As the U.S. Congress scrambled to come up with a spending bill to avoid a government shutdown, U.S. president-elect Donald Trump shocked many lawmakers by demanding that any such bill must also increase the country’s debt ceiling.
He insisted that any deal must include that provision for the debt ceiling, the legislative limit on the amount of national debt the country can incur. It’s an issue that hadn’t been discussed by either party.
Trump then went a step further, announcing, to the surprise of many lawmakers, that he was also seeking to suspend or eliminate the debt limit before he takes office in January.
However, Trump’s plans suffered a setback Friday night when the Republican-controlled U.S. House of Representatives passed legislation that would avert a midnight government shutdown, but left out his demand to increase the debt ceiling.
So why is Trump suddenly so concerned about the debt ceiling?
WATCH | U.S. House passes funding legislation, averting government shutdown:
What is the debt ceiling?
The debt ceiling is the country’s borrowing limit. If the government needs to borrow more than that amount, it needs to get congressional authorization to do so.
Because the government has been racking up deficits — spending more money than the taxpayer revenue it generates — it regularly needs to borrow money and raise that debt limit.
The debt ceiling is the government’s borrowing limit. If more than that amount is needed, the government has to get congressional authorization to raise the limit. (J. Scott Applewhite/The Associated Press)
That money is needed so the government can meet its existing legal obligations, including paying social security and Medicare benefits, military salaries, interest on the national debt, tax refunds and other payments.
Many economists have forecast dire consequences as a result of a default, which could include a credit rating downgrade, negative impact on borrowing and the dollar, potential havoc in the financial markets and job losses in the thousands, if not millions — all of which could lead to a recession.
Why is it so political?
Almost since its inception in 1917, the debt ceiling has been politicized by both parties, but from 2011 onwards, it has become not just partisan but perilous, says Laura Blessing, an adjunct professor and senior fellow with the Government Affairs Institute at Georgetown University.
The biggest problem with the ceiling, according to some observers, is that it has become a dangerous political bargaining chip that holds the economy hostage in order to extract political demands.
“The pattern has been that the Republican Party has enjoyed using this as a cudgel to try to force the Democrats into a legislative deal that would cut spending, which is their policy priority,” Blessing said. “And they haven’t been particularly successful at doing this.”
WATCH | Explaining the debt ceiling:
What’s Trump saying about the debt ceiling?
On Wednesday Trump, in a joint statement with vice-president-elect J.D. Vance, said that “increasing the debt ceiling is not great but we’d rather do it on Biden’s watch.”
“If Democrats won’t co-operate on the debt ceiling now, what makes anyone think they would do it in June during our administration?”
The next day, Trump spoke to many U.S.-media outlets, warning of a government shutdown unless Congress extended the debt ceiling or eliminated it entirely. In an interview with NBC News, Trump said getting rid of the debt ceiling entirely would be the “smartest thing [Congress] could do. I would support that entirely.”
“The Democrats have said they want to get rid of it. If they want to get rid of it, I would lead the charge,” Trump said.
On Friday, Trump took to his social media platform Truth Social to post: “Congress must get rid of, or extend out to, perhaps, 2029, the ridiculous Debt Ceiling. Without this, we should never make a deal. Remember, the pressure is on whoever is President.”
It’s true that some Democrats have supported the elimination of the debt ceiling, including Massachusetts Sen. Elizabeth Warren, who on Thursday said via a social media post that she agreed with Trump “that Congress should terminate the debt limit and never again govern by hostage taking.”
Some Democrats have supported the elimination of the debt ceiling, including Mass. Senator Elizabeth Warren, who on Thursday said she agreed with Trump ‘that Congress should terminate the debt limit and never again govern by hostage taking.’ (Charles Rex Arbogast/The Associated Press)
But many Republicans have been steadfast in their support for the debt ceiling. That’s why Trump’s comments are what Blessing calls a “record scratching moment,” because he’s asking Republicans to give up this tool.
“That is just counter to the messaging. The policy attempts, the strategy that they’ve been employing,” she said.
So why does Trump want to eliminate the debt ceiling?
As Trump prepares to push an agenda of tax cuts and border security, Trump fears that a debt limit fight next year could interfere with his plans, which are expected to cost trillions of dollars, wrote New York Times reporter Alan Rappeport, who has reported on debt limit fights during the Trump and Biden administrations.
“This has nothing to do with earnest political ideology and everything to do with power,” said Todd Belt, a professor and program director at George Washington University’s Graduate School of Political Management in Washington, D.C.
Republicans like having the debt ceiling so that they can force concessions and cutting spending when they’re in the minority, he said.
“But they are afraid that when the shoe is on the other foot, when the Republicans have the majorities, the Democrats will be able to use this to stymie the tax cuts that Donald Trump wants to push.”
Those tax cuts and other Trump spending priorities will mean less federal money to cover the debt, which is why Trump wants the debt limit removed, Belt said, noting that the reason the president-elect was pushing for this to happen now was because he doesn’t want to be blamed for being a free spender.
“He wants to be able to say that this is something Joe Biden signed, not me.”
Does this mean the debt ceiling is doomed?
Probably not anytime soon.
While Trump and a handful of Democrats have called for its elimination, there doesn’t seem to be a lot political will or the votes to scrap it, Belt said.
“Plus, there are the hardcore Republicans who want to continue the debt ceiling because they really believe that they were sent to D.C. to shake up the system and to stop all of the excessive spending,” he said.