President Biden avoided the country’s first default by signing legislation in the tail-end of 2021 to increase the government’s borrowing limit by $2.5 trillion, raising the limit to $31 trillion. While this was expected to last until July of 2023, inflation isn’t getting better and America edges ever closer to its limit yet again.
Throughout the last 2 years, Janet Yellen, Secretary of the Treasury, has cautioned congress and the American people about the real economic threat we face if America cannot raise the debt ceiling or pay off its debts. Failing to raise the limit will result in severe financial consequences to the national (and global) economy. While initial conversations appeared to be heading in the right direction (with bipartisan support during the lameduck session), it appears the issue will continue with the new congress in 2023.
The debt ceiling is the maximum amount the Treasury can borrow and use to pay bills. Because the taxes collected do not cover the country’s needs, the US is forced to borrow. This included covering the costs of things like medicare benefits, military salaries, and so on. Should an agreement not be reached, the US will need to determine what bills to pay and what to reject.
Ways in which Congress could overhaul the ceiling
Raise the debt limit
This is typically what congress has done, increase the debt limit. Such a thing has occurred for decades. Failure to increase the debt limit could have catastrophic economic consequences, resulting in the government failing to meet its legal obligations. This could trigger another financial crisis, threatening Americans’ jobs and savings. This could lead to the United States falling back into a deep economic hole when the country is attempting to recover from recent events.
Elimination of the debt limit
It is possible to eliminate the debt limit. On the one hand, this would remove the economy from being used as a pawn for other legislation. This could also allow for a fiscal debate without the threat of a financial crisis.
On the other hand, unchecked spending can have its own crisis should the government be borrowing from allies. Not to mention inflation may not get any better any time soon.
This is another possibility but it’s one that requires all senate democrats to agree upon and currently, Manchin has expressed he’s not in favor. Essentially, it can raise the debt ceiling without bipartisan support but only if every Democrat in the senate votes for it. Even then, it will still take weeks to enact the the legislation which continues to strain the tight deadline as is.
All this said, on January 3rd, there will be new Congress as republicans assume the House majority. Right now, many republicans are arguing for spending cuts to Social Security, Medicare, and Ukraine aid as the compromise for increasing the debt ceiling and Democrats won’t budge.
During times of financial crisis, it’s important to remember these debts are not the result of any singular congress or presidency but decades of different people. Defaulting on our debt is not a good idea for anyone.