President Biden and Congress are currently debating the debt ceiling. House Republicans say they won’t agree to lift the ceiling unless their terms of massive spending cuts are met. President Biden and Congressional Democrats argue for a clean bill to raise the debt ceiling while agreeing to negotiate spending levels as part of the normal federal budget process. What is this debate about and what does a potential stalemate mean? Here are answers to often-asked questions.
What is the debt ceiling?
The debt ceiling is the limit on what the federal government can borrow to pay its legal obligations, including payments to creditors, earned benefits like Social Security and pensions, and interest on the debt. Borrowing authority is needed when incoming revenues aren’t sufficient to meet already-authorized payments. The importance of protecting the creditworthiness of the United States is incorporated in the 14th Amendment, which states “(t)he validity of the public debt of the United States, authorized by law…shall not be questioned.”
What would happen if the debt ceiling isn’t raised?
Once the ceiling is reached and the federal government can no longer borrow, it would default and be unable to pay all its owed bills. This has never occurred in our country’s history and the consequences would be catastrophic. Interest rates would spike, raising the cost of mortgages and small business loans. Federal funding of health care, education, environmental protection, pensions and public safety would be at risk. The United States would no longer be seen as creditworthy, and both domestic and international investors could go elsewhere. According to Treasury Secretary Janet Yellen, we have already hit the ceiling, her ability to use extraordinary measures is ending, and we could default as early as June 1.
Has the debt ceiling been raised before?
Plenty of times. Since 1960, the debt ceiling has been raised 78 times, 49 times under Republican presidents and 29 times under Democratic presidents. Recently, the debt ceiling was raised by $1.7 trillion in March 2017 and $2.2 trillion in March 2019, in part to pay for massive Trump era tax cuts which largely benefitted wealthier households and corporations.
Has the U.S. ever not raised the debt ceiling?
No. A default would be unprecedented. In 2011, when Congress and the Obama Administration neared (but ultimately met) the deadline for action, the S&P 500 fell by 17%, mortgages increased an average of $100/month, taxpayers lost $19 billion, and the U.S. credit rating fell for the first time ever.
But aren’t Republicans right that we need to worry about the national debt? Why shouldn’t President Biden negotiate with them?
President Biden is more than willing to talk with Republicans about the federal budget and debt, but he believes those discussions should not be allowed to hold up action on the debt ceiling. The debt ceiling lets us pay for decisions already made in past federal budgets –the result of past compromises and agreements. The current annual budget process is the place to debate our national priorities for the future, including how to reduce federal deficits and how to raise the revenues needed to meet those priorities. On March 9, President Biden sent his detailed budget proposals to Congress, which meets national priorities and lowers the deficit. It addresses both sides of the budget – spending and revenues — including measures to ensure that highly-profitable corporations and those earning more than $400,000 a year pay their fair share of taxes. House Republicans have yet to make their own budget proposals, but they have made it very clear that they strongly oppose any tax increases – including on the wealthiest among us.
Didn’t House Republicans pass a plan to address federal spending?
Yes. On April 26, Speaker Kevin McCarthy brought H.R. 2811 to the House floor. That bill –passed 217 to 215 without a single Democratic vote – would lift the debt ceiling for one year and would require a 22% across-the-board cut in federal spending. Not only would H.R. 2811 not ask the wealthy and highly-profitable corporations to pay their fair share, it would cut IRS enforcement against tax cheats, a move that the Congressional Budget Office estimates would cost $191 billion over 10 years. And, because the bill would only lift the debt ceiling for one year, we could see the same fight again next year – creating uncertainty and chaos In the economy. That’s one reason both President Biden and Senate Democrats oppose it.
Why should seniors care about this debate? What’s at stake?
We are all affected by the economic conditions in which we live. Government default could lead to higher interest rates, a huge drop in stock prices, and, according to the Council on Economic Advisors, the loss of up to 8 million jobs. Seniors would be especially harmed by threats to their Social Security earned benefits, pensions, Medicare payments, and private savings invested in their retirement accounts. Services from Meals on Wheels to SNAP (formerly Food Stamps) to senior housing to medical research could be reduced,
House Republicans have said that they will only vote to avoid default if their terms are met – but even those terms would have serious consequences. Under H.R. 2811, services at the Social Security Administration and Medicare would be cut, adding about 2 months of delays to the application process and making it harder for seniors to get answers to questions about benefits. About 1 million seniors would lose SNAP, adding to senior hunger. Funding cuts could affect medical research, including research into Alzheimer’s.
Republicans voted to raise the debt ceiling under President Trump, so what is this debate really about?
House Republicans are holding the debt ceiling hostage in order to obtain their real objective: to cut federal spending (even on critical items like health care, education and the environment) in order to provide bigger tax cuts for the wealthy. If they win now, expect them to come back next year and in future years to ask for more cuts. And expect them to push for Social Security and Medicare benefit cuts, since Republican budgets over the past decade have repeatedly called for reducing benefits, raising the age of eligibility, and lowering the Social Security cost-of-living adjustment (COLA).
