House Speaker Kevin McCarthyJ. Scott Applewhite/AP
The fight over the national debt limit several months that have been forming in Congress and are now ramping up. On Sunday, several Democratic lawmakers called on Republicans to stop using the cap as a bargaining chip for broader GOP efforts to cut social safety net spending, a negotiating strategy that could threaten the US economy and American finances.
Last week, House Speaker Kevin McCarthy (R-Calif.) introduced a bill that would raise the debt limit in exchange for drastic cuts in federal spending — forcing government agencies to keep spending levels at 2022, despite record inflation. McCarthy’s bill would also tighten spending by blocking Biden’s plan to cancel up to $20,000 in student loans for low- and middle-income borrowers, repeal clean energy tax credits, and repeal of $80 billion in funding for the IRS to detect tax fraud. And it would increase work requirements on Medicaid and food stamps, potentially making it harder for people to receive this assistance regardless of their eligibility.
In contrast, Republicans have agreed to raise the debt limit three times during the Trump administration, with little debate.
On Sunday morning, Sens. Dick Durbin (D-Ill.) and Amy Klobuchar (D-Minn.) both urged Republicans to wait and pursue spending cuts during the annual budget process later this year. year, instead of continuing to raise the debt ceiling and risking significant damage to the US economy.
“We will do the responsible thing and not default; continue on the debt ceiling,” said Sen. Durbin on NBC’s Meet the Press. “[W]We can have a thorough debate on the budget—and revenue, and I understand it on the level of spending—but not at the expense of jeopardizing America’s jobs and economic growth.
“If you continue as McCarthy wants, what will happen?” Sen. Klobuchar said on CNN. “You’re going to literally see interest rates go up on mortgages, on loans. You’re going to see the stock market go down again; that we can’t afford.”
“Negotiate the budget,” he added. “That is the place to negotiate. And they should start negotiations now. Do not use Americans and their debts as [a] hostage.”
“Debt ceilings” refer to the maximum amount of money the US government can borrow to pay its bills, from sending Social Security checks to the elderly to issuing food aid. In January, the US hit this cap, forcing the Treasury Department to implement “extraordinary measures” so that the government can continue to meet its obligations. The measures are likely to be finalized by early June, barring action from Congress to increase the debt ceiling. If that happens, the consequences can be dire. As I explained in 2021, when the GOP also tried to block raising the debt cap:
If Congress does not raise the debt ceiling, the US will default-econ-speak which means the US government will not be able to continue paying its debts, especially Treasury bonds. It is the basis of the global financial system, which is considered the safest of assets for the obvious reason that the US has not, in the history of time, defaulted on its debts.
A report by Moody’s Analytics predicts that if the United States defaults on its debt, the economy will lose more than 7 million jobs while stocks crater, killing $10 trillion in household wealth and causing with unemployment rising to 8 percent. “The economic downturn that will occur will be comparable to that suffered during the global financial crisis,” said the report, referring to the collapse of the global economy in 2008.
