The debt ceiling must be raised again and it could suck all the oxygen out of the political room. Technically the federal government is restricted from paying its bills once the ceiling on total federal debt is hit. Due to federal deficit spending, the ceiling must be raised periodically by Congress. The only time this hasn’t been required during the lifetime of any voter living today was in the latter part of the Clinton presidency when the country had a surplus and was paying down the national debt starting in 1998.
The debt ceiling does not control the level of federal spending. That is set by the annual budget and by the annual appropriations and the various mandatory and entitlement spending programs including the two biggest Social Security and Medicare. Although some will call for a default, that would threaten payments of government debt and bills including payments to state and local governments and individuals.
The last time Congress passed an increase was in November of 2015. It was agreed that it would automatically increases until March 2017 (after the presidential election). We have hit the ceiling and the Treasury Department has been using accounting measures to continue to pay out that debt. Now tax revenue has slowed as some people hold back cashing out investments due to an anticipated tax cut.
Both the Secretary of Treasury Steve Mnuchin and Director of the Office of Management and Budget (OMB) Mick Mulvaney say it must be raised by Congress before they leave for the August recess. That appears to be there only agreement however. The Treasury Secretary is calling for Congress to pass a “clean” increase with nothing attached to the increase. The OMB Director however wants some sort of budget conditions attached to the increase. That would align with a potential divide with House Republicans. Speaker Paul Ryan (R-WS) has said he will work to increase the ceiling while there appears to be some members of the conservative House Freedom Caucus who want spending cut requirements tied to an increase.
The debt ceiling will likely require votes of Democrats in the Senate where they could filibuster and votes may be needed in the House if they can’t get conservative Republicans to stay on board for an increase. When Democrat Barack Obama was in the White House only 79 House Republicans voted to raise the ceiling in 2015 and only 28 voted for the increase in 2014. The Congress could write a new budget resolution that could include a separate reconciliation bill and vote to raise the ceiling (thus avoiding a filibuster) but writing a new resolution now before the Senate passes and ACA replacement (through the use of the 2017 budget resolution and reconciliation) could void the Senate health care bill if it isn’t approved before a 2018 reconciliation and budget resolution are created.
The question is what would the Democrats and some Republican demand. The Democrats could call for a clean increase but they would give up big leverage. There have been some Washington publications suggesting Democrats could demand something they value in return such as a reauthorization of the Children’s Health Insurance program (CHIP). There has also been comment that they would want an assurance of some sort that a ceiling increase would not be used to fund a revenue-losing tax cut.
The biggest crisis came in 2011 when the Congress took the government to the brink. As a result, Standard and Poor’s (S & P) downgraded our international bond rating. Some conservatives may argue we should just prioritize our debt payments (such as paying Social Security and other popular programs first). According to the Washington Post, Moody’s Investors indicated that if the government prioritized its principle and interest payments in a way to avoid default, it would require a $500 billion or 12 percent cut in total federal spending over a year.