The US debt ceiling: What it is and what happens if Congress doesn’t raise it

The US government has never defaulted on its debts — but actions by Senate Republicans are threatening to shatter the nation’s financial track record. At the center of the congressional fight is a somewhat obscure bureaucratic mechanism: the debt limit, which is the amount of money the government is legally allowed to borrow. Failing to raise (or suspend) it could lead to dire financial consequences that could impact every part of the US economy.

The Democratic-led House of Representatives narrowly passed a bill along party lines last week to fund the US government through the beginning of December and suspend the debt ceiling until the end of 2022. But Senate Republicans blocked the measure on Monday — not a single Republican voted in favor — setting the stage for a clash. The US government could run out of money as soon as Oct. 15, according to an analysis published by the Bipartisan Policy Center.

The stakes are high. If the ceiling isn’t raised or suspended, it will almost certainly impact the US economy at a macro level, with experts forecasting interest rates spikes and stock price plunges. But the effects will surely be felt on an individual basis, too, as a government spending freeze would reduce or eliminate funding for vital programs, including food assistance for low-income Americans, Medicare and Social Security, and payouts to retired veterans.

 What is the debt ceiling?

The debt ceiling, also known as the debt limit, is the amount of money the US Treasury Department is allowed to borrow to pay its bills. Because the revenue collected from income taxes isn’t enough to cover its expenditures, the US government borrows money to pay for many essential functions. These include providing Social Security and Medicare benefits, paying the salaries of military personnel, paying for tax refunds and paying to service its already significant national debt, which currently stands at roughly $28 trillion.

When does the current debt ceiling expire?

Congress sets the amount of money the US Treasury Department can borrow, and, since 1960, it has raised, extended or revised the debt ceiling 78 times — including in 2019, when it voted to suspend the debt limit for two years. That two years came up on Aug. 1. If Congress doesn’t act, the US government will be unable to meet all its obligations in full and on time somewhere between Oct. 15 and Nov. 4, according to a recent analysis from the Bipartisan Policy Center.

What’s the political context?

Congress faces two key issues. One is the need to pass a spending budget to fund the US government. The other is the suspension of the debt ceiling, which would allow the US Treasury to borrow more money to pay its ongoing financial obligations.

To avert a government shutdown, Congress needs to pass some sort of government funding package by Thursday. However, legislators haven’t yet hashed out a full budget — and it’s quite possible that they won’t by the end of September. To avoid a shutdown, on Sept. 21, Democrats in the House of Representatives passed a continuing resolution — essentially, a stopgap measure — to keep the government funded at its current level until sometime in December. But the House’s resolution included a debt limit suspension for the US Treasury — a provision that Republicans in both the House and Senate now oppose.

Why is the GOP refusing to increase the debt limit?

Although Republicans and Democrats alike voted to lift the debt ceiling on three occasions while Donald Trump was president, Republicans have framed this suspension as enabling a “spending binge,” in the words of Sen. Pat Toomey, a Republican from Pennsylvania, who spoke at a Banking, Housing, and Urban Affairs committee hearing Tuesday.

On Monday, Senate Republicans voted to kill a resolution that would have suspended the debt ceiling, funded the government and averted a shutdown. Senate Majority Leader Chuck Schumer, a Democrat from New York, voted “no” to allow him an opportunity to call another vote on the issue…Read more>>


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