New year, new Congress, old problem: the debt ceiling
New year, new Congress, old problem: the debt ceiling
It’s a new year, and there’s a new Congress starting Friday. And it will immediately face a familiar problem: The debt ceiling — the limit on how much money, in total, the United States can borrow — which the Treasury is close to hitting.
When this last happened in 2023, Congress decided to handle the problem by temporarily suspending the debt ceiling. The plan was to reinstate it at the beginning of this year.
If nothing changes, the Treasury will hit the ceiling and won’t be able to borrow any more money, and the country will default on its existing debt. That would be catastrophic, but we’ve wrestled with the debt ceiling before. Pretty often, actually.
The United States started this exercise back in 1917, when the Treasury wanted to issue a bunch of bonds to pay for World War I.
“Before then, if the Treasury was going to issue a loan, it needed authorization from Congress to do that,” said political scientist Philip Rocco at Marquette University.
He said the debt ceiling got rid of that tedium by allowing the Treasury to borrow up to the limit Congress set. But that created a new problem.
“The debt ceiling has really become a political hot potato, or a way for congressional majorities to … secure their sort of policy priorities,” he said.
Every time the debt approaches the ceiling, Congress must decide whether to default, cut spending, or — and this is what frequently happens — raise the ceiling.
In 2023, Congress decided to instead suspend it. That move has become much more popular in the past 15 years, said Laura Blessing at Georgetown University’s Government Affairs Institute.
“To me, there are a number of different things that have mapped on to this as a trend that include higher congressional dysfunction and higher deficits,” she said.
Blessing said Congress has tweaked the debt ceiling more than a hundred times. Most likely, that’ll happen again this time.
Incoming President Donald Trump has suggested abolishing the ceiling altogether. Blessing said that’s not a bad idea, because the ceiling isn’t a useful tool for oversight.
“It’s a landmine that you’ve planted in the calendar again and again and again,” she said. But she also said abolishing it is unlikely, because that’s not popular with fiscal conservatives.
Kent Smetters, a faculty director at the University of Pennsylvania’s Penn Wharton Budget Model, said he thinks the ceiling is useful, “because it has led to various things like budget control acts and pay-as-you-go rules and things like that, which have curtailed some spending or tax cuts.”
Smetters said the debt is on a runaway trajectory — a crisis, like COVID-19 or the Great Depression.
“When the crisis is caused by debt itself, you can’t issue more debt,” he said.
Smetters and Georgetown’s Blessing agree that whatever happens to the debt ceiling, the country’s budget deficit is not sustainable.
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