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Government Debt Ceiling

Writer's picture: Ryan NavaRyan Nava
Sep 30, 20213 min read

Will the Government Shutdown come October?


BACKGROUND:

Congress has until September 30th to reach consensus on the current debt crisis, which will be the end of their fiscal year. Mitch McConnell, who serves as the Senate’s Republican Minority Leader, will not increase the Treasury’s ability to borrow money. 46 senate Republicans echoed this sentiment in a letter against increasing the debt ceiling. And in the house, a bill attempting to raise the debt ceiling received zero republican votes. If the government is unable to pay off its existing debts, that is, if it doesn't raise the debt ceiling, then the government will go into a shutdown.. It is important to note that the vote would not authorize more spending, it would only cover existing debts and obligations that congress already agreed to.


Edit (9/30): On Thursday, the house approved a senate bill to fund the federal government, which is expected to be signed into law by President Joe Biden, averting a government shutdown.


McConell has argued that this is a partisan issue that can only be resolved by the majority party. “ The country must never default. The debt ceiling will need to be raised. But who does that depends on who the American people elect” (McConell 9/13). While previous increases of the debt ceiling were bipartisan, Republicans are targeting Democrats for the rise in debt related to trillions spent by the Biden administration. “The Democrats have added enormous amounts of debt, including the 1.9 trillion package...so they bear the responsibility for increasing the debt limit,” said Senator Susan Collins.


By arguing that the majority party should pass congress’ new budget, McConnell is suggesting that the budget be passed using budget reconciliation. This is when any budget-related bills are passed along party lines, or with a simple majority instead of 60 votes. The GOP used the budget reconciliation process in 2017 to pass a tax cut, which raised the national debt. In this instance, Democrats passed a debt default in a bipartisan fashion to avoid a shutdown. Nancy Pelosi capitalized on this point, reminding voters that “When president Trump was president, we Democrats supported raising the debt ceiling because it's the responsible thing to do”. Normally, both parties participate because they have impacts on the debt: from domestic spending for Democrats, to military spending for Republicans. Additionally, bipartisanship acts as a symbolic gesture. Yet these customary attempts at bipartisanship are becoming difficult, as senator Ted Cruz has promised to filibuster the bill in the senate, limiting Democrat options.


Since the debt ceiling’s creation in World War 1, presidents have faced challenges to the debt ceiling, with the first crisis arising under Dwight Eisenhower in 1953. Since the 1960s, 78 debt ceiling rises have occurred, crossing the trillion dollar mark under the Reagan administration. Government shutdowns were present in Bill Clinton’s and Obama’s administrations, with the latter resulting in a downgrade of the U.S. credit rating. Biden seems unfazed by the threat of a debt default, confidently proclaiming that “They’re not going to let us default...Eight trillion of that is on the Republican watch” (The eight trillion refers to debt incurred under the Trump administration).


EFFECTS


Janet Yellen, Treasury Secretary, has proclaimed that the shutdown will cause “irreparable damage to the U.S. economy”. The U.S. government has had a deficit year after year since 2001, but a first-ever default would make it more difficult to borrow on an international scale. And as we continue to recover from the economic collapse caused by COVID, we must be wary of the additional effects a shutdown will have on the economy.


The pay of federal employees, as well as federal programs, would be temporarily halted. This includes checks for Social Security and Medicare, as well as payment for treasury bonds. The White House has prepared for a potential shutdown, and circulated a memo warning state officials of programs that will be halted until the shutdown resolves itself.


This is causing a partisan divide, with democrats arguing that McConell is instituting a double standard, especially one that will damage Democratic popularity in the polls. Republicans, on the other hand, have promised to use this in midterm elections, with Senator Rick Scott stating that “they’re going to get held accountable for it”.


Democrats are attempting to pass the debt ceiling increase within an emergency disaster relief bill, in an attempt to gain moderate support. Another avenue is passing it in the 3.5 trillion infrastructure bill already being debated, although that bill is currently facing disputes within the Democratic party from progressives and moderates.


 

 
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