For years, the United States Congress has been raising its debt ceiling when the federal government has to borrow more money to pay back its debts. This process is in place to ensure that the US government does not have to default, or fail to pay, on its loans. But in more recent years, raising the debt ceiling has become increasingly difficult because of vigorous partisanship in the US government.
The United States most recently hit its debt ceiling of $31.381 trillion on January 19, 2023. Typically, this would lead to the debt ceiling being raised, but this has become very difficult due to rigid party lines. The Democratic Party champions raising the ceiling on its own, whereas the Republican Party favors putting a major stop to federal spending.
In recent years, the US has been approaching its debt limit more closely, making it harder for lawmakers to pay loans back and make policy to curb the debt consequences. However, the partisanship seen under the status quo is especially problematic because if the debt ceiling had not been raised, Congress would be expected to pay all outstanding debt. Seeing that this is not possible within a reasonable time frame, the US would have defaulted on its loans. Since the United States is a global power, and most countries rely on US trade as well as the US Dollar ($USD), this would have disastrous implications, such as halting international borrowing and spending, as well as sparking a global economic crisis. Therefore, it was imperative that Congress figure out how to come to an agreement.
Negotiations between policymakers promptly began in February when Senator Kevin McCarthy met with President Biden to alleviate the issue. Biden suggested a clean increase to the debt ceiling, and Sen. McCarthy agreed with that contingent on the fact that “excess spending” would drastically go down. This meant money would be getting pulled from Biden’s Student Loan Relief Program, as well as welfare programs such as the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and Temporary Assistance for Needy Families (TANF).
Following this, Sen. McCarthy introduced the Limit, Save, Grow Act which would have raised the debt ceiling by $1.5 trillion, but this was shot down by Democrats because it proposed significant cuts to Biden’s Loan Forgiveness, Social Security, Medicaid and disbanded the bulk of the nation’s clean energy subsidies.
Finally, on May 29th, Senator Patrick McHenry introduced the Fiscal Responsibility Act of 2023. This piece of legislation was a compromise of both Sen. McCarthy's and President Biden’s plans for the country’s economy. It opted to suspend the debt limit until January 1st of 2025; suspending the debt limit is different from raising the debt ceiling because it allows the Department of the Treasury to go over the initial $31.181 limit instead of proposing a set dollar amount limit. Only when 2025 comes will the discussion of the debt limit officially resume. But even this current compromise comes with a number of concessions from both sides of the political aisle. The biggest win for the Republican Party under this Act is that there would be a strict cap on federal discretionary funding in the fiscal years 2024 and 2025. The biggest wins for the Democratic Party is that Biden’s Student Loan Forgiveness Program remains unaffected, and work requirements to qualify for SNAP were broadened.
The overall consensus surrounding the Fiscal Responsibility Act is that it is significantly better than the status quo because it did not bring the nation into default. Having said that, it is only a temporary ‘band-aid’ for the ever-present issue of US debt.
