Congress is gearing up for the fight of the year: raising the debt ceiling. House Speaker Kevin McCarthy will play a pivotal role here, as he promised his party’s far-right lawmakers that he wouldn’t allow a debt-limit increase to pass unless it came with major spending cuts, in order to secure their support for his speakership bid. And mere weeks into the 118th Congress, Treasury Secretary Janet Yellen announced that we’re hitting the debt ceiling this week. Thursday, to be precise.
We at Slate Magazine decided to put our heads together to answer some pressing questions: What exactly is the debt ceiling, and how worried should we be right now?
What is the debt ceiling?
The debt ceiling is the maximum amount of money the federal government can borrow to pay its bills—think Medicare, Social Security, military salaries, tax refunds—because the U.S. spends more than it brings in through taxes and other revenue. It’s specifically about fulfilling obligations the government has already committed to, not about new, future spending. When Congress has to address the debt ceiling, it either raises it to a new number or suspends the debt ceiling for a certain period of time. Whenever the debt reaches that new limit, or hits that date, it’s time to do it again.
Wait—so the government might run out of money? Is this different from a government shutdown?
It is different! A shutdown happens when Congress can’t agree on a budget that will finance the government—if an agreement can’t be reached in time, nonessential government services are either stopped completely or reduced. (Think back to TSA agents not showing up to work.) The debt ceiling is a limit Congress has to agree on that allows the government to borrow additional money in order to pay for things they’ve previously committed to.
So first the government argues about what to spend money on, then argues about whether to raise the amount of money it can borrow to cover what it’s committed to spending on?
Exactly. As Slate’s What Next: TBD host Lizzie O’Leary explained to us, it’s like the federal government continues to charge things on its credit card but then starts refusing to pay the bill at the end of the month.
The U.S. is unique in how it handles its debt and budgets, breaking them into two separate steps. It’s a deliberate process that gives Congress tight control over the government’s purse strings. The only other country in the world that enforces a similar debt ceiling is Denmark, but legislators there agreed to raise their debt ceiling to a fixed number so high that it would eliminate constant debate.
What happens if we hit the debt ceiling?
The U.S. would run out of the resources to finance all of its obligations—and if bondholders aren’t paid, the U.S. would default on its debt. That’s considered catastrophic, since defaulting could cause the country to slip into a deep recession, damage its credit rating, and potentially upend the global financial system. Millions of Americans stand to be affected because things like Social Security could not get paid out and U.S. troops and federal civilian employees could not be paid.
Yikes! When was the last time this happened?
This has never actually happened! Since no lawmaker wants to be responsible for that kind of catastrophe, the debt ceiling has always, eventually been raised when needed. The Obama administration also faced a stubborn debt ceiling debate in 2011 that caused the world’s leading credit rating agency, Standard & Poor, to downgrade the U.S. credit rating for the first time ever. The Treasury also had to take extraordinary measures during a more recent debt ceiling fight, in 2021.
How is the debt ceiling debate going to go this time?
This year, raising the debt ceiling is expected to get extra messy because of McCarthy’s promises to his far-right detractors. When considering raising the debt ceiling, he pledged to include a plan that balances the federal budget within 10 years—without raising taxes. It’s a tall order, and at the moment it’s not clear how it will land, though McCarthy has spoken to President Biden about potential negotiations. The speaker also suggested he was interested in previous deals that raised the debt ceiling while applying spending caps to the budget. McCarthy’s fellow Republicans have indicated they want to see spending cuts to both discretionary and mandatory spending—including Social Security and Medicare.
One thing is certain: Republicans will use raising the debt limit to leverage their own key priorities, which include border wall funding and cutting COVID-19 spending.
So what is the deadline this week? What is actually happening on Thursday?
The economy isn’t going to explode this week. Secretary Yellen has told Congress that the U.S. will hit its debt ceiling on Jan. 19, but that’s just the beginning. The Treasury Department has mechanisms in place—known as “extraordinary measures”—to keep the government running while limiting some spending, like suspending new investments in retirement and disability funds. These moves are temporary, and retirees aren’t affected, as the Treasury Department will make those funds whole again after the debt-limit impasse ends. All these maneuvers buy Congress a few more months to get its act together before it inevitably raises the debt ceiling. Yellen estimated that “it is unlikely” the government will run out of cash to pay its bills “before early June.”
So what can Congress do to prevent this? How do we get out of this situation?
For starters, Congress could vote to simply eliminate the debt ceiling altogether—sounds efficient, but incredibly unlikely and hotly contested. This approach would get rid of the regular debate over allowing the federal government to continue to borrow money for its commitments, but it would eliminate a lever that Republicans feel is necessary to force a conversation about the national debt.
Another, slightly more realistic option would be for lawmakers to engage in a discharge petition. That’s a strategy that would circumvent House Speaker McCarthy by requiring 218 signatories to force a vote on a bill—in this case, a bill raising the debt ceiling. It’s a rarely used option, but it did come in handy when the House was pressured to pass the 1964 Civil Rights Act and the Equal Rights Amendment in 1970. Discharge petitions require quite a bit of planning: The bill must sit in committee for at least 30 days, gather 218 signatures, and sit in the discharge calendar for seven days before it can go to a vote.
Both of these options are considered unlikely or cumbersome and, historically speaking, lawmakers on Capitol Hill have chosen to resolve it through brinkmanship.
OK, so say we avoid a debt ceiling crisis in June. Then … a few months later, there will be a fight about the budget again?
Yup. Democrats passed a $1.7 trillion package that funds the government until September, so Congress technically has until Oct. 1 to act and pass a yearly appropriations bill. Similar to the debt ceiling debates, when the yearly government spending bill approaches its deadline, lawmakers from both sides try to squeeze in funding for their priorities—and if a stalemate continues past Oct. 1, federal funding lapses can cause a government shutdown.
That’s what happened in 2019, when the government experienced its longest shutdown in history after Trump insisted he would not sign a government funding bill unless it included $5 billion for a border wall. After 35 days of a stubborn stalemate, Trump relented, and the government reopened with a new budget, without any border wall funding.
Why does it feel as if the government is so frequently on the brink of shutting down or exploding?
Because Congress has become increasingly partisan over the past few decades. It mostly started in the 1990s, when Democratic President Bill Clinton said he would not be “blackmailed” by Republican House Speaker Newt Gingrich when negotiating government budgets. It was a moment when the GOP committed to its priority of deficit reduction and not going along with customary debt ceiling increases.
Fast-forward about 16 years, and the Obama administration also faced a Republican House Speaker, John Boehner, who insisted on cuts to federal spending. Negotiations went on for months, and eventually a budget deal was reached to avert a government shutdown. The final bill included a mix of spending reduction and tax hikes over the next 12 years.
Lawmakers on Capitol Hill are still playing the same game today, because government funding bills are must-pass pieces of legislation—risking a shutdown. At the 11th hour just last month, Democrats passed a funding bill while clinging to their majority that bypassed a shutdown and a political showdown with Republicans.
Republicans were not happy about this. Especially Texas Rep. Chip Roy, one of the McCarthy holdouts for his speakership bid and a member of the far-right House Freedom Caucus, who released a letter to his Senate Republican colleagues threatening to derail their priority legislation if they voted for the Democrats’ spending bill. Speaker McCarthy agreed with Roy’s letter, and even pledged that if a similarly priced package ever comes to the House floor, it will be “dead on arrival.” Eighteen Senate Republicans voted for the spending bill in December, while only nine House Republicans ended up voting for it.