US Hits Its Debt Limit: Now What?

US Hits Its Debt Limit: Now What?

Treasury Secretary Janet Yellen
By Yuval Rosenberg
Thursday, January 19, 2023

Happy Thursday! This Washington Post story about an Alabama farmer who secretly paid strangers’ pharmacy bills for years might brighten your day a bit. Check it out after you read the rest of this newsletter about the latest debt limit showdown.

US Hits Its Debt Limit: Now What?

The United States officially hit its congressionally authorized borrowing limit of $31.381 trillion on Thursday, forcing the Treasury Department to start using “extraordinary measures” to avoid a market-shaking default on its debt.

Treasury Secretary Janet Yellen had warned last week that the debt limit would be reached today. In a letter to congressional leaders Thursday she said the government would suspend debt issuance through June 5 and hold off on making certain investments in federal retirement funds, part of a series of technical maneuvers meant to buy time for lawmakers to address the borrowing limit.

“As I stated in my January 13 letter, the period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the U.S. Government months into the future,” Yellen wrote. “I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.”

A default could unleash economic chaos, disrupting global financial markets and damaging the U.S. economy if, for example, the government can’t pay Social Security benefits and military salaries.

We’ve been here before: “The United States has never defaulted on its debt,” writes Jacob Bogage of The Washington Post. “But it has repeatedly come close, particularly in 2011, amid the rise of the conservative tea party movement in the House. Those Republicans’ clashes with then-president Barack Obama resulted in months of political brinkmanship, generated panic globally and yielded a decade of significant caps on domestic spending, which Democrats have long decried as damaging.”

Why this time might be different: Conservative Republicans, emboldened by their sway given the GOP’s narrow majority in the House, may be itching to exert their influence and force Democrats to swallow steep spending cuts. Some have even flirted with the notion of not raising the debt limit. House Republicans may be prepared to take their brinkmanship further than ever before, and Speaker Kevin McCarthy faces a difficult balancing act since any House member can call for a vote to oust him under the rules agreement he struck earlier this month.

The White House, meanwhile, insists it will not negotiate over the debt ceiling and that Congress should raise the limit without strings attached, as it has done many times before. That refusal to engage reflects lessons Democrats took away from 2011 and other past standoffs, fearing that any concessions will only result in Republicans again looking to extract a ransom for doing what’s necessary.

Administration officials also argue that Republicans don’t really care about shrinking the budget deficit, pointing as evidence to the first piece of legislation passed by the new House Republican majority — a bill to cut funding provided by Democrats for the IRS. A Congressional Budget Office analysis found that the GOP bill would raise deficits by $114 billion over a decade.

Congressional Democrats and some Republicans are also eager to avoid any potential default. Senate Minority Leader Mitch McConnell (R-KY) said Thursday that he “would not be concerned about a financial crisis” ahead, predicting that the White House will eventually engage. “I think the important thing to remember is that America must never default on its debt. It never has, and it never will,” he said. “We’ll end up in some kind of negotiation with the administration over what the circumstances or conditions under which the debt ceiling be raised.”

What do House Republicans want? McCarthy hasn’t publicly laid out specific demands. Among the concessions House conservatives reportedly won in exchange for allowing McCarthy to become speaker were a commitment to not bring a “clean” debt limit increase up for a vote and an agreement to set spending for the next fiscal year at 2022 levels, requiring cuts of about $130 billion. Some in the party have floated changes to Social Security and Medicare. Republicans have also shown some internal divisions about whether their proposed cuts would include defense spending or not.

“The American people rightfully recognize that maintaining Washington’s status quo, which runs up massive deficits and adds trillions to our national debt, is unsustainable,” House Ways and Means Committee Chairman Jason Smith (R-MO) said in a statement, noting that federal revenues reached a record high of $4.9 trillion last year. “Instead of attacking his political opponents, President Biden should be spending this time working with House Republicans to address the debt ceiling in a way that imposes some fiscal sanity.”

House Republicans are also pushing to balance the federal budget in 10 years — and to do so by only cutting spending, not raising revenue, a feat that Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, says is simply impossible. Similarly, the Committee for a Responsible Federal Budget said in an analysis published this month that, to achieve balance within a decade, “all spending would need to be cut by roughly one-quarter and that the necessary cuts would grow to 85 percent if defense, veterans, Social Security, and Medicare spending were off the table.”

Rep. Rosa DeLauro of Connecticut, the top Democrat on the House Appropriations Committee, sent letters Thursday to the heads of federal agencies asking them to report how their services would be affected if spending levels were capped at fiscal 2022 levels. “A preliminary examination of this blueprint suggests this proposed policy would harm communities across the country and our national security interests around the world,” she wrote.

The bottom line: We’re watching yet another high-stakes game of chicken, and the players are nowhere near swerving yet.

Opinion of the Day: Ditch the Debt Limit

A pair of noted policy experts write Thursday that it’s time to dump the debt limit. In a new piece, Leonard Burman and Bill Gale of the Urban-Brookings Tax Policy Center say that the debate over the debt limit is colored by misunderstandings and distortions.

“The debt limit doesn’t cause the debt any more than a thermometer causes a fever,” they write. “Congress should abolish the debt limit and replace it with the simple, common- sense rule that automatically authorizes any borrowing necessary to implement any fiscal legislation that affects the federal deficit.”

That policy, known as the “Gephardt rule,” has been used in the past, they note. They go on to make several points about the limit that they say help clarify why “it is unnecessary and obstructive.”

* The debt limit has been raised continually for more than a century, including 78 times since 1960 and 20 times since 2001.

* Raising the debt limit is about paying for past legislation, not approving new spending. “Arguing about increasing the debt limit,” the authors say, “is like having a person charge vacation expenses to his credit card and then debate whether he should pay the credit card company when the bill comes due.”

* How useless is the debt limit? Only one other advanced country, Denmark, has a rule like ours. “And they don’t use it as a political football,” the authors say.

* And the limit applies to the wrong measure of debt. It applies to gross debt, which includes what the government owes itself. “Because it is akin to your right pocket owing your left pocket money, intragovernmental debt is irrelevant to the nation’s fiscal health,” Burman and Gale say. Net debt, which excludes those intragovernmental loans, is what really matters most.

* Without an increase in the debt limit, the government would need to cut spending or raise taxes by $1.5 trillion this year and $14 trillion over 10 years. Those are some huge changes—more than total defense spending over those periods.

* The consequences of a default would range from bad to catastrophic. “A desire to change the course of fiscal policy should be manifested in new Congressional initiatives to change the course of future spending and taxes, not in Congressional refusal to pay bills that have arisen from previous Congressional action,” Burman and Gale say.

Read their full piece.

Poll of the Day: Most Americans Now Rate U.S. Health Care as Subpar

For the first time in the two decades that Gallup pollsters have been asking Americans to rate the quality of U.S. health care, less than half of survey respondents now rate the nation’s care as “excellent” or “good.” That means a majority of Americans now rate U.S. health care quality as fair or poor. The share of people calling it poor, 21%, reached a new high, according to Gallup.

Americans’ views of the quality of care they personally receive has also fallen, with 72% calling it excellent or good.

“A key reason views of U.S. healthcare quality have been trending downward in recent years is that Republicans’ positive ratings have been subdued since President Donald Trump left office,” Gallup’s Lydia Saad writes. “Currently, 56% of Republicans rate healthcare quality as excellent or good, whereas 69% felt this way in 2020 and 75% in 2019.”

Saad writes that satisfaction with health care among younger and middle-aged Americans has been trending lower, while those 55 and older have stayed more positive.

Gallup’s latest Health and Healthcare survey, which it conducts annually, was done November 9 to December 2, 2022. It included a random sample of 1,020 adults.

The bottom line: “For most of Gallup’s tracking of Americans’ views on healthcare since 2001, there was a clear distinction between the high regard people had for the quality of care in the country versus the problems they saw in healthcare administration, including coverage and cost,” Saad writes. “That is no longer the case, with public praise for U.S. healthcare quality dipping below 50% and the slight majority now viewing quality as only fair or poor.”


Send your feedback to And please encourage your friends to sign up here for their own copy of this newsletter.


Views and Analysis