And what that means.
I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum — then “my take.”
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Today’s read: 10 minutes.
We’re covering the debt ceiling, what it is, and what it means if we hit it.
Quick hits.
- The U.S. is averaging 1,500 deaths a day from Covid-19 for the first time since March. (The toll)
- Yesterday, Virginia removed a famous Robert E. Lee statue in Richmond that was erected in 1890. (The removal)
- The Taliban is allowing 200 foreign citizens, including Americans, to leave on the first international flights out of Afghanistan since the U.S. withdrawal ended. (The release)
- President Biden is expected to announce that all federal workers must be vaccinated, with no option for testing as an out. (The announcement)
- Around 310,000 Americans filed for unemployment benefits last week, the fewest since the pandemic began and an encouraging sign in the economic recovery. (The new low)
What D.C. is talking about.
The debt ceiling. Yesterday, Treasury Secretary Janet Yellen sent a warning to Congress: the United States’ debt ceiling is quickly approaching, and the U.S. could default on its debt as soon as October if action isn’t taken to raise or suspend it.
The what? The debt ceiling is the maximum amount of money the United States can borrow. Our government borrows money when the Treasury Department issues government securities, or treasury bonds, that other countries and institutions buy. That infuses the government with cash, and it means our debt is owned by U.S. institutions, the U.S. public, and other nations.
The debt ceiling was created in 1917 under the Liberty Bond Act as a way to rein in government spending and increase the efficiency of our borrowing. In essence, the goal was to allow the U.S. Treasury to borrow money without Congressional approval and within the bounds of the debt ceiling framework. If the national debt hits the debt ceiling, the Treasury Department is supposed to take “extraordinary” measures to pay off our debt and expenditures until the ceiling is raised again. The larger issue is that if we hit our debt limit or fail to pay interest to the bondholders holding our debt, we could go into default, which would lower our credit rating and increase the cost of the debt. That cycle could set off a global financial crisis and send the economy into ruin. In theory, this creates the incentive to avoid hitting the debt ceiling, and produces a more fiscally responsible government.
Historically speaking, though, the debt ceiling has become a notorious moving target because rather than reining in spending, we opt to raise or suspend the debt limit every time we get close to hitting it. The debt ceiling has been raised 78 times since 1960, including 49 times under Republican presidents and 29 times under Democratic presidents. In August of 2019, it was suspended by former President Donald Trump until July of 2021, which recently passed.
Now, Treasury Secretary Yellen is warning that as the debt ceiling once again approaches, Congress must act. In recent history, these moments have often been used by Congress as leverage against the other party’s administration. In 2011, for example, Republicans pressured former President Barack Obama to reduce the deficit (cut spending) in return for them increasing the debt ceiling. The U.S. Treasury debt actually lost its triple-A rating at that time.
Once again, with the debt ceiling here, Congress is being told it must act. Below, we’ll take a look at some reactions from the left and right, then my take.
What the left is saying.
The left supports a debt-limit increase, and believes it’s necessary to prevent an economic catastrophe. They say the debt ceiling is not the mechanism we should use to reduce spending.
The Washington Post editorial board said “Democrats must do the right thing” if the GOP won’t.
“In an ideal world, the United States might not have run up a debt of more than $28 trillion; in the real world, it has,” the board wrote. “Another less-than-ideal reality is the 104-year-old law that periodically bars the Treasury Department from borrowing more funds to cover previously approved outlays without a new act of Congress… Senate Minority Leader Mitch McConnell (R-Ky.), however, has announced that his caucus will not back a debt-limit increase this fall, in response, he says, to the Democrats’ party-line enactment of a $1.9 trillion debt-funded covid relief package in March, and to their plans for a $3.5 trillion ‘human infrastructure’ plan via the same procedure in the near future… No matter that the debt ceiling enables the government to service the entire U.S. debt, including the amount that was run up because of tax cuts and spending increases when the Republicans controlled both Congress and the White House under President Donald Trump.
“Democrats could, and maybe should, have gotten the debt-limit business over with in March, as part of their covid package. Faced with Mr. McConnell’s partisan trolling now, however, they are responding in kind, leaving the debt ceiling out of their $3.5 trillion party-line anti-poverty and climate blueprint, as well as the $1.2 trillion infrastructure package… All of the above makes perfect sense, under the passive-aggressive rules of the Washington game. On a substantive level, though, it’s somewhere between embarrassing and dangerous.”
In an MSNBC column, Hayes Brown wrote incredulously about the GOP’s refusal to raise the debt limit now.
“During the Obama presidency, Republicans used the threat of the U.S. defaulting on its loans to force sharp budget cuts to nonmilitary spending,” Brown wrote. “And now they’re set to do the same to President Joe Biden as Congress prepares to pass the cornerstone of his economic agenda. However, when Donald Trump was in the White House, and the GOP controlled Congress, the debt ceiling apparently was less of a concern. The cap on government debt was boosted under Trump first in late 2017 for three months in a deal with the Democrats. That had to be raised again — thanks to the GOP’s huge tax cuts for the wealthy and businesses — as part of a broader spending bill he signed in 2018. Then, after Democrats took control of the House in 2019, Trump signed a budget that suspended the debt ceiling, then $22 trillion, entirely until this July.