We're about to hit the debt ceiling...
We're about to hit the debt ceiling...
And what that means.
I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum — then “my take.”
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Today’s read: 10 minutes.
We’re covering the debt ceiling, what it is, and what it means if we hit it.
Quick hits.
The U.S. is averaging 1,500 deaths a day from Covid-19 for the first time since March. (The toll)
Yesterday, Virginia removed a famous Robert E. Lee statue in Richmond that was erected in 1890. (The removal)
The Taliban is allowing 200 foreign citizens, including Americans, to leave on the first international flights out of Afghanistan since the U.S. withdrawal ended. (The release)
President Biden is expected to announce that all federal workers must be vaccinated, with no option for testing as an out. (The announcement)
Around 310,000 Americans filed for unemployment benefits last week, the fewest since the pandemic began and an encouraging sign in the economic recovery. (The new low)
What D.C. is talking about.
The debt ceiling. Yesterday, Treasury Secretary Janet Yellen sent a warning to Congress: the United States’ debt ceiling is quickly approaching, and the U.S. could default on its debt as soon as October if action isn’t taken to raise or suspend it.
The what? The debt ceiling is the maximum amount of money the United States can borrow. Our government borrows money when the Treasury Department issues government securities, or treasury bonds, that other countries and institutions buy. That infuses the government with cash, and it means our debt is owned by U.S. institutions, the U.S. public, and other nations.
The debt ceiling was created in 1917 under the Liberty Bond Act as a way to rein in government spending and increase the efficiency of our borrowing. In essence, the goal was to allow the U.S. Treasury to borrow money without Congressional approval and within the bounds of the debt ceiling framework. If the national debt hits the debt ceiling, the Treasury Department is supposed to take “extraordinary” measures to pay off our debt and expenditures until the ceiling is raised again. The larger issue is that if we hit our debt limit or fail to pay interest to the bondholders holding our debt, we could go into default, which would lower our credit rating and increase the cost of the debt. That cycle could set off a global financial crisis and send the economy into ruin. In theory, this creates the incentive to avoid hitting the debt ceiling, and produces a more fiscally responsible government.
Historically speaking, though, the debt ceiling has become a notorious moving target because rather than reining in spending, we opt to raise or suspend the debt limit every time we get close to hitting it. The debt ceiling has been raised 78 times since 1960, including 49 times under Republican presidents and 29 times under Democratic presidents. In August of 2019, it was suspended by former President Donald Trump until July of 2021, which recently passed.
Now, Treasury Secretary Yellen is warning that as the debt ceiling once again approaches, Congress must act. In recent history, these moments have often been used by Congress as leverage against the other party’s administration. In 2011, for example, Republicans pressured former President Barack Obama to reduce the deficit (cut spending) in return for them increasing the debt ceiling. The U.S. Treasury debt actually lost its triple-A rating at that time.
Once again, with the debt ceiling here, Congress is being told it must act. Below, we’ll take a look at some reactions from the left and right, then my take.
What the left is saying.
The left supports a debt-limit increase, and believes it’s necessary to prevent an economic catastrophe. They say the debt ceiling is not the mechanism we should use to reduce spending.
The Washington Post editorial board said “Democrats must do the right thing” if the GOP won’t.
“In an ideal world, the United States might not have run up a debt of more than $28 trillion; in the real world, it has,” the board wrote. “Another less-than-ideal reality is the 104-year-old law that periodically bars the Treasury Department from borrowing more funds to cover previously approved outlays without a new act of Congress… Senate Minority Leader Mitch McConnell (R-Ky.), however, has announced that his caucus will not back a debt-limit increase this fall, in response, he says, to the Democrats’ party-line enactment of a $1.9 trillion debt-funded covid relief package in March, and to their plans for a $3.5 trillion ‘human infrastructure’ plan via the same procedure in the near future… No matter that the debt ceiling enables the government to service the entire U.S. debt, including the amount that was run up because of tax cuts and spending increases when the Republicans controlled both Congress and the White House under President Donald Trump.
“Democrats could, and maybe should, have gotten the debt-limit business over with in March, as part of their covid package. Faced with Mr. McConnell’s partisan trolling now, however, they are responding in kind, leaving the debt ceiling out of their $3.5 trillion party-line anti-poverty and climate blueprint, as well as the $1.2 trillion infrastructure package… All of the above makes perfect sense, under the passive-aggressive rules of the Washington game. On a substantive level, though, it’s somewhere between embarrassing and dangerous.”
In an MSNBC column, Hayes Brown wrote incredulously about the GOP’s refusal to raise the debt limit now.
“During the Obama presidency, Republicans used the threat of the U.S. defaulting on its loans to force sharp budget cuts to nonmilitary spending,” Brown wrote. “And now they’re set to do the same to President Joe Biden as Congress prepares to pass the cornerstone of his economic agenda. However, when Donald Trump was in the White House, and the GOP controlled Congress, the debt ceiling apparently was less of a concern. The cap on government debt was boosted under Trump first in late 2017 for three months in a deal with the Democrats. That had to be raised again — thanks to the GOP’s huge tax cuts for the wealthy and businesses — as part of a broader spending bill he signed in 2018. Then, after Democrats took control of the House in 2019, Trump signed a budget that suspended the debt ceiling, then $22 trillion, entirely until this July.
“We’ve clearly passed that point on the calendar by now — and Republicans have suddenly started warning that they won’t support another boost to the debt ceiling,” Brown added. “Bear in mind that raising the debt ceiling doesn’t approve more spending or even endorse old spending — it just allows the U.S. to keep paying the debts that have already been incurred and raise more money to pay for federal appropriations.”
The Los Angeles Times editorial board said this “isn’t a fight over spending.”
“Let’s be clear right up front that the debate over increasing the debt limit is not about fiscal responsibility,” the board said. “In fact, failing to raise the debt limit would be the most irresponsible thing lawmakers could do. Instead, it’s all about who will get the blame for, well, being fiscally responsible, and how much damage will be inflicted on the economy in the process. Congress established the debt limit more than a century ago, but the current version of the mechanism makes no sense. How much Washington spends is dictated by the annual appropriations measures and existing entitlement programs, such as Medicare, Medicaid and Social Security. The only thing the debt limit does is impede the Treasury’s ability to pay the bills run up by Congress.
“In other words, raising the debt limit isn’t like upping the credit limit on your Visa card. Congress has already committed to spending the money, and the Treasury has already borrowed much of it,” the board wrote. “The way to rein in spending is to amend entitlement programs and tighten appropriations bills — two things Republicans had the opportunity to do when they held complete control of Congress and the White House in 2017 and 2018. Instead, they pushed the deficit ever higher by ramping up the Defense budget and cutting taxes.”
What the right is saying.
The right is mixed on the debt limit, with some critical of how Democrats are handling spending under Biden and others who believe both parties bear responsibility.
The Wall Street Journal editorial board asked why Democrats are “ducking responsibility for raising the U.S. debt limit.”
“The obvious step is for Democrats to include a debt-limit increase as part of the budget resolution they plan to pass in the Senate this week, following Tuesday’s passage of a $1 trillion infrastructure bill,” the board said. “They can pass the budget with 50 Democrats, plus Vice President Kamala Harris, and Republicans can’t stop them… Yet the $3.5 trillion resolution includes everything except the debt-limit increase. Democrats plan instead to pair the debt limit with a short-term spending bill after Labor Day designed to keep the government open after Sept. 30. This means that Minority Leader Mitch McConnell will have to deliver at least 10 GOP votes to overcome a Senate filibuster.
“Speaker Nancy Pelosi is down to a three-vote majority, and she’s facing pressure from unhappy Members on the left and from swing districts,” they added. “Eleven House Democrats voted against the 2019 debt-limit increase and would be more reluctant this time. The combination of spending $3.5 trillion, raising taxes by $2 trillion or so, and raising the debt limit is a television ad trifecta for GOP challengers in 2022. This is why Democrats are trying to jam the Senate GOP. Mrs. Pelosi and Senate Leader Chuck Schumer are betting the twin threat of a government shutdown and default on U.S. debt will force Mr. McConnell to blink, and give Democrats the votes to get GOP fingerprints on the debt limit and solve their autumn problems.”
In RealClearPolitics, Steve Cortes said he always wondered when the borrowing binge would become too painful — and that time is now.
“Instead of settling for the worst outcome, there is an alternative — if Senate Republicans can find some backbone,” Cortes wrote. “The debt ceiling deadline approaches this weekend, on Aug. 1. The U.S. Treasury can use bookkeeping and accounting gimmicks to continue to service our debt for a while, perhaps into October. Nonetheless… there is an opening for the GOP to finally take a stand for working-class people who are being harmed by inflation. There has not been a real debt ceiling showdown in 10 years, and the last one resulted in a historic first-ever downgrade of America’s credit rating by rating agency Standard & Poor’s. So there are risks to forcing this issue, but there are much greater risks to allowing Democrats to plunge America further into an inflationary spiral of misery.
“If the 50 Republicans stay united and refuse to raise the debt ceiling, they can compel the White House and Hill Democrats to get real about both stopping the insane level of borrowing and simultaneously promising a nervous America that there will be no more lockdowns, period,” Cortes wrote. “If we apply a fiscal tourniquet to the borrow-and-spend madness, and if we empower Main Street to fully, permanently reopen, we can eventually grow our way out of the massive debt debacle that we have established. But the clock is ticking. The window is closing. Will the GOP show the wisdom and the huevos to use the debt ceiling as a lever to stop the madness?”
In The National Review, Rep. Ken Buck (R-CO) pointed the finger at everyone, including members of his own party.
“For too long Republicans have played a complicated game of supporting popular appropriation bills while opposing the debt-limit increases made necessary by excessive spending,” he wrote. “Republicans spend like Democrats in Washington, D.C., during the week. But when they return home for the weekend, they boast to their constituents of voting against another debt-limit increase, in an effort to bolster their conservative bona fides. This is hypocrisy of the highest order on the part of those elected to represent the American people.
“We Republicans have had great success over the years running on promises to bring fiscal responsibility to Washington. It’s a noble goal,” he added. “Saddling future generations with crushing taxes, rapidly rising interest rates, and diminished chances of paying off our irresponsible spending violates our sworn duty as lawmakers, and it’s also flat-out immoral. Yet we are the party that routinely caves when big-spending bills come to the floor. As the bloated infrastructure bill makes its way to the House next week for a vote, Republicans shouldn’t confuse posture with principle. Voting against a debt-limit increase is posturing, plain and simple; saying no to the unprecedented levels of deficit spending the infrastructure package would necessitate is principled. Accordingly, I strongly urge my fellow Republicans to join me in voting against appropriations bills and debt-ceiling increases until we return to budget caps and the sequester.”
My take.
I appreciate Rep. Buck’s candidness. If Republicans wanted to stop the spending they were seeing in Congress, they should have stopped the spending they were seeing in Congress. The rising debt is one of the few bipartisan efforts remaining in D.C., and the idea that Republicans are less responsible than Democrats (or not responsible at all) for the current debt crisis is absurd. Historically speaking, one could easily argue — and many have — that Democrats are the actual party of fiscal responsibility despite talking about it a lot less.
At the same time, The Wall Street Journal editorial board is also right that the Democrats control both chambers of Congress and the White House. If they want to raise the debt limit, they can raise it. They didn’t need to keep it out of the budget resolution they used to pass the $1 trillion infrastructure bill. They did that to keep their caucus together and because they expect Republicans to fold — and then vote — when the prospect of upending the U.S. and global economy becomes apparent. Nancy Pelosi would call that outmaneuvering Republicans, and there’s no doubt an operator like Mitch McConnell would do the same thing if the roles were reversed (we don’t have to guess — it has already happened).
Welcome to Washington, D.C.
All of this begs the question: What is the debt ceiling actually doing, and is it even worth having anymore? To me, it seems clear that all it does is create a huge amount of risk, oscillating leverage for whichever political party decides to use it, and an untenable pattern of lifting or suspending it every time we spend too much money. There aresome other good ideas about how to rein in spending, but none as simple as just spending less and balancing the budget. Until Congress does that, the debt ceiling is little more than a mirage — and a tool to screw over the other party — the kind of political gimmick we should consider abandoning altogether.
Your questions, answered.
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A story that matters.
In a surprising alliance, the Biden administration has begun receiving a boost on its foreign policy from the Kochs — one of the largest networks of Republican donors in the world. Not long ago, the billionaire Koch brothers were public enemy No. 1 of Barack Obama and Joe Biden. Now, though, foreign policy experts at the top think tanks and organizations funded by the Koch network are championing U.S. isolationist policy and throwing their support behind Biden’s withdrawal from Afghanistan. “The durability of this strange alliance is unclear,” Politico reported. “But it has implications for the future of American foreign policy.” (The story)
Numbers.
$28,740,196,432.The total U.S. national debt as of this writing ($28.7 trillion dollars).
$21 trillion. The amount of that debt owned by the U.S. public, according to a February estimate.
$7.07 trillion. The amount of that debt owned by foreign governments and institutions, according to a February estimate.
$1.06 trillion. The amount of that debt owned by China, according to a September 2020 estimate.
17 times. How much more likely unvaccinated adults were to be hospitalized by Covid-19 than vaccinated adults, according to a new study of government data.
Have a nice day.
Paleontologists in Canada have dug up a new species from the Cambrian era (more than 500 million years ago) that they’re calling a “floating head.” The species is about a half meter long, which for that time is considered gigantic, given that most living species we know of then were about the size of your pinky finger. “The sheer size of this animal is absolutely mind-boggling,” Jean-Bernard Caron, from the Royal Ontario Museum (ROM) in Canada, said. “This is one of the biggest animals from the Cambrian period ever found.” The creature belongs to an early group of arthropods called radiodonts, had compound eyes, a tooth-filled mouth, “flaps” for swimming, and spiny claws it used to capture prey. They’re calling it Titanokorys gainesi. Cosmos has the story.