promise to balance the budget, reduce expenditures by 25 percent, and ‘stop the deficits,’” they wrote. But eight years later, “none of these promises have been fulfilled.” The budget was still unbalanced, expenditures had more than doubled, and the nation’s debt had soared from $21 billion to $45 billion.

“Virtually all of this increase was incurred before the recent emergency defense program got under way,” the minority contended in an effort to strip the Democrats of their most useful rhetorical framing. “It is the direct result of the administration’s extravagant and wasteful spending orgy of the past eight years, of its pump-priming and boondoggling schemes, which have piled up the deficits year after year in spite of vastly increased taxes upon the people.”

Less than a year earlier, the GOP members observed, the Roosevelt administration had pushed through a debt ceiling increase. That hike was necessary because the previous limit had been “practically exhausted as a consequence of the New Deal’s spending and borrowing orgy.”

All this talk of orgies and boondoggles may seem surprising, especially for a nation on the brink of war; we have a tendency to romanticize the bipartisan comity of the past. But this minority report from the Ways and Means Committee is a useful reminder that overheated language is not a modern invention of the polarized 21st century — things have been ugly before.

A Modest Increase

The House Republicans were determined to separate Roosevelt’s domestic spending (which they loathed) from his defense program (which they supported). “While the defense program is used as the justification for the bill, it could be availed of to finance further administration extravagances,” they warned.

Indeed, the Republicans insisted, real national security depended on financial responsibility. “This new fiscal crisis once more brings home to the American people the realization that the New Deal’s past extravagances have seriously undermined the financial security of the Nation, which is our country’s first line of defense,” they wrote. “The pending bill indicates an intention on the part of the administration to engage freely in further deficit financing.”

The Republicans were willing to agree to a significant increase in the debt limit — but only to $60 billion, not the $65 billion sought by the Roosevelt administration. Small steps were safer than big ones.

“No one knows how far the public credit may be stretched with safety, and for that reason it is advisable not to take too big a step at any one time,” the report noted.

Even worse, a bigger boost to the limit might encourage dangerous thinking. “An unnecessarily large increase in the national debt limit would doubtless give rise to an unfortunate inflationary psychology, and would be conducive to further extravagance,” the report suggested.

The minority closed with the same rhetorical maneuver as The New York Times: They embraced the dismissive phrase that Roosevelt had used to describe the statutory debt ceiling.

“The president recently acknowledged the value of a debt limit as a ‘fiscal monitor,’ and of course the lower the limit is kept, the more value it has as such,” they wrote. “During the past eight years the country has learned to its sorrow how quickly any available ‘spending money’ burns a hole in the administration’s pocket.”

Structural Reforms

In addition to a modest extension of the debt limit, Republicans endorsed a somewhat vague structural reform to the budget process (which was itself somewhat vague back in 1941).

They proposed the creation of a joint bipartisan budget control committee, composed of four members each from Ways and Means, Senate Finance, and the appropriations committees of both houses. The new commission would be asked to “coordinate federal revenues and expenditures.”

Shockingly, nothing would come of this proposal for a blue-ribbon fiscal reform panel. Nor would anything develop from a similar commission suggested by Byrd. Featuring six senators and six representatives, this panel, too, would have been charged with making fiscal recommendations to Congress.

Specifically, Byrd wanted his commission to consider postwar financial problems, the elimination of all nonessential federal spending, and a revision of the federal tax system. Worthy subjects all — but not worthy enough to win majority support in 1941.

Sen. Millard E. Tydings, a Democrat from Maryland, also advanced a budget process reform during debate over the debt ceiling extension. His plan featured an “automatic budget balancing” requirement that would have forced Congress (through a statutory requirement) to increase taxes every year by an amount equal to any new appropriations. 

Tydings also proposed a sort of mini-commission comprising three senators that would be asked to recommend a “debt-liquidating plan” under which the government’s accumulated debt would be erased within 15 years.

Like the rest, Tydings failed to win support for his plan. But also like the rest, Tydings revealed the irresistible urge to pair debt limit extensions with structural budget reform. The idea has always been popular.

Ultimately, the 1941 debt limit debate ended with an anticlimax — as debt limit fights always do (or always have, at least; let’s keep our fingers crossed). On February 14, 1941, Congress approved by voice vote an increase in the ceiling to $65 billion. The entire exercise proved to be routine.

But the 1941 debt limit debate still serves as a reminder. A reminder that these symbolic fights are actually old fights. That the tired arguments we hear today are tired because they are exceedingly well rehearsed. That the bitter rhetoric we find unpleasant today was ringing through the Capitol on the eve of World War II as well.

What’s old is ugly again.