The debt ceiling—the maximum amount the federal government can borrow—is an anachronistic relic from World War I. Enacted by Congress in 1917, it allowed President Wilson to fight the war without waiting for lawmakers to return to Washington and vote to increase spending. Not wanting to give the president a blank check, Congress limited borrowing to $11.5 billion.
Including its recent suspension in June, the debt ceiling has been raised 79 times since 1960—thirty times with a Democrat in the White House and 49 times with a Republican. The Congressional Budget Office estimates that Republicans are responsible for the majority of additional government debt since 2000, courtesy of large tax cuts enacted under Presidents George W. Bush and Donald Trump. In both cases, we were told that the tax cuts would pay for themselves. Instead, the government had to borrow money from the rich in order to pay for tax cuts to the rich.
The U.S. government reached its credit limit, $31.4 trillion, on January 19. No longer able to borrow money, the Treasury employed “emergency measures” to conserve cash, such as not paying into the retirement accounts of government employees, with the understanding that the government will make these payments once the debt ceiling is raised. Because past legislation required the government to spend more money than its tax receipts, and because it couldn’t borrow any more money, the United States faced the possibility of defaulting on its obligations.
Things could have gone terribly wrong while the government sought to raise the debt ceiling before its cash was spent. The United States could have gone into default due to a delay or miscalculation, leading to an economic calamity. Or its credit rating could have been reduced, raising government borrowing costs as well as interest rates faced by business firms and consumers.
Facing a similar situation in 2011, the government came very close to defaulting on its debt. President Obama eventually agreed to significant cuts in government programs to get Republican votes for raising the debt ceiling. Still, Standard & Poor’s lowered the government’s credit rating anyway, fearing a possible future default. None of this happened in 2023.
On April 26, House Republicans passed a party-line bill to increase the debt ceiling and cut government spending over the next decade by freezing discretionary domestic expenditures at 2022 levels. There were no tax hikes. This bill would not have reduced total U.S. debt by one cent; however, debt would have grown by $480 billion less each year over the next 10 years.
Democrats were rightly concerned that such spending cuts were too much for a fragile economy to absorb and that negotiating with Republicans over the debt ceiling would encourage future hostage-taking behavior. They were also concerned about the impact of a spending freeze on ordinary people. Due to inflation and a growing population, benefits per person for social programs would have declined sharply. To avoid such problems, many economists favored various gimmicks, such as minting a $1 trillion platinum coin and using this money to pay government bills.
While better than a default, this would have been worse than a reasonable compromise. The coin (and other gimmicks) surely would have been challenged in the courts. It is unclear how this Supreme Court would rule, especially after its Dobbs decision on abortion in 2022. Minting and selling of platinum coins was intended for commemorative coins—not to pay for regular government expenditures. An adverse court ruling would mean an immediate default, and minting a platinum coin to avoid a default would likely have led to an immediate downgrade of the U.S. credit rating.
The outcome was actually much better than a reasonable compromise. President Biden proved to be a calm and effective leader. He made clear the contrast between himself and his likely opponent in 2024, Donald Trump. And two indicators point to a big Biden win. First, Republicans were angry about the agreement; Democrats were also unhappy they had to give up a few things to prevent a government default. Second, in the House, 76 Republicans but only 46 Democrats voted against the measure. The Senate voted 63–36 in favor, with 44 Democrats, two independents who caucus with the Democrats, and 17 Republicans voting “yes.”
The deal was an economic win for the president, who gave up very little, in addition to a political win. Stringent work requirement were not put on safety net programs, as Republicans had demanded. In fact, the Congressional Budget Office estimated the bill would increase the number of Americans receiving SNAP or food stamp benefits by 78,000. The CBO also estimated that government spending would fall $150 billion per year (compared to $480 billion in the April House bill). Even this figure is too high. Given several side deals, the actual figure will be below $100 billion per year for just two years. And if Democrats control both the White House and Congress starting in 2025, spending for fiscal year 2025 can be restored.
Finally, Democrats would have had to make further concessions when negotiating F.Y. 2024 (which starts October 1) and F.Y. 2025 budgets with House Republicans. Cutting government spending by less than $100 billion in 2024 and 2025 (around 1 percent of total federal government spending) in exchange for avoiding a default on government obligations seems a very good deal.
Still, the bill was not a total success. Its worst provision was reinstating the debt ceiling on January 2, 2025. This will require a lame duck Congress to deal with the debt ceiling following the 2024 election, with Democrats in control of the Senate and Republicans controlling the House. And, as in 2000 and 2020, the final results of the 2024 election might not be known until mid-December or later. This would make a debt ceiling agreement difficult to achieve before the new default date.
For these reasons, we need at minimum to change the date for reinstating the debt ceiling. Even better, Congress should abolish it.
The main roadblock to abolishing the debt ceiling comes from Republicans, who see it as a political mechanism to force sharp cuts in government spending when a Democrat occupies the White House. Having one party threaten economic chaos unless its demands are met is no way to run a nation. This is why Denmark is the only other advanced nation with a debt ceiling, and its ceiling is set so high there is little chance it will reach its borrowing capacity anytime soon.
Furthermore, a debt ceiling is not necessary to restrain excessive government spending and borrowing. Today government borrowing is limited by the bond market, or the public’s willingness to lend money. Concerns about the safety of lending money to the government (due to high debt levels) will result in a lower credit rating and higher borrowing rates. Republican politicians don’t know more than bond markets know about whether the government is borrowing too much money.
Congress approved the tax and spending bills requiring today’s debt. It shouldn’t have to vote again on whether to spend the money. Nor should a minority of Republican extremists be able to derail the U.S. economy over a debt ceiling vote. Unlike in 1917, it is possible to get to Washington quickly today when votes are needed. In emergencies, Congress can vote online, as it did during the Covid pandemic. A debt ceiling is not necessary. Having one presents a constant danger to the U.S. economy. It should be killed ASAP.
Steven Pressman is part-time professor of economics at the New School for Social Research, professor emeritus of economics and finance at Monmouth University, and author of Fifty Major Economists, 3rd edition (Routledge, 2013).