Republican and Democratic politicians will soon praise themselves for defusing a debt-ceiling time bomb they lit themselves. Yay. They created a crisis, then resolved it. When you can’t solve real problems, invent fake ones and take credit for creating a lot of drama then ending more or less where you started.
Should Congress pass the Fiscal Responsibility Act (FRA), the debt-ceiling deal President Joe Biden and House Speaker Kevin McCarthy say they have reached, an incredibly stupid human-made disaster won’t happen. Congress will allow the US Treasury to begin issuing debt again, without having to abide by an artificial limit on the total amount of borrowing. That will allow the federal government to pay everything it owes, with no risk of defaulting on interest payments or stiffing anybody who relies on a government check.
In exchange for agreeing to this, Republicans demanded some spending cuts they can claim as significant, which will be anything but. The bill will freeze about 15% of the federal budget, and employ budgetary gimmicks and hard-to-enforce “side deals” to reduce federal spending, on paper, by around $2 trillion during the next decade. But 85% of the federal budget remains exempt from these spending cuts. Plus Congress has a habit of overruling its own spending cuts in future legislation, generating widespread skepticism that the Fiscal Responsibility Act will bestow any fiscal responsibility whatsoever.
But there’s one encouraging aspect of the FRA: Instead of raising the federal borrowing limit by a fixed amount or dollars, which is the custom, it would suspend the debt limit until January 1, 2025. The current borrowing limit is a fixed amount of money, roughly $31.4 trillion. The Treasury hit that limit in January, and since then it has only been able to issue new debt as old debt matures, with $31.4 trillion being the total amount of debt allowed to be outstanding at any one time.
Under the FRA, there would be no limit on borrowing at all, until the beginning of 2025. Then, Congress would have to decide what to do. The usual thing would to either extend the suspension or convert it to a new dollar limit. But Congress could do something else that many rational analysts would love to see: Simply repeal the debt limit altogether.
Then the Treasury could borrow indefinitely, without ever needing authorization from Congress. There would be no more debt-ceiling showdowns, no absurd pandering about spending cuts, no market panic about the prospect of the United States defaulting on its obligations.
This latest suspension of the debt ceiling would add to ample precedent. During the last decade there have been several suspensions of the debt ceiling, with each suspension followed by a return to the traditional practice of setting a fixed borrowing limit, in dollars. Republicans sometimes prefer a debt-ceiling suspension to raising the actual limit, because they can claim not to have voted for more spending. That’s a complete canard, since everybody knows the outcome — more federal borrowing to pay for programs Congress has already enacted — will be exactly the same. But it’s one of the ways political trickery helps resolve standoffs in Washington, DC.
If Congress can suspend the debt ceiling, it can also repeal it altogether. The debt ceiling isn’t in the Constitution. It’s the result of several different laws Congress has passed going all the way back to 1917. Congress can change its own laws, as it has done many times. And there’s a good argument that the debt ceiling has outlived its usefulness.
“The debt ceiling does not serve any useful purpose,” Louise Sheiner of the Brookings Institution testified before Congress last year. “It has not imposed any fiscal discipline on Congress.” The national debt, in fact, has soared during recent years, despite several high-profile showdowns over raising the borrowing limit.
The debt ceiling may even be self-defeating given that the repeat political showdowns over raising it undermine confidence in the United States and its ability to manage itself efficiently. Rating agencies Standard & Poor’s and Fitch have both cited political dysfunction as a risk to the US credit rating. The 2023 standoff has actually raised US borrowing costs by pushing up the rates on short-term T-bills, given the risk they could come to maturity inside a possible default window if Congress doesn’t raise the borrowing limit. If you’re throwing a tantrum because the US has too much debt, and your tantrum actually raises the cost of that debt, your tantrum is patently failing.
Though Congress should abolish the debt ceiling, the odds are it won’t, mainly because Republican think they gain political leverage by occasionally threatening a credit-market meltdown via the debt limit. All modern standoffs over raising the debt ceiling have come when a Democrat was president and Republicans controlled at least one chamber of Congress. When Democrats control the White House and both chambers of Congress, they raise the debt limit as needed with little fanfare, as they last did in December 2021. When Republicans control the White House and Congress, they either raise or suspend the debt ceiling, as they last did in February 2018. Neither party cares so much about the national debt that they’re willing to tackle it on their own watch.
But when one party can obstruct the other, and maybe cause trouble the other side will catch the blame for, debt-ceiling battles suddenly have more appeal. Democrats joust over the matter when they’re in the minority, but not to the point of holding out so long that the Treasury nearly runs out of money, threatening a default. That’s a GOP specialty, with the 2023 showdown mirroring the 2011 debacle, when Republicans who controlled Congress didn’t agree to lift the borrowing limit until three days before Treasury ran dry. A stock-market selloff continued that year even after Democratic President Barack Obama finally signed the bill raising the borrowing limit.
Since the current bill would suspend the borrowing limit until January 1, 2025, nothing would happen until after the next president election. The current Congress could take the next move in a lame-duck session, but it would more likely punt to the next Congress, the one elected in 2024. So whoever wins that year will have the power to repeal the debt limit and end what has a become a repetitive and risky national embarrassment.