National debt showdown returns, with calls to increase the debt ceiling. How does it work?
Matthew Brown | USA TODAY
As lawmakers on Capitol Hill prepare to enact trillions in new spending for a range of investments, deficit hawks have begun to again raise alarms about an intermittent issue in Washington: the federal debt ceiling.
On Tuesday, the Senate will convene for a vote to pass a $1 trillion bipartisan infrastructure bill that lawmakers have brokered for months. It comes a day after Democrats unveiled a $3.5 trillion reconciliation package addressing a range of the party's top priorities. The bill did not, however, include any provision raising the debt ceiling.
A fixture of American politics for about a century, the debt ceiling is a budgetary oddity in how the U.S. government allows itself to borrow money.
Originally enacted as a means of responsible budget keeping, in recent history the debt ceiling has been the subject of intense partisan battles where the stability of the American and global economies hang in the balance.
Here's what the debt ceiling is and how the next showdown over it is unfolding in Congress.
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What is the debt ceiling?
Simply put, the debt ceiling is the total amount of money the U.S. is allowed to borrow at any given time. The limit was created by Congress in 1917, before entering World War I, and it has been raised or changed 98 times since then.
The debt ceiling covers almost all types of federal government debt, including spending on Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds and other expenditures.
Raising the ceiling doesn't authorize new government spending — that happens when Congress OK's spending bills. Raising the debt ceiling allows the Treasury to borrow more money to pay for spending that had already approved.
If the debt ceiling were to be reached, the U.S. Treasury would be required to take " extraordinary measures " to finance the federal government until either a new limit were passed or the federal government defaulted on its loans. These measures would include reorganizing funds and other quick budgetary patches.
If Congress still doesn't act, then the U.S. will default on its loans, effectively failing to pay back its debts and deeply shake trust in the U.S. dollar and overall economy. The U.S. has never defaulted on its debts.
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Debt ceiling suspended in 2019 for 2 years
In August 2019, Congress brokered a deal to suspend the debt limit for two years, after which the new limit would reset at the last limit, $22 trillion along with any new spending in the intervening years.
On Aug. 1, the limit was reinstated at around $28.5 trillion, a level the U.S. has already reached amid increased spending during the coronavirus pandemic.
"As with any borrower, the government is obliged to pay its bills, and yet a binding debt limit would prevent Treasury from doing so in a timely fashion," a March report from the Congressional Research Service found.
Janet Yellen issues warning need for action
Not passing a debt ceiling increase is overwhelmingly seen as a financially irresponsible and harmful decision for the U.S. economy, even among those concerned about the immediate and long term impacts of the debt.
On Monday, the Treasury Department notified that it had begun extraordinary measures to pay for the debt. Treasury Secretary Janet Yellen again urged lawmakers to raise the debt ceiling and warned the economy would be badly hurt if swift action wasn't taken.
Congress should raise the ceiling "as it has in the past to protect the full faith and credit of the United States," Yellen wrote in a letter to Congress, calling it "a shared responsibility."
“Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans,” she wrote.
McConnell, Schumer spar over debt
Republicans in Congress, however, do notappear receptive to raising the debt ceiling just as Democrats attempt to pass their sweeping agenda.
“If our colleagues want to ram through yet another reckless tax and spending spree without our input, if they want all this spending and debt to be their signature legacy, they should leap at the chance to own every bit of it,” McConnell said on the Senate floor on Thursday.
He redoubled on Monday.
“Here’s the comedy: They won’t let Republicans have any say in this monstrosity, but they want our help raising their credit card to make it happen,” he said in the Senate, referring to the Democrats' $3.5 trillion reconciliation package.
"Democrats have all the existing tools they need to raise the debt limit on a partisan basis," McConnell added.
Democrats are skeptical of Republican concern over the debt after high levels of deficit spending under former President Donald Trump passed without protest.
In 2013, Republicans threatened to default on the debt unless then-President Barack Obama accepted steep cuts to social welfare programs. Now, with Democrats having unified control of Congress, such a standoff is unlikely, though Senate Republicans have the power to filibuster a stand-alone bill to raise the debt ceiling.
By not including the raising of the debt ceiling in their reconciliation package, Democrats are now calling out the GOP's threat on the matter.
“The leader's statements on the debt ceiling are shameless, cynical and totally political,” Senate Majority Leader Chuck Schumer, D-N.Y., said on the Senate floor on July 21, responding to threats by McConnell.
“This debt is Trump debt. It's COVID debt. Democrats joined three times during the Trump administration to do the responsible thing,” he continued.
The White House has mostly stayed out of talks about raising the debt ceiling.
"We expect Congress to act in a timely manner to raise or suspend the debt ceiling, as they did three times on a broad bipartisan basis during the last administration," White House press secretary Jen Psaki said during a briefing on July 21.
"I would also note that Republicans raised the debt ceiling throughout the Trump administration, including after putting exorbitant deficit and ... tax breaks for the wealthiest Americans and big corporations on the country’s credit card. So that’s what we expect them to do," she continued.
Follow Matthew Brown online @mrbrownsir .
Via PakapNews