America is facing an unprecedented fiscal and economic threat next year and Congress has until Jan. 3 to avoid it. Sometime in 2023, probably around June, the United States will hit the debt ceiling, which is the maximum amount the government can borrow.
Failure to raise the ceiling in time would be a disastrous shock to the nation and a world economy reeling from inflation, a looming recession and the impact of the Ukraine war. Interest rates would skyrocket, the government could not pay its bills and timely benefits to millions of Americans on Social Security and Medicare would be in jeopardy.
The debt limit, which is a statutory cap passed by Congress, now stands at $31.4 trillion. Once that level is reached, the government will be forced to choose which bills to pay and which to reject
What’s the rush if we don’t hit the cap until later next year? Republicans, who assume the House majority on Jan. 3, are threatening to hold the debt ceiling hostage unless Democrats capitulate by accepting unpopular spending cuts which may include cutting Social Security, Medicare and Ukraine aid. The Biden administration and Senate Democrats won’t accept these cuts and the American people never voted for them in November. But with Republicans soon holding the majority, failure to act before they gain power means the danger of default is perilously high.
Opponents of raising the cap justify their opposition by incorrectly claiming they are trying to stop Congress from enacting new spending. In truth, raising the cap pays for fiscal decisions enacted in prior years, often by prior presidents and prior Congresses. That is why the nonpartisan Government Accountability Office describes the debt limit as an “after-the-fact measure that restricts the Treasury’s ability to borrow to finance the decisions already enacted by Congress.”
To be sure, it is vitally important for Congress to pass tax and spending policies to control our burgeoning debt. But the debt ceiling is the wrong place to fight that battle.
I experienced the terrifying prospect of default up close during the two decades I served as the House Budget Committee’s Democratic staff director. On several occasions when they were in the majority, congressional Republicans issued outrageous demands as their price for raising the limit. The closest we came to real calamity was in 2011 when Standard & Poor’s dropped our nation’s credit rating, interest rates jumped, the stock market took a deep dive and the resulting debacle cost taxpayers almost $2 billion. Eventually cooler Republican heads prevailed and they backed down.
But the threat of default is far more dangerous this year. First the Republican majority will be its narrowest in decades and the new likely Republican speaker will be weak and inexperienced. With a margin of only a few votes, the speaker will depend for power on extreme Republican members such as Marjorie Taylor Greene. That gives those voices the kind of outsized influence that Democratic Sen.Joe Manchin has held over Democrats in the evenly divided Senate.
Moreover, the new Republican majority is considerably more conservative than their colleagues a decade ago. Two-thirds of them are election deniers, more than the last Congress and many of them owe their elections to Donald Trump. Even if the likely new Republican House Speaker, Kevin McCarthy, wants to back down on the most controversial cuts, members of his conference may not let him. What’s worse, Senate Republicans will try to block any effort to raise the cap until the new House Republican majority takes control.
The good news is that Democrats have the power to raise it on their own by using a special process called budget reconciliation — but only if every Senate Democrat supports it. And at least one Democrat, Manchin , has reportedly expressed his opposition.
Even if Manchin signs off, passing a reconciliation bill can consume as much as two weeks of congressional floor time which takes us close to Jan. 3. The American people should send a message to Senate Republicans to drop their threat to block a debt ceiling increase. And if the Republicans will not listen, the American people should send an urgent message to Democrats to raise the debt urgently before the clock hits midnight.
Thomas Kahn was the House Budget Democratic staff director from 1997-2016. He now teaches about the federal budget at American University.