In early January 2023, Janet Yellen, the US Secretary of the Treasury, alerted Congress that the US would reach its debt limit of slightly over 31 trillion US dollars by the middle of the month. Yellen also indicated that, although the Treasury would take measures to stave off defaulting on the country’s debts until roughly early June, avoiding a default altogether would require Congress to pass legislation to either raise or suspend the debt limit.
In reporting that the US would hit the debt ceiling, Yellen sparked a long-awaited political showdown between the Biden administration and the newly empowered Republican majority in the House of Representatives, led by Speaker Kevin McCarthy. Despite the brinkmanship involved between the two sides, this political showdown is likely to end with a more moderate conclusion than the situation seems to suggest.
What is the Debt Ceiling?
To understand this political showdown, it is first necessary to understand the debt ceiling. The United States owes debts to people and institutions worldwide, and the debt limit (sometimes called the ceiling) is the maximum amount the US is permitted to borrow. The purpose of borrowing is to finance obligations already approved by the government that it could not fund otherwise, given that the revenue collected is insufficient.
Since the Constitution gives it power over public finances, Congress has always played some role in approving debt levels. However, due to Congress’ approval being necessary to avoid defaulting on US debts, what used to be a routine process has become a weaponized political cudgel in the last few decades.
What Would A Default Do?
If the United States were to default on its debts, there would be disastrous consequences for America’s economy.
Even short-term brushes with defaults, like in 2011 and 2013, brought higher borrowing costs that harmed the broader economy, including jobs and housing prices. A more prolonged default would be significantly worse for the US economy. In early March 2023, Moody’s Analytics warned that a prolonged debt ceiling breach would be “catastrophic” for the economy, tanking it to levels similar to the 2008 financial crisis. The analysis projected the loss of more than seven million jobs, the rise of unemployment rates to above 8 percent and the loss of 10 trillion dollars in household wealth as stocks plunge.
Therefore, in the short or long term, a brush with defaulting would be incredibly damaging to the still-recovering US economy and likely just as damaging to the political careers of those involved.
Why Is There a Showdown?
With that in mind, many may question why there is a showdown over the debt ceiling. What they do not realise, however, is that the true motives are unrelated to the debt ceiling issue.
Instead, congressional Republicans are using this crucial moment when they control the House to extract concessions, possibly in the form of budget cuts or the passage of conservative legislation, from the government in exchange for resolving the debt ceiling crisis. So far, however, the Republican majority has not released their demands. Only the influential House Freedom Caucus, a congressional group of like-minded ultraconservative lawmakers, has detailed substantial cuts to numerous government programs, including taking back money from the Internal Revenue Service and Biden’s flagship legislation, the Inflation Reduction Act.
The Biden administration is unlikely to accept any proposed plans by House Republicans. In a White House press briefing, Press Secretary Karine Jean-Pierre told reporters that the White House was “not going to do any negotiations” and that raising the debt ceiling should be done without prior conditions. Likely to up pressure on Republicans by not adding to the deficit, the Biden administration has argued that its proposed budget for 2024 would see a 3 trillion dollar reduction in the deficits over the next decade, even without the cutting and slashing Republicans want to see.
How Will This Showdown End?
Given that the two sides are seemingly so at odds, it is reasonable that many are alarmist about the prospects of the US defaulting on its debts in the coming months. However, this debt ceiling debacle will likely reach a much more moderate conclusion, as it has in the past.
An indication of how this debt ceiling fight might play out can be gathered from previous showdowns. In 2013, the last time one of these clashes occurred between a Democratic administration and a Republican-led House, the American public greatly disapproved of both sides’ handling of the crisis. According to an ABC News/Washington Post poll conducted in late 2013, 74 percent of Americans disapproved of the way Republicans were handling the dilemma. On the other hand, only 53 percent disapproved of Obama’s handling of the crisis and 61 percent disapproved of how congressional Democrats handled budget talks. Given how unpopular the last debt ceiling showdown was, it seems unlikely that either party wants to bear the brunt of the bad press.
In addition, individual lawmakers make their own political calculations and can defect from party lines if it is to secure their reelection. This is particularly true for those representing the more competitive districts across America, who tend to have more centrist voting records. If past votes on raising the debt ceiling are anything to go by, the politically vulnerable moderates will likely help facilitate the end of this crisis. This is particularly true given that the House is so closely divided, and only a few defections would be necessary.
That is why, while the alarmism about the US defaulting is understandable, it seems likely that this debt ceiling crisis will resolve itself as it has in the past. While some pundits have warned that the more extreme ideological composition of the Republican House majority might complicate the matter, the unpopularity of debt ceilings fights in recent history, and the likelihood of moderates defecting to help end these crises suggests that the debt ceiling will come to a more moderate conclusion.
Edited by Kayley Suk.
The opinions expressed in this article are solely those of the author and they do not reflect the position of the McGill Journal of Political Studies or the Political Science Students’ Association.
Featured image by
Edited by Kayley Suk.
The opinions expressed in this article are solely those of the author and they do not reflect the position of the McGill Journal of Political Studies or the Political Science Students’ Association.
Featured image by Kurtis Garbutt obtained via Flickr under a Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0) license.