President-elect Donald Trump’s demand that Congress suspend the debt limit as part of ongoing talks to prevent a government shutdown has put the focus on the debt ceiling yet again.
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Win McNamee/Getty Images/Getty Images North America
The federal debt ceiling is back in the news yet again.
The U.S. still has a little time to hit its debt ceiling, but President-elect Donald Trump’s eleventh-hour demand that Congress suspend the debt limit as part of ongoing talks to prevent a government shutdown has again put the subject front and center.
Here are four things to know about this perennial political football.
What is the debt limit?
The debt limit is a relic of World War I, when Congress stopped authorizing individual instances of government borrowing and replaced them with a blanket authorization — up to a certain limit.
Ever since then, Congress has periodically raised — or suspended — that limit, to accommodate increased government borrowing.
Whenever lawmakers have to raise the debt limit, it’s an opportunity for political grandstanding about fiscal responsibility.
More recently, it’s also been an opportunity for extracting political concessions in return for raising the limit, since failure to do so would trigger a potentially disastrous government default.
Why are we talking about this now?
During the last showdown over the debt ceiling, Congress suspended the limit until January 1, 2025.
While that deadline is now approaching, there’s actually no urgency to raise or suspend the debt ceiling right away. The Treasury Department could buy time using “extraordinary measures” to keep borrowing money until the middle of next year.
The federal debt topped $36 trillion earlier this month. A billboard in Atlanta displays what that works out to for each person in the United States.
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Derek White/Getty Images North America
That’s what most people were expecting until this week, when the president-elect suddenly insisted that Congress suspend the debt limit for two more years as part of a stop-gap spending bill to keep the government operating.
That, along with other demands by the president-elect, torpedoed the spending bill and raised the prospect of a government shutdown this weekend. But the threat of an actual government default is still months away.
What are the political stakes?
Neither party likes raising the debt limit, since it appears to be enabling fiscal irresponsibility. And Republicans and Democrats share responsibility for the government’s ocean of red ink.
The last time the government ran a surplus, nearly a quarter-century ago, revenues were 19% of GDP while spending was 18%. Since then, tax cuts have reduced revenues to 16.5% of GDP while spending has ballooned to nearly 23%.
When one party holds power in Washington, its members typically hold their noses and raise the debt limit without drama. In times of divided government, there’s more grandstanding and — in some cases — more hostage-taking.
Trump wants the debt ceiling raised now — on President Biden’s watch — before he and his fellow Republicans take full control of the budget — and therefore have to shoulder full responsibility for any additional borrowing that’s needed.
Democrats in the Senate and the White House are unlikely to go along. Congressional forecasters predict that Trump’s promise to extend the 2017 tax cuts will add more than $4 trillion to the debt over the next decade.
House Speaker Mike Johnson (R-LA) speaks to reporters outside of the House Chambers in the U.S. Capitol in Washington, D.C., on Dec. 19, 2024.
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Kevin Dietsch/Getty Images/Getty Images North America
Does raising the debt limit encourage more government debt?
The level of government debt depends on the decisions Congress makes about taxes and spending, along with outside factors like the performance of the economy.
If Congress decides to spend more and tax less, it will inevitably need to borrow more money to make up the difference. Raising the debt ceiling is simply an acknowledgement of those choices, and a recognition that the government’s bills must be paid.
Failure to do so is akin to gorging oneself at a restaurant, then dashing out the door saying your credit card is maxed out.
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