House Republicans are locked in a standoff with the Biden administration over a deadline to raise the nation’s debt ceiling or risk fiscal calamity.
The Treasury Department has warned it will need to take “extraordinary measures” starting today to delay an economic catastrophe for a few months now that the U.S. government has borrowed up to the current $31.4 trillion debt limit.
While the Biden administration is urging lawmakers to pass a law allowing more borrowing, several House Republicans have said they’ll vote to do so only if the administration agrees to steep spending cuts, which the White House and majority-Democratic Senate view as a nonstarter.
Here’s a look at what the debt ceiling is and why we’re talking about it so much lately.
What is the debt ceiling?
It is a legal restriction on how much money the federal government can borrow to pay its bills. Congress instituted the debt ceiling in 1917 as a way to rein in federal agencies that were basically ignoring lawmakers’ constitutional power to designate how much money the government can spend, said David Super, a law professor and budgetary analyst at Georgetown University.
Raising the debt limit is an inherently political issue, and it usually grabs the most attention when government is divided in Washington — because when one party controls Congress and the White House, it usually opts to raise the limit without controversy.
The new Republican majority in the House of Representatives argues it must impose fiscal limits on the federal budget to rein in spending, and the debt fight gives them an opportunity to display this determination. Democrats argue the effort is grandstanding that risks the United States defaulting on its debt, an event that has never happened and would probably be quite damaging to the domestic economy.
What happens when Congress raises the debt ceiling?
Most years, the federal government spends more than it takes in, so the government has to borrow money to cover the shortfall. That means it reaches the limit fairly often.
Lawmakers can either raise the debt ceiling by a specific amount or vote to suspend the debt ceiling for a period of time to allow the Treasury Department to borrow what it needs. As the debt ceiling fight has become more politicized, they’ve suspended it for longer and longer periods.
Until recently, it was a routine chore for Congress to raise the debt ceiling. Since 1960, it has intervened 78 times to change the debt limit in some way, according to the Treasure Department.
What happens if the government defaults on its debt?
It wouldn’t be pretty. When the United States was on the brink of breaking through the debt ceiling in October 2021, The Washington Post’s Alyssa Fowers reported that it would not be able to pay more than 60% of its bills the first week of a default. The government would be forced to prioritize among various expenditures it’s already legally bound to make — but wouldn’t be able to borrow money for — such as paying for Social Security, issuing tax refunds and paying the salaries for federal workers and members of the military.
Such a scenario could immediately plunge the United States into a recession, The Post’s Jeff Stein reported at the time: “Mark Zandi, chief economist at Moody’s Analytics, found that a prolonged impasse over the debt ceiling would cost the U.S. economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate surging to roughly 9 percent from around 5 percent.”
The United States has gotten so close to a default in the recent past that its credit rating got downgraded. In 2011, for example, House Republicans voted down a bill to raise the debt limit — unless the government slashed its annual spending. President Barack Obama agreed to sharp spending curbs that only recently expired. The credit agency Standard & Poor’s downgraded its rating on U.S. debt for the first time ever that August.
What happens next?
The Treasury Department said last week that it would begin taking “extraordinary measures” today. Treasury Secretary Janet L. Yellen has said these would include suspending investments by numerous government funds and targeting the easiest debt the government can pay off while borrowing as little as possible.