Raising the debt limit, Q&A

WASHINGTON -- President Bush wants Congress to let him add $750 billion to the national debt, just months after politicians were talking about erasing the debt instead.

What happened?

Following are questions and answers about the turnaround:

Q: What is the national debt?

A: It is the accumulated I.O.U. that the government owes the people and institutions that have been lending it money for decades. It is currently nearly $5.95 trillion. To put that figure in perspective, it would take the government more than 188,000 years to accumulate that amount had it been borrowing at the rate of one dollar per second.

Q: Why does Bush need Congress' permission to borrow more money?

A: Since the government began raising money to fight World War I in 1917, Congress has let the Treasury borrow the money it wants, as long as it stays within limits set by Congress. The administration says the current $5.95 trillion ceiling will be hit by late March. It expects the additional $750 billion in borrowing authority to last into 2004 -- if Congress approves the full amount.

Q: Did politicians really think they would pay the debt down completely?

A: Not all of it.

When they discussed eliminating the debt, they were really talking about the $3.4 trillion publicly held portion of it.

This is what the government owes individuals, pension funds, foreign governments and others who have lent it money by purchasing Treasury bills. Most analysts consider this to be the most important part of the debt because the government has sucked in money that companies could otherwise use for investments, thereby strengthening the economy.

When the government ran annual budget surpluses from 1998 through 2001, it used the money to buy down this portion of the debt a bit. But with deficits back, it is growing anew.

Q: What is the other part of the debt?

A: The remaining $2.5 trillion is what the government owes itself, mostly to its funds for Social Security and some other programs.

By law, as those programs collect cash, they lend it to the Treasury. In return, they get Treasury bills -- or I.O.U.'s from the government -- for their funds.

Because Social Security is running enormous annual surpluses in preparation for the retirement of the baby boomers, its funds have accumulated huge amounts of Treasury bills. These funds are the fastest growing part of the national debt.

Q: Last year, exactly what were politicians saying would happen with the debt?

A: The White House and the nonpartisan Congressional Budget Office both envisioned federal surpluses totaling $5.6 trillion through 2011. And with polls showing debt reduction was popular, Republicans and Democrats had lots of it in mind.

Bush predicted there would be no need to raise the $5.95 trillion debt limit until 2008. Though the overall debt would grow as the trust funds got ever larger, Bush said he would reduce the publicly held debt to $1.2 trillion by 2011. Democrats said Bush was not going far enough, and that the publicly held debt should be trimmed to $500 billion.

In fact, echoing an argument made by Federal Reserve Chairman Alan Greenspan, Bush justified his proposed tax cut by saying it would be dangerous to pay down the debt too far. Leftover budget surpluses, Bush said, should be used instead for the tax cut, which Congress ended up approving last May.

Q: Why were their predictions so wrong?

A: A lot had to do with the economy. Even as they were arguing over paying down the debt, a recession was under way, though no one realized it at the time.

The slowdown shrunk projected surpluses by $1.3 trillion over 10 years, the White House says, largely because reduced economic activity led the government to collect less revenue than projected. At the time, Democrats complained that Bush's economic forecasts were too optimistic.

Q: Any other reasons?

A: Bush based his surplus projections on assumptions that federal spending would be held to unrealistically low levels. He proposed holding the growth of most federal programs, excluding benefits like Social Security, to 4 percent.

By the time Congress finished writing this year's spending bills, the increase was double that -- including funds in response to the Sept. 11 terrorist attacks.

As for Democrats, they based their call for extra debt reduction on an assumption that Bush would get less than the 10-year, $1.35 trillion tax cut that was ultimately approved.