5 things people get wrong about the debt ceiling saga
5 things people get wrong about the debt ceiling saga
The U.S. is running short of both time and money to pay its bills.
At some point in the next several weeks, the U.S. is likely to run out of money to pay its bills, risking the prospect of a devastating default.
With time of the essence, here are answers to five things that people often get wrong about the ongoing debt ceiling saga.
Did runaway spending by President Biden and congressional Democrats leave the U.S. on the brink of default?
In a word, no.
The U.S. can currently borrow up to $31.4 trillion, and political leaders need to urgently raise or suspend that debt ceiling or risk leaving the country unable to pay its bills.
But the current national debt has been building up for years, and carries plenty of fingerprints – from both Democrats and Republicans. The reality is that the U.S. needs to borrow money to pay its bills given that the government hasn't balanced its budget since the Clinton administration.
Two unfunded wars, three recessions, a global pandemic and three rounds of tax cuts all contributed to the tide of red ink.
In fact, of the total debt on the books today, 16% was added during the eight years George W. Bush was in office, 30% was added during the eight years Barack Obama was in office, 25% was added during the four years Donald Trump was in office – and 12% was added since President Biden took office.
What about the war in Ukraine? Did that contribute to the national debt?
It was negligible at best.
Since Russia's invasion of Ukraine last year, the U.S. has devoted more than $76 billion to the country, including humanitarian aid, financial assistance and weapons.
While that dwarfs the amount of aid the U.S. sends to other countries, it's a smaller fraction of GDP than some allies have contributed to Ukraine.
It represents less than 5% of this year's projected deficit and just 2/10ths of 1% of the government's accumulated debt.
Is the U.S. going to run out of cash on June 1?
When the U.S. will actually be unable to pay its bills is difficult to predict with precision. After all, billions of dollars flow in and out of government coffers daily.
Treasury Secretary Janet Yellen has said repeatedly that forecasting a precise moment when money runs short is impossible.
However, since the government knows generally when bills are coming due, Yellen says it's "highly likely" that the government will run short of cash in early June, and possibly "as early as June 1."
Quarterly taxes are due on June 15, so if the government is able to get that far, the influx of new revenue will push the crunch date further off into the future.
In addition, the government will get additional headroom under its borrowing limit at the end of June, which would buy additional time.
So far, financial markets are generally assuming a deal will be reached to avoid a default. But as the crunch time gets closer, investors may get increasingly nervous. If investors start to doubt the government's ability to pay its bills, the resulting volatility could put additional pressure on lawmakers to make a deal.
Is the debt default the same as a government shutdown?
This one sparks confusion all the time, even among seasoned journalists at NPR.
It's easy to see why. The threat of a debt default and a government shutdown are both symptoms of political gridlock, and because they sometimes occur at the same time, they can easily get mixed up.
But they're not the same.
Government shutdowns happen with some regularity when Congress fails to agree on additional spending to fund the government. They're costly and inconvenient. But essential government services continue, and the lasting damage is limited.
By contrast, the threat of a default arises when Congress fails to agree on additional borrowing so the country can continue paying its bills.
While the government has occasionally flirted with default — most recently in 2011 and 2013 — it has never actually failed to pay its bills. Doing so would likely do lasting damage to the government's reputation as a dependable debtor, and could result in permanently higher borrowing costs.
Why doesn't the U.S. get rid of the debt ceiling altogether?
The U.S. could do that, but it's harder in practice.
The debt ceiling was created by Congress during World War I, as a way to simplify government borrowing without the need for lawmakers to approve each individual bond issue.
It could just as easily be removed if lawmakers choose to do so. However, it can be politically challenging because it could be seen as a gateway to additional deficit spending.
Congress could eliminate the debt ceiling altogether, or declare that necessary borrowing is automatically authorized whenever federal spending is approved.
This second option was, in fact, the practice followed for a decade and a half, under the so-called Gephardt Rule, named for former Rep. Richard Gephardt, D-Mo., who got tired of cajoling lawmakers to raise the debt limit to pay for spending they'd already voted for.
Some Democrats called for repealing the debt limit last year, before Republicans took control of the House, but President Biden dismissed the idea as "irresponsible." That set the stage for the current showdown.
Congress has raised the debt limit dozens of times, and it rarely comes close to reaching a crisis.
Recent exceptions have come during periods of divided government — in particular when the House of Representatives is controlled by Republicans and a Democrat is in the White House, with the GOP using the debt ceiling as leverage to extract policy concessions.
By contrast, Congressional Democrats repeatedly agreed to raise the debt limit with little drama during periods of divided government, including twice during the Trump administration and three times during the George W. Bush administration.