At some point next year, Congress will need to raise the nation’s debt limit to prevent the United States from defaulting on its financial obligations. However, key House Republican leaders have recently indicated that they plan to take advantage of the need to increase the federal government’s borrowing cap to force spending cuts to Social Security and Medicare, putting these two critical programs at risk.
What is the debt limit?
Current law constrains the ability of the U.S. Department of the Treasury to issue debt to meet the government’s ongoing cash needs through a statutory ceiling called the debt limit. The Treasury cannot borrow more money than is allowed under the limit. As a result, once the debt ceiling is reached, the Treasury will not have enough revenue to meet all the obligations required under previous legislation unless Congress passes new legislation raising or suspending the debt limit. Through accounting moves known as “extraordinary measures,” the Treasury can buy more time after reaching the debt limit, but those measures typically last for a few months before the government runs out of cash—the so-called X Date.
Congress has routinely needed to raise the debt limit to avoid a default
When necessary, Congress has always acted to raise the debt limit if it does not, the nation would go into default—with disastrous consequences. Congress has done so 78 times since 1960: 49 times under Republican presidents and 29 times under Democratic presidents. It voted to suspend the debt limit—effectively raising it—three times under President Donald Trump and increased the debt limit twice under President Joe Biden in late 2021.
If the federal government defaults, people and businesses will not receive the money and services on which they depend. A default also puts at risk all federal programs, including Social Security, Medicare and Medicaid, defense spending, veterans’ benefits, public health, federal law enforcement, and federal interest payments, to name just a few. As a result, millions of American households would be unable to meet basic needs, and countless businesses would soon fail. The fallout would spread rapidly across the entire economy.
A default would also cause chaos in global financial markets, which rely on U.S. Treasury bonds to set a benchmark as the preeminent safe and risk-free asset. As the president’s Council of Economic Advisers wrote last year: “A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge.” These reverberations would multiply the economic harm from the missed payments themselves. A severe recession with massive job losses could result.
A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge.Council of Economic Adviser
Moreover, a default would permanently damage the creditworthiness of the United States, irrevocably compromising America’s rock-solid credit standing, which was built and reinforced over more than 200 years—during which the United States never defaulted on its obligations.* An unprecedented default caused by Congress would raise the government’s cost of borrowing and thereby add to federal deficits and debt.
Increasing the debt limit should be free of political games
Legislation to increase or suspend the debt ceiling would require both passage by the House of Representatives and Senate and the president’s signature. If either house of Congress refuses to pass such legislation, a catastrophic default would occur. Irresponsible lawmakers could hold the debt limit hostage to try to force policy changes that they otherwise could not achieve.
Key House Republican leaders have said that unless spending cuts in Social Security and Medicare are included in legislation to increase the debt limit, the House would not pass the bill. In other words, they are willing to risk default by the federal government to fulfill their wish to cut Social Security and Medicare the threat to Social Security and Medicare is real.
Unfortunately, there is a precedent for such imprudent behavior. In 2011, then-Speaker of the House John Boehner (R-OH) and House Republicans threatened default if President Barack Obama failed to yield to their demands for large spending cuts. As the country came perilously close to default, the government’s borrowing costs rose and consumer and business confidence fell. In that instance, Congress averted a default, but the crisis itself weakened the country’s already fragile economic recovery following the Great Recession.
