The current two-year suspension of the federal government’s debt limit is set to expire on July 31, 2021. U.S. Treasury officials will likely be able to push this deadline back to Sept. 30, when fiscal year 2021 funding runs out, using accounting gimmicks or “extraordinary measures.” Without suspending or raising the debt limit by then, the federal government will no longer be able to issue debt and will be forced to default on financial obligations leading to a rapid rise in interest rates and subsequent economic fallout.
Previous Congresses used the debt limit as a leverage point to extract spending cuts or reforms, the most recent successful example being the Budget Control Act of 2011. The logic is simple. If the federal government needs to issue more debt, the current level of government spending is too high and must be brought under control.
Brian Riedl of the Manhattan Institute once observed:
“Since 1985, virtually every major deficit reduction law has been attached to a debt limit increase. The 1985 and 1987 Gramm-Rudman-Hollings deficit caps were attached to debt limit bills. So were the 1990, 1993, and 1997 budget deals that contributed to the 1998-2001 balanced budgets. The 1996 Line-Item Veto Act (later invalidated by the Supreme Court) and 2010 Pay-As-You-Go law were each placed on debt limit bills. Most importantly, the 2011 Budget Control Act—and its $2.1 trillion spending cut—was attached to a debt limit bill.”
Prominent Republican figures in both the House and Senate are opposed to raising the debt limit.
Senate Minority Leader Mitch McConnell recently told Punchbowl News he doesn’t expect “a single Republican in this environment that we’re in now” to vote to raise the debt limit. Other prominent Republican leaders, such as Senate Budget Committee Ranking Member Sen. Lindsey Graham and Republican Study Committee Chairman Rep. Jim Banks, have already demanded significant spending reforms or cuts in exchange for raising the debt limit.
If they stick to their position, the House and Senate Democratic majorities will be forced to use budget reconciliation to raise the debt limit on their own, unless of course an agreement to cut spending is reached.
This outcome has three major benefits.
First, reconciliation requires Congress to raise the debt limit by a specific amount instead of simply suspending it to a future date. This is potentially troubling for Members of Congress because it will shine a bright light on just how much debt they are willing to put on future generations of Americans. If they want to pass a $5.5 trillion “human infrastructure” plan, they will be responsible for the debt associated with it.
Second, raising the debt limit via reconciliation will link the current debt and inflation crisis directly with President Joe Biden’s tax and spending plans, adding a significant and lasting burden to his legacy.
Third, reconciliation can only be used two additional times before the 2022 election. Whoever is tied to the negative economic impact of adding so much to the bloated debt burden on future generations will likely see prospects of more policy victories similarly crushed.
The current U.S. national debt is nearing $30 trillion and will have far-reaching negative economic consequences for future generations of Americans. Congress has a fiduciary obligation to address the issue now. Lawmakers should not raise the debt limit without significant spending reforms or cuts.