US House Majority Leader Steve Scalise, Republican of Louisiana, speaks next to House of Representatives Republican Conference Speaker Elise Stefanik (L), Republican of New York, during a news conference on Capitol Hill in Washington, DC January 10 2023
Saul Loeb | AFP | Getty Images
Republican Majority Leader of the House Steve Scalise on Tuesday dodged thorny questions about whether Congress would allow the U.S. to pay its debt after lawmakers passed new rules making it harder to raise federal borders.
The US is dangerously close to hitting its debt ceiling of about $31.4 trillion, the legal limit set by Congress on how much the federal government can borrow. It includes the total outstanding federal debt of about $24.5 trillion, as well as the nearly $6.9 trillion the government has borrowed from itself. If Congress doesn’t raise the debt ceiling soon, it would inevitably lead to a US Treasury default – an unprecedented event that would plunge the nation into a financial crisis.
“America occasionally hits the debt ceiling over time because it’s like a credit card limit,” Scalise, R-La., said at a Capitol news conference. He was responding to a reporter who asked him to explain what lawmakers had agreed on regarding the debt ceiling and whether he could “guarantee” the US would not default.
“And if at some point you ask for the limit to be increased, do you have to sit down and say why are we hitting the limit? Why are we maxing out the credit card? Because it’s the nation’s credit card,” he added.
It will be much more difficult for lawmakers to raise the debt limit under the new Congress, since House Speaker Kevin McCarthy, R-Calif., has approved a set of rules mandating that any increase in the debt limit be accompanied by spending cuts. It was one of several concessions he made to gain support from a group of conservative Republicans who had blocked his oratory.
The debt ceiling debate is already raising questions on Wall Street. Citing McCarthy’s hard-fought battle and 15 rounds of voting, Goldman Sachs economists cited the rule changes as a concern about whether Congress would raise the debt ceiling, saying in a research note Monday it would likely be a “close decision.”
“The debt ceiling will be a problem,” the report said. “Tax deadlines will pose a greater risk this year than they have in a decade.”
The US last raised the debt ceiling by $2.5 trillion in December 2021. According to the Committee for a Responsible Federal Budget monitoring group, the increase is expected to last until at least July 2023.
Removing the debt ceiling does not justify new spending; it allows the government to borrow more money to cover existing obligations. And since the federal government is constantly spending more than it takes in from taxes, the legislature has to raise the debt ceiling periodically. Failure to raise the debt ceiling could cause the government to default and halt day-to-day operations, creating potential turmoil in markets and the economy.
The last major crack above the debt ceiling was in late 2011, caused by the withholding of a newly elected Republican congressional majority. Although the US ultimately did not default on its debt, the chaos led to Standard & Poor’s issuing the first downgrade of the government’s credit rating.
A September 2021 report by Moody’s Analytics says a Treasury default could send the US economy into a tailspin like the Great Recession. Moody’s forecasts a 4% drop in GDP and the loss of nearly 6 million jobs if the US defaults.
In the short term, a default could delay Social Security and Medicare benefits, salaries for government employees, military personnel and contractors, and other expenses already approved by Congress.
The process of raising the debt limit has been routine for Congress for decades. According to the US Treasury Department, lawmakers have permanently raised, temporarily extended, or somehow changed the definition of the debt limit 78 times since 1960 to avoid defaulting.
More recently, some House Republicans, including McCarthy, have used it as a negotiating tactic to cut spending. Scalise used that reasoning on Tuesday, telling reporters the government needs to review how much money it’s handing out.
“At the same time, you’re dealing with the debt limit and setting up mechanisms so you’re not constantly maxing it out,” Scalise said, “because if the limit goes up, you don’t go to the store the next day and just max it out again.” You begin to figure out how to control the spending problem. And it’s been like this for far too long. And we’re going to deal with that, and I think the American people have challenged us to confront that.”