Here we go again. In the late spring or summer of 2023, the U.S. government will reach the total debt authorized by Congress in December 2021 — and Congress will engage in a debate, full of sound and fury, about raising the federal government’s debt ceiling.
This time, however, the result may be different.
With a Republican majority in the House of Representatives, and a Speaker beholden to members of the far-right Freedom Caucus — many of whom seem eager to engage in what Larry Summers, President Obama’s Secretary of the Treasury, has called “debt limit terror” — there is a distinct possibility that the United States will default on its obligations, delivering a catastrophic blow to an already fragile economy.
Ahead of that game of chicken, it’s important for Americans to understand what the debt ceiling can — and cannot — do.
The United States is the only major industrial nation with a debt ceiling. America’s debt ceiling, moreover, applies only to budgetary appropriations that have already been made; it has no impact on future spending or borrowing. Indeed, as one legal scholar has argued, since legislation passed by Congress and signed by the president implicitly authorizes the U.S. Treasury to spend the money necessary to implement it, a separate requirement to increase the accrued debt creates the possibility of default, and may therefore be unconstitutional.
In any event, although debates about the national debt have become increasingly partisan, Congress and the president have agreed to increase the debt ceiling over 100 times since World War II. The debt limit has also been “suspended” — a distinction, made for political reasons, without a substantive difference — seven times. The debt ceiling was raised three times while Donald Trump was President. In 2019, when Congress suspended the debt ceiling until July 2021, Trump exulted that the agreement was “phenomenal.” The ceiling has been raised twice with Joe Biden in the White House.
Most importantly, there is no credible evidence that opposition to raising the debt ceiling or government shutdowns produces fiscal restraint. Debt rose from 70 percent of GDP in 2011, the year Congress passed and President Obama signed the Budget Control Act, for example, to 79 percent of GDP in 2019.
The mere threat of a default, in fact, can generate costs for virtually all Americans, with increases in interest rates and reductions in foreign investments. During a lengthy impasse, the credit rating of the U.S. government can be — and in 2011 was — downgraded.
Congress will probably take up the debt ceiling early in 2023. And, it’s clear, hardline Republicans in the House of Representatives are spoiling for a fight with the Biden administration. Some of them are demanding that the as-yet-to-be-determined Speaker promise not to bring a bill to the floor unless it has the support of a majority of House Republicans. This rule would prevent Democrats from picking off a few “moderate” Republicans (who fear default would be a disaster for the country and their party) to pass a “clean” debt ceiling bill (i.e., without spending cuts).
Some Freedom Caucus members have said they would not vote to raise the debt ceiling without a plan to cap spending and balance the federal budget in ten years. “There’s a lot of fat and garbage that’s way off the mission,” says Rep. Chip Roy (R-Texas). Rep. Jeff Duncan (R-S.C.) wants cuts in mandatory as well as discretionary spending, including Social Security, Medicare, and “other welfare programs” that are “the drivers of the spending.” Rep. Bob Good (R-Va.) declares “I don’t fear not raising the debt ceilings.” He believes, incorrectly, that “if we didn’t raise the debt ceiling all that would mean is we’d have to cut discretionary spending more than we’re taking in.”
Not surprisingly, as he continues to search for the votes that will make him Speaker, Kevin McCarthy (R-Calif.) has promised the House will not pass a debt ceiling bill without spending cuts — but did not specify what they might be.
Of course, neither the United States Senate nor President Biden will agree to the kind of legislation hardline Republicans support. And so, Americans may soon experience a protracted default that Moody’s Analytics has estimated could result in a 4 percent drop in GDP, 9 percent unemployment and a $15 trillion loss in household wealth.
Accompanied, perhaps, by a richly deserved backlash against the “burn down the House” Republicans who bear responsibility for it.
Glenn C. Altschuler is the Thomas and Dorothy Litwin Professor of American Studies at Cornell University. He is the co-author (with Stuart Blumin) of “Rude Republic: Americans and Their Politics in the Nineteenth Century.”