September 24, 2021
By: Adam DuBard
Although the debate over the dual infrastructure bills in Congress has dominated discussion in Washington over the past few weeks, there is another crucial issue that has largely flown under the radar: the debt ceiling. As reported by Reuters, the Treasury will run out of funds to pay off the government’s existing debt sometime in October. Without action from Congress, the government will default on its debt, which would be a completely unprecedented event.
What is the debt ceiling, and why is this issue so crucial?
The debt ceiling determines how the US Treasury can finance past debt — in other words, how the US government pays its bills. It in fact does not relate to future spending, but rather only the debt that the US has already accumulated. This is similar to paying off one’s credit card statement each month - when you make your payment, you’re paying off debt you accumulated for purchases you’ve already made. As the US Government Accountability Office (GAO) describes it, the debt limit is “an after-the-fact measure that restricts the Treasury’s ability to borrow to finance the decisions already enacted by Congress and the President.”
This means that if Congress fails to pass legislation addressing the issue of the debt limit, the US government may actually default on its debt, which has never happened before. Americans are familiar with how difficult government shutdowns can be, as three have occurred since 2013, yet a government default would result in even worse consequences.
Treasury Secretary Janet Yellen warned that even the threat of a government default would have severe consequences, writing in a letter to House Speaker Nancy Pelosi that “A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the U.S. economy and global financial markets.”
If the government were to default on its debt, the Treasury estimates it would run out of funds by sometime in October, which would mean the US would “risk missing payments to Social Security, the military and interest on all its approximate $28 trillion of debt.”
As the president of the Committee for a Responsible Federal Budget Maya MacGuineas told CNN, “no one would be spared.” According to Moody’s estimates, a government default would result in the loss of nearly 6 million jobs, a rise of the unemployment rate to 9%, and a 1/3 drop in stock prices, which would erase $15 trillion in household wealth nationwide.
All that’s to say, a government default would be completely unprecedented, and would result in disastrous consequences for the entire country.
So, what’s the holdup, and what is the solution?
As is the standard on Capitol Hill these days, partisan gridlock has led us to the brink of a government default. In order to suspend the debt limit, which the Senate did in 2019 under President Trump for two years, 60 votes are required. In 2019, under a Republican-led Senate, the suspension vote passed by a margin of 67-28, with several Democrats voting for the suspension. However, that suspension expired in July of this year.
This means that in order to suspend the debt limit, Democrats will need 10 GOP senators to join them. Unfortunately, this does not seem likely at the time, according to Senate Minority Leader Mitch McConnell.
On September 15th, McConnell tweeted “With a Democratic president, a Democratic House and a Democratic Senate, Democrats have every tool they need to raise the debt limit. It is their sole responsibility. Republicans will not facilitate another reckless, partisan taxing and spending spree.”
Despite the fact that the GOP voted three times under President Trump to suspend the debt ceiling — resulting in an additional $7.8 trillion of debt – they are drawing the line now that Democrats control the White House and Congress. And, as previously explained, McConnell’s tweet is misleading, as a suspension or raise of the debt ceiling would only impact the debt the US government needs to pay off, rather than funding any additional spending.
Meanwhile, Democrats have largely been focusing on passing their $3.5 trillion infrastructure bill through reconciliation, which only requires 50 votes due to Senate rules. Although McConnell has stated that Democrats should include a debt ceiling resolution with the massive infrastructure bill, which could in theory pass without any Republican votes, this includes numerous complications.
As the New York Times writes, “Given the difficulty in reaching near-unanimous Democratic agreement on the measure — and a series of procedural obstacles they would have to clear — it would most likely be impossible to get it to the House and Senate floors in time to avoid a default.”
This brinkmanship highlights what has become the defining characteristic of American politics in recent years — partisan fights and gridlock. When Congress moves at a glacial pace and can only address crucial issues at the last second, the American people end up suffering.
Dr. Charles Stevenson, a professor of American foreign policy at the Johns Hopkins School of Advanced International Studies (SAIS), himself a former Senate staffer for 22 years, argues that although the debt ceiling has always been a “political football,” Congress has usually found a way to either raise, or suspend, the debt limit.
However, he notes that partisanship has been on the rise in recent years: “The parties are more separated ideologically. Campaign strategies are more focused on turnout than capturing swing voters. Members spend more time messaging than legislating, which would require compromises.”
Ultimately, this current fight over the debt ceiling continues what the American people have become all too familiar with in recent years - Congressional dysfunction. While the threat of a catastrophic default that would impact every American looms ever closer, Congress is too busy playing partisan games to act responsibly.
Congress is so dysfunctional that it can no longer perform its basic duty of legislating. And it’s apparent across issues, from the economy to healthcare, or even legislation that would save our democracy like the Freedom to Vote Act.
Add your name now to send an immediate message to your senators urging them to raise the debt ceiling. We can’t let them play partisan games with our economy.