The debt ceiling debate that’s raged on in the nation’s capital was a test of political wills combined with economic catastrophe.
Lawmakers fought to get a deal done to prevent the federal government from defaulting on its debt payments.
Passed late last week, Congress agreed to legislation that suspends the debt ceiling until 2025, or in other words, through the next presidential election.
Before the deal, the debt limit was $31.4 trillion.
The debt ceiling is a limit that “essentially tells the federal government you can only spend so much money,” said Jon Taylor, professor of political science and chair of the Department of Political Science and Geography at UTSA.
Though, the debt ceiling is not the same as a spending limit. (We’ll get to that in a moment.)
It’s a dollar amount that, if the federal government hits, it cannot take on any more debt because there won’t be enough money to pay off the amount the U.S. already owes.
Where did the debt ceiling come from?
“It came as a result of World War I and, if you can believe it, Liberty Bonds and the fear that the federal government was going to go into debt somehow,” said Taylor.
The federal government created the debt ceiling as a way to pay for U.S. involvement in that war, and it’s been around ever since.
“Of the G7, the top seven economies in the world, none of them but us have a debt ceiling,” said Taylor.
It’s a limit lawmakers created and one they have the power to raise.
“The spending limits are imposed by Congress, which has the power of the purse, if you will,” said Thomas Tunstall, research director at the UTSA Institute for Economic Development.
However, there’s a difference in how much money can be spent versus how much debt the U.S. can take on.
The debt ceiling limits how much money the federal government can borrow to pay for spending that’s already happened.
While the two are certainly linked, the debt ceiling differs from a spending limit.
How much money can be spent or how much is earmarked to be spent and on what takes shape in the annual federal budget.
“The discussion with regard to debt limits versus the budget should be decoupled,” said Tunstall.
Congress is no stranger to... raising the roof
Lawmakers have raised, changed, or revised the U.S. debt ceiling 78 times since 1960.
In case you’re wondering, it happened 49 times under Republican presidents and 29 times under Democratic presidents.
A way to avoid government default is to raise the debt ceiling.
Changing that number is one thing, but surpassing it is another, which could spell economic disaster.
It might be easy to conjure up recent memories of a government shutdown.
They’ve become pretty common over the years, so it’s understandable why that might be what some people think of when hearing lawmakers warn of debt ceiling repercussions.
But they’re not the same.
The U.S. government must have its annual federal budget in place by Sept. 30, the end of the fiscal year. The government can keep operating at roughly 95 percent of current spending if it doesn’t make the deadline.
“You end up with an impasse where for, say, a week or 10 days, they don’t have that budget in place for the next year,” Taylor said. “There’s not the money there. You start shutting down non-essential services and government.”
Is missing a U.S. debt payment really that big a deal?
Busting through the debt ceiling means the U.S. would default on a payment, and the effect would be almost immediate.
“There are 11 interest payments starting May 30 through the end of June,” said Tunstall. “And if any one of those gets missed, then Treasury bonds, bills, notes automatically get a one-notch downgrade. So it’s no longer a triple AAA, you know, top-rated. And that means the cost of borrowing goes up.”
So buying a house costs more. Taking out a loan costs more.
“Even if that we missed one payment, we’re looking at probably 500,000 jobs or millions if it goes on for any length of time,” Tunstall said.
“To say that somehow government operates like you and I do, last time I checked, you and I don’t have nuclear weapons or can send people to Mars,” Taylor said.
U.S. default could mean halting military salaries and Social Security payments, or even the R-word — recession.
The 14th Amendment
President Joe Biden suggested invoking the 14th Amendment during the debt ceiling debate.
In so many words, it says the federal government’s debt cannot be questioned and must be paid.
“There is some thought that the president could use that and say you can’t question the debt. And so, therefore, we’re going to go ahead and keep borrowing money because we’ve already decided we’re going to spend money on these items,” said Bill Piatt, a law professor at St. Mary’s University.
But legally, that would be dicey. The provision of the 14th Amendment that comes from has never been interpreted by the Supreme Court.
“You can’t just call up the Supreme Court and ask them for their interpretation,” said Piatt.
So it would take a legal challenge, which would almost certainly come.
And a potentially lengthy legal fight would follow at a time when federal bills are piling up.
“I think it would create a constitutional crisis, an economic crisis, so we’re stuck with trying to figure out what Congress is going to do in the meantime,” Piatt said.