The fight over raising the debt ceiling is shaping up to be the central story for Congress in 2023. The same House Freedom Caucus faction that held up Kevin McCarthy’s speakership earlier this month also won a commitment that McCarthy would not allow a vote on a bill to raise the debt ceiling in 2023 unless the bill also features deep domestic spending cuts, which Democrats oppose. Here are Five Facts about the debt ceiling, the consequences if we don’t raise it and what it means for Congress in the months ahead.
- Congress created the debt limit in 1917.
Prior to 1917, Congress closely controlled how the government borrowed money and how that borrowed money would be used. But the growing size of the federal government and the demands of World War I required the government to borrow and spend more efficiently. With the Second Liberty Bond Act of 1917, the Treasury Department could begin issuing debt with fewer restrictions on how it would be used, and in return, the debt ceiling was created to cap the total amount of debt that the U.S. could take on.
- The current debt limit is $31.4 trillion.
The government has been running a deficit – spending more than it receives in revenues – for most of the past 100 years. Since the debt ceiling was instituted in 1917, it’s been a common occurrence for Congress to vote to either raise the debt ceiling to a higher amount or otherwise temporarily suspend the ceiling so debts can be paid. Most of the time, this happens without much controversy.
In December of 2021, President Biden signed into law legislation increasing the debt ceiling to $31.4 trillion, a $2.5 trillion increase from the previous level. Twelve years ago, during the debt ceiling crisis of 2011, the debt limit was $16.1 trillion, barely more than half the current number, an indication of how dramatically the national debt has risen since then.
- The Treasury Department can use “extraordinary measures” to delay hitting the debt ceiling.
The national debt came very close to hitting the $31.4 trillion ceiling this week, but to stave off breaching the debt limit, the Treasury Department has deployed “extraordinary measures” – a variety of accounting tricks and suspensions on investments – that will buy lawmakers additional time to raise the debt ceiling.
- The debt limit is expected to be reached no later than this summer.
Even with the extraordinary measures deployed by the Treasury Department, lawmakers will have only about five months to respond to this serious fiscal challenge. Some hardline conservatives are committed to supporting raising the debt ceiling only if Congress agrees to deep, broad cuts to federal spending, setting up what could be the most contentious battle in Washington this year.
- The federal government will default on its debt if the debt ceiling is breached.
If Congress fails to raise the debt ceiling in the next few months, the United States will default on its debts, which could shake the global economy to its core. According to The Guardian, “If the federal government defaults on its loans, investors could lose faith in the US dollar, causing the US dollar to weaken, stocks to fall and triggering job cuts.”
In 2011, the U.S. narrowly avoided disaster when far-right extremists in Congress caused the United States to come dangerously close to defaulting on the debt, and even getting close to a default had a negative impact. America’s credit rating was downgraded for the first time in its history and the markets had their worst week since the 2008 global financial crisis.
Treasury Secretary Janet Yellen put it bluntly in a letter to Congress: “Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability.”
