By Paul Lenchner
The federal debt ceiling is the statutory limit on how much money Washington can owe. It is necessary because we routinely spend more money than we collect and must borrow (incur debt) to make up the difference. The national debt is the sum of annual budget deficits, less surpluses from years when revenues exceeded spending. The current debt ceiling is $31.4 trillion. It has been raised 78 times since 1960, 49 times under Republican presidents and 29 times under Democratic presidents. The quirk in the budget process—and the reason why the debt ceiling must periodically be raised—is that Congress can borrow money without agreeing to pay off the loans. Think of a credit card with no spending limit where the cardholder is only obligated to pay his bills up to a certain point.
The debt ceiling was reached on January 19, 2023. The Treasury Department then began taking a series of accounting maneuvers known as “extraordinary measures” to permit Washington to keep meeting its obligations. These steps are projected to prevent a default until early June. If the ceiling is not raised by then, the consequences will be dire. The government will no longer be able to pay its bondholders, which would rock domestic and international financial markets, send interest rates soaring, and possibly trigger a worldwide recession.
Republicans, especially in the House, want to tie raising the debt limit to restraints on federal spending. They have refrained from specifying what they want to cut, prompting concerns from some Democrats about the future of Social Security, Medicare, and Medicaid. Democrats say that the debt ceiling must be raised without being linked to other issues. In short, the United States cannot, and must not, default on its financial obligations.
The most likely endgame, which is not guaranteed but for which there is some precedent, is that the debt ceiling will be raised while the budget for fiscal 2024 and subsequent years will include spending restraints on some programs as favored by Republicans and tax increases on the wealthy and corporations as favored by Democrats. Republicans will claim that the debt ceiling and future budgets were linked, while Democrats will say that the negotiations were separate though parallel. President Biden and Speaker McCarthy held initial talks on these matters on February 1, 2023. While there was no progress to report, post-meeting comments were relatively restrained and the parties agreed to continue discussions. Stay tuned.
An excellent place for a fuller look at the debt ceiling is Jim Tankersley and Alan Rappeport, “America Hits Its Debt Limit, Setting Up Bitter Fiscal Fight,” New York Times, January 19, 2023. Also see various U.S. Treasury documents, accessible through the Policy Issues tab on the Department’s homepage.
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