Understanding the Debt Ceiling: Impacts, Outcomes & Implications
The US debt limit, also known as the debt ceiling, is frequently discussed among politicians, economists and the general public.
Learn more about the US debt ceiling, including what it is, how it relates to government shutdowns, the possible outcomes and implications of reaching the debt ceiling and more. Arm yourself with knowledge so you can join in on the discussion.
What Is the Debt Ceiling?
The debt ceiling is the maximum amount of money the US government can borrow to pay its bills, and it must increase periodically to avoid defaulting on its obligations. The debt limit only allows the government to finance existing legal obligations and doesn’t allow for new spending commitments. Failure to increase the debt limit would cause the government to default on its legal obligations, resulting in economic ramifications and threatening the jobs and savings of everyday Americans.
Since 1960, Congress has acted 78 times to raise, temporarily extend or revise the definition of the debt limit under both Republican and Democratic Presidents.
Impacts of Previous Government Shutdowns
Government shutdowns include the temporary closure of non-essential government services and furloughs for federal employees. They can occur if the federal government fails to pass a budget for the upcoming fiscal year or if the government reaches its debt limit and Congress cannot agree on a plan to raise the debt ceiling.
Regardless of the potential causes, shutdowns can have widespread implications, including delays in government services and benefits, significant economic impacts and often notable political consequences.
In 2013, the government shut down due to a budgetary standoff between the Republican-controlled House of Representatives and the Democratic-controlled Senate over funding for the Affordable Care Act and raising the debt ceiling. The shutdown lasted 16 days and resulted in 800,000 furloughed federal employees, costing the US economy an estimated $24 billion.
Biden’s Budget Proposal
President Biden’s budget proposal includes increased spending on social welfare programs, infrastructure and healthcare, along with an increase in the debt ceiling to accommodate the added spending, despite some opposition from Republicans.
In exchange for raising the debt limit, Republicans are insisting on substantial spending cuts, but the President has maintained that raising the limit shouldn’t be a budgetary bargaining chip.
As of March 2023, the US has practically reached the current debt limit of $31.38 trillion, but the standoff between the administration and the House over raising the debt ceiling endures. If the debt limit remains unchanged, the Congressional Budget Office projects that the government’s “ability to borrow using extraordinary measures will be exhausted between July and September 2023.”
If the debt limit is not increased, the US government could default on its obligations. A default could lead to a decline in the value of the US dollar, higher interest rates and a decrease in economic growth.
Possible Outcomes of a 2023 Shutdown
There could be significant political, economic and social implications if a government shutdown occurs in 2023.
From a political standpoint, a government shutdown could lead to a loss of trust in the government’s ability to manage the country’s finances. Economically, it could lead to a decline in consumer confidence, which could result in a decrease in spending and a slowdown in economic growth. For those who rely on government assistance programs, a shutdown could have critical consequences and leave vulnerable populations without access to critical resources.
Debt Limit Increase & Its Impact on Future Generations
Public concern about federal spending is rising, with 57% of Americans citing reducing the budget deficit as a top priority for the President and Congress to address this year, up from 45% a year ago.
The constant increase in the debt ceiling has serious long-term implications for future generations, including a burden of higher debt levels and interest payments that could lead to decreased economic growth, higher taxes and decreased funding for important programs.
Conclusion
The US debt ceiling has considerable implications for the economy, social welfare programs and the welfare of future generations. Now that you have a better understanding of the debt ceiling, you can have a constructive conversation about the debt ceiling and the long-term implications of government spending.
Learn more about pending and written government policies, laws, regulations and actions that impact Americans and future generations at PolicyvsPolitics.org.