DemDaily: The Debt Ceiling Showdown
May 30, 2023
President Joe Biden and Speaker of the House Kevin McCarthy announced a tentative agreement on Sunday to increase the national debt limit, appearing to avoid a devastating default on United States government-held debt.
The deal, however, has not been finalized.
Since January 19, when the US hit its deficit limit, the Department of the Treasury has been operating under a “debt issuance suspension period,” or temporary fix, providing Congress time to pass legislation to avoid a potential financial crisis. Should lawmakers fail to reach an agreement by the June 5 deadline, America would default on its debt for the first time in history.
With a narrowly divided and historically acrimonious Democrat-controlled Senate and GOP-controlled House, negotiators still face significant challenges in securing the final compromise.
| Failure to increase the debt ceiling “would be disastrous for the American economy, for global financial markets, and for millions of families and workers whose financial security would be jeopardized by delayed payments...it would be a self-inflicted wound of enormous proportions." - Treasury Secretary Janet Yellen |
What is the National Debt?
The national debt is the total amount of outstanding borrowings by the US Federal government, accumulated over history -- by both Republican and Democratic administrations.
Every year, Congress passes a budget that includes government spending on defense, infrastructure, programs such as Social Security and Medicare, and salaries for federal workers.
Congress also taxes people to pay for all that spending. But for years, the government has been spending more than it takes in from taxes and other revenue, increasing the federal deficit.
When its ongoing operations cannot be funded by federal revenues alone, the government needs to borrow money to pay its bills. When this happens, the US Treasury Department creates and sells securities. These securities are the debt owed by the federal government.
The Debt Ceiling
The debt limit, created more than a century ago, is a monetary ceiling imposed by Congress on the amount of debt that the US federal government can incur. The cap on how much the government can pay on past bills is different than authorization of new spending under the annual budget.
That borrowing cap is currently set at $31.381 trillion. With few exceptions, it has consistently increased, with Congress having approved, on a bipartisan basis, 78 separate debt limit modifications since 1960.
The Proposed Deal
As agreed upon by Biden and McCarthy, the deal would suspend the current debt limit until 2025, in exchange for a freeze on increases in the government's discretionary spending -- estimated to be $637 billion for fiscal year (FY) 2024. It would also increase total defense spending to $858 billion for FY 2024, expanding on the White House's March request of $842 billion.
In addition, $20 billion of the $80 billion pledged in the Inflation Reduction Act to bolster the Internal Revenue Service's (IRS) manpower and tax code enforcement would be diverted away from the agency over the next two years.
The more contentious issues surrounding the deal include imposing stricter work requirements on people enrolled in welfare programs such as SNAP and Medicaid, relaxing the permitting process for new energy projects, and ending the administration's current pause on federal student loan repayments.
Finally, the agreement would recover an estimated $30-50 billion in unused COVID relief spending, as well as institute a pay-as-you-go rule for any government action affecting revenues to be offset by savings.
| Although both parties have spun the draft as a win, McCarthy on Sunday acknowledged, "We couldn't get everything we want;" and Biden stated, "The agreement represents a compromise, which means not everyone gets what they want. That's the responsibility of governing." |
What's Next
The proposal is now before the House Rules Committee, which includes ultra-conservative members McCarthy appointed as part of his deal to secure the speakership, who have already lambasted the compromise. If advanced by the committee, leadership hopes to bring the bill to the House floor Wednesday for a vote, before going to the Senate for final approval.
It is now a race against time to pass the deal in both congressional chambers and send it to Biden's desk before June 5, the date Secretary Yellen has warned is when the government will run out of money.
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Sources: Dept of the Treasury, CRS, CNN, ABC, CBS, Washington Post
