BEYOND THE NUMBERS
House Republicans continue to use the looming need to raise the debt ceiling as a bargaining chip to force deeply unpopular and harmful program cuts. Most recently, Speaker Kevin McCarthy released a list of demands in exchange for raising the debt ceiling, including cuts likely aimed at affordable health care coverage and food assistance for individuals and families who need help putting food on the table, as well as deep cuts to the part of the budget that funds education, transportation, veterans’ health care, medical research, and other domestic priorities. This approach is dangerous.
The debt ceiling conflicts with the legally binding requirement that the government pay all its bills, on time and in full — for example, payments to doctors and hospitals that serve Medicare patients, contractors who supply the Defense Department, and college students who receive Pell Grants to help with their tuition. To end this conflict of laws, Congress should raise, suspend, or — best yet — abolish the debt ceiling well before the Treasury runs dry and should not engage in reckless brinksmanship by insisting on attaching other controversial measures. Here’s why:
- Using the debt ceiling as a bargaining chip is always irresponsible, but it’s especially dangerous given recent turmoil in the banking industry and interest-rate increases by the Fed to address inflation. Even threatening default puts our economy at risk. Previous debt ceiling impasses caused the nation’s credit rating to be downgraded, disrupted markets, and drove up federal borrowing costs, even though the Treasury didn’t ultimately default on its legal obligations.
- An actual default would be far worse. Over the course of a year it would leave the federal government unable to pay more than $1 trillion in bills, harming tens of millions of people in the U.S. Sixty-five million Social Security beneficiaries could see their benefits delayed, at least for short periods. Six million veterans and their survivors could have their benefits held up. Businesses across the country could see payments from the federal government delayed, hitting a range of industries, from construction and cleaning services to health care and food services. Families could see their monthly rent assistance or child care assistance delayed.
Default, even for just a few weeks, could also plunge the nation into recession and drive up unemployment; Moody’s Analytics estimates that such a recession could wipe out as many as 7 million jobs, erase $10 trillion in household wealth, and cause interest rates to spike — at a time when many families are still recovering from the economic turmoil caused by the global pandemic.
Spiking interest rates would mean higher mortgage, credit card, and business loan interest rates, meaning families would struggle to buy homes or pay for their current ones; credit cards would be more expensive to use so personal consumption would fall; and small businesses would have difficulty borrowing, which could affect their ability to grow or even meet their existing payrolls, forcing layoffs across the country. And because the Treasury wouldn’t be able to borrow, the federal government couldn’t take steps to protect the economy or ease the hardship faced by those losing their jobs — or even pay unemployment compensation to those thrown out of work.
- Republican proposals to prioritize payments are no solution — just default by another name. The Treasury Department has said that prioritization is not technically feasible, given that the government makes more than a hundred million payments each month and the Treasury’s antiquated IT systems were built to pay the bills when they come due, not to prioritize. And even if a prioritization plan could be implemented, it would still mean that millions of these bills would go unpaid or at the very least be delayed longer or cut more deeply than if there were no prioritization.
- Suspending or raising the debt ceiling doesn’t need to be a partisan issue. In recent decades, the President and Congress have come together on a bipartisan basis many times to suspend or raise the debt ceiling and avoid default — including three times during the Trump Administration — almost always without much fanfare or threats of default, despite deep differences over tax and budget policies.
After all, suspending or raising the debt ceiling doesn’t authorize new spending or tax cuts; it merely acknowledges — and pays the accumulating bills for — the results of past budgetary decisions.
The Treasury is expected to run out of borrowing room as soon as this summer. To protect our economy, policymakers should do the right thing and raise, suspend, or — best yet — abolish the debt ceiling now, without demanding harmful policies that lack public support and will hurt people and communities.