As we get closer to the summer, you’re probably going to hear more and more about the fight to raise the debt ceiling in the news. What’s all that business about? Nothing big, just the fate of the world economy.
Here’s the deal with the debt ceiling: roughly once a year Congress passes a big bill — “the omnibus” — that tells the Department of Treasury what taxes to collect and how much to spend. If the latter exceeds the former, then the federal government borrows to make up the difference by selling Treasury bonds. (For boring macroeconomic reasons taking on the debt in and of itself is not really a big deal.) Separately, there’s a 1917 law that limits the total amount of borrowing the government can do — that’s the debt ceiling.
If borrowing exceeds this statutory limit, one of two things happen: either Congress raises the debt ceiling or Uncle Sam defaults, which would be pretty bad. As in Second Great Depression bad: since US Treasury bonds underpin the global financial system and derive their value from the confidence lenders have in the federal government to pay its debts, a default would collapse the global economy like a house of cards.
It’s worth noting that the debt ceiling itself is kind of dumb. When Congress instructed the Treasury to spend in excess of revenue in the omnibus, it implicitly authorized more borrowing because that’s what happens when you spend more than you earn. It’s also possibly unconstitutional: the 14th Amendment says that “The validity of the public debt of the United States… shall not be questioned,” which can be interpreted as a constitutional requirement that the federal government pay its debts.
Regardless, the debt ceiling exists, and it’s going to need to be raised sometime this summer. But Republicans are threatening to not raise it unless Democrats agree to reduce the budget deficit — the amount the government borrows every year.
In principle, deficit reduction can be achieved using tax hikes, spending cuts or some combination thereof.
So, what are House Republicans proposing? Any tax hikes? Nope! Not only is the GOP proposing cuts to IRS funding (making it harder to catch rich tax cheats), they’re proposing extending Trump’s reduction in corporate tax rates, from 35 percent to 28 percent.
Then spending cuts it is — what’s on the chopping block?
Speaker Kevin McCarthy and Ohio Rep. Jim Jordan say that reducing defense spending is on the table; Texas Rep. Kay Granger, chair of the Appropriations committee, says that’s a no-go. Rep. Michael Walz of Florida agrees, arguing that Republicans should pursue “entitlement reform” — i.e., cuts to Social Security and Medicare — instead. Georgia Rep. Buddy Carter is on board, but South Carolina Rep. Nancy Mace says that’s a nonstarter, as does Donald Trump.
But it’s likely that entitlement cuts are what the GOP will go with at the end of the day.
Before the midterms, top Republicans openly said as much: on Oct. 11, Missouri Rep. Jason Smith told Bloomberg that he supported using the debt ceiling as leverage to force Democrats to make cuts to welfare programs. He’s now chair of Ways and Means, the committee in charge of writing tax laws. On Oct. 18, Rep. McCarthy said that he, too, supported using the debt ceiling to force spending cuts to get the deficit down. And the deal he struck with far-right members of Congress to win the speakership (on the 15th ballot) included a clause promising not to raise the debt ceiling without spending cuts. Russ Vought, a top budget aide in the Trump administration, has been circulating a proposal to cut, among other things, $2 trillion from Medicaid, $600 billion from Obamacare and $400 billion from SNAP, which he describes as ending “woke and weaponized” government. On Feb. 28, Rep. Jodey Arrington, the Republican chair of the House Budget Committee, told Reuters that the GOP budget plan would be crafted along the lines of Vought’s proposal.
It wouldn’t be the first time Republicans tried this gambit: in 2011, the United States almost breached the debt ceiling after the GOP demanded that Barack Obama agree to entitlement cuts. And they did it again in 2013.
Let me step back and translate all this jargon into plain English: House Republicans are currently aiming an ICBM at the global economy and threatening to push the red button unless Joe Biden and Chuck Schumer agree to cut spending on healthcare for the poor and/or pensions for senior citizens (both have publicly refused to consider such cuts), while still increasing the national debt, in order to pay for more tax cuts for corporations and their multimillionaire owners. For the third time in the last 12 years.
So much for the party of fiscal responsibility.
MILAN SINGH is a first year in Pierson College. His fortnightly column, “All politics is national” discusses national politics: how it affects the reader’s life, and why they should care about it. He can be reached at milan.singh@yale.edu.
