Today, the United States reached its debt ceiling, which is the maximum amount of debt that it is allowed to have under current legislation. Secretary of the Treasury Janet Yellen can borrow money from pension funds and such to keep up with debt payments and government obligations until June but the responsible thing would be for Congress to immediately either raise the debt ceiling or suspend it. (The most responsible thing would be to eliminate the debt ceiling but no one is even discussing that.)
Like many other governments and corporations, the United States raises some of the money it uses for its operations through issuing bonds. Perhaps you are familiar with the US Savings Bonds program or with Treasury Bills, often called T-bills. The purchasers of these financial instruments are basically loaning money to the government, which then pays it back with interest on the maturity date. While some of these are held by individuals, the vast majority are held by large financial institutions, like banks and mutual funds, or by foreign governments. The United States dollar is considered the world’s reserve currency because of its stability and the reliability of the US government.
If Congress does not pass an increase in or suspension of the debt limit, the US government would default on its bonds, which could cause a steep downturn in both the stock and bond markets, a severe recession, higher unemployment, rising interest rates on loans, and higher prices. The impact would be global because many US government financial instruments are held in or by other countries. It would also cause some countries to mistrust that the United States will keep its word in other areas.
The US government also would not be able to pay its workers or to fully pay Social Security, veterans’ benefits, nutrition programs, and all the other programs that the federal government provides. This would be a huge hardship to many of their constituents, so why would Congress hesitate to raise the debt ceiling?
Apparently, one of the things Kevin McCarthy promised in order to get enough “yes” and “present” votes to win the Speakership was that he would not pass a clean bill to raise the debt ceiling. Instead, McCarthy promised that the debt ceiling increase bill would mandate spending cuts, including to programs that are earned benefits, like Social Security.
This doesn’t make sense. The debt ceiling issue has to do with paying the bills for spending that has already been authorized by Congress. The time for debate about cutting the total amount of government spending is when debating appropriation bills for the next budget year.
Furthermore, the Fourteenth Amendment, Section Four to the US Constitution states, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” It seems that the House Republicans are trying to question the validity of public debt by threatening to default on it.
It’s also telling that Republicans passed debt limit increases without making a fuss three times during Donald Trump’s presidency when the budget deficits were higher than they are now under President Biden. Part of the reason deficits were higher was that the Republicans passed large tax cuts for the wealthiest individuals and corporations, thus reducing revenue. At the same time, they cut the budget of the Internal Revenue Service so that it was more difficult to audit and catch high-income tax cheats.
It’s hypocritical for the Republicans to be complaining about the size of the national debt now, because it increased so quickly during the four years of the Trump presidency. 25% of the total national debt is attributable to the Trump years.
If the Republicans were serious about balancing the budget and beginning to pay down the national debt, they would be looking at ensuring the wealthy are paying their fair share in taxes. Current law, with lots of loopholes for the wealthy, often has the very rich paying a lower percentage of their income in taxes than their average employee does. Yet, one of the first pieces of legislation the Republicans in the House passed was to rescind that increased funding to the IRS to upgrade their systems and audit more high-income earners. This bill would result in lower tax revenue as tax cheats would have a lower chance of being discovered and forced to pay what they owe. Fortunately, the Senate will not take up this House bill so it has no chance of becoming law.
I have already written to my member of Congress, Republican Marc Molinaro (NY-19), to ask him to join with Democrats and the reasonable Republicans in the House to pass a clean debt ceiling increase or suspension. If Speaker McCarthy won’t put the bill on the floor, they may need to file a discharge petition to get the bill put up for a vote.
Unfortunately, that process takes several weeks, so they had better start now. Secretary Yellen will enlist whatever shuffling of resources are allowed while they do it, but the clock is ticking and folks – and the financial markets – will be worried.
Of course, it would be faster and easier if McCarthy put the good of the country first and introduced a clean bill today. It would also show that the House Republicans want to cooperate in the governance of the country to “promote the general welfare,” as the Preamble to the Constitution states.
Given that they have thus far not shown this inclination, I won’t hold my breath.
Join us for Linda’s Just Jot It January! Find out more here: https://lindaghill.com/2023/01/19/daily-prompt-jusjojan-the-19th-2023/