There are so many places to start a conversation about the debt ceiling, but perhaps the best for our purposes is to talk about what it actually is. The term “debt ceiling” feels murky and abstract (at least to me, it does) and I think that’s a fair approach when reading headlines or listening to mainstream news. Congress needs to raise the debt ceiling! We have a national debt! We have a federal debt! It’s increasing!
But what is it, exactly? The “debt ceiling” is the limit on how much money the federal government is allowed to borrow to cover its debt(s). More specifically, it’s a federal law limiting how much money the federal government can add to the total debt leftover from our past debt. Not our future spending. Makes sense. The “federal debt” refers to how much debt the federal government has in total each year. Again, sounds simple enough, but still abstract, so let’s use some specifics below to illustrate this in action.
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Congress passes an annual budget that includes paying for things like salaries for federal employees (including folks like postal workers, for example), veteran benefits, paychecks for active military members, pensions, Social Security checks for seniors, and food assistance programs, among others. And again, this refers to paying what the government has already promised we can cover.
While our taxes also go toward these things, the government can (and does) spend more to cover these “debts” than it receives (from the aforementioned taxes, among other things) which increases the federal debt. Another way of looking at this is that the government must borrow funds to pay for what Congress has already said we can cover (Social Security, Medicare, Medicaid, etc).
Now, who controls the debt ceiling? Whose call is it? That comes down to Congress.
Why? This detail is not actually outlined in the Constitution, surprisingly. In fact, the first ceiling was introduced at the start of World War I with a cap of $1 billion.
According to NPR, this number was pretty random, but was definitely huge—it was more than the government spent in past years, and it seems reasonable to believe folks just didn’t imagine needing it to ever be higher.
As covered by Bloomberg, the hope was that it would make it easier for Congress to approve different categories of bonds as the war loomed overseas without having to approve each individual instead of borrowing funds, which would be unnecessarily time-consuming. Put another way: It’s meant to make it easier for the federal government to borrow money. Not harder.
Think of it like having an unlimited credit card that technically has a limit but you’re like, no worries, there’s no way I can spend this much money. It’s limited, but it feels limitless for our purposes. By the start of World War II, however, Congress (obviously) had to revisit the cap.
The debt ceiling has been raised (or temporarily suspended) around 100 times at this point. To give us some perspective, the current federal debt ceiling is around $31 trillion and we expect it to last until July 2023, per the Committee for a Responsible Federal Budget. It shouldn’t be a partisan issue, but thanks to Republicans, just about everything is.
This ties into our next point. Who's afraid of the debt ceiling?
The answer is complicated. If the federal government did actually default the stock market could take a serious hit, we could have a major recession, and many folks worry this could negatively impact how the U.S. stands globally as well. This is in addition to, of course, folks going without their paychecks and benefits.
But, before we’d actually reach that point, the government can use “extraordinary measures” to operate, which is basically another way of saying the Treasury can fiddle with accounting to, say, pay for obligations one day at a time, as broken down over at ABC News. But if this happens, runs out, and Congress can’t still come to an agreement, we’d eventually reach a point where the government can’t pay its obligations any longer.
Has this ever happened? No.
With this reality in mind, who tends to be the most upset about the debt ceiling? Which party tends to use it as a campaign issue more than the other? Republicans. (Mind you, Ronald Reagan raised the debt ceiling 18 times while in office, compared to eight by Bill Clinton, and even less under Barack Obama, for example, but I digress ...)
As Vox points out, Republicans have already started to threaten to hold the debt ceiling “hostage” so soon after the midterm elections. Lovely!
