This week, Donald Trump blindsided the Republican party by agreeing to terms with top Senate Democrats to temporarily raise the debt ceiling. In doing so, they kept the government funded for an additional three months while approving hurricane relief in the wake of Hurricane Harvey. The bill passed the House today 316-90 and now awaits Trump’s signature to be finalized. In this post we’ll explore what the debt ceiling is and the bill’s effects.
What is the debt ceiling?
In simplest terms, it is the limit on what the government is allowed to borrow in order to pay its debts. Raising the debt ceiling allows the government to borrow more money, which ensures it pays its bills. Raising the debt ceiling is critical as it prevents the US from defaulting on its debt, i.e., money that Congress has already agreed to spend. Not making those payments could potentially crash global markets.
If it’s so critical, shouldn’t Congress pass it no questions asked?
Typically, Congress does just that. Over the years, the ceiling has been raised with bipartisan agreement the vast majority of the time, with notable exceptions in 1995, 2011, and 2013. In those instances, the process to raise the debt ceiling was tied to debates over the what constituted appropriate government spending. Effectively, the debt ceiling negotiations were made political, and that’s where the problems started.
If you’ll recall, in 2013 Republicans refused to support raising the debt ceiling without an agreement to make equivalent cuts in government spending. Limiting government spending was a key pillar of the Republican party’s platform, but it was unrelated to the debt ceiling debate as Congress had already agreed to pay that money. The time to cut spending was back when appropriations were first made. In essence, Republicans were using the threat of defaulting as leverage to approve their separate proposal.
That move backfired big time: by holding out and refusing to raise the debt ceiling, the United States saw a drop in their credit rating, an increase in borrowing rates and huge losses in the stock market. All of this occurred despite a last minute resolution in the Senate. The credit rating agencies and the economy simply do not like unpredictability. So when a process like raising the debt ceiling is no longer a certainty, it’s bad news for not only the U.S., but the world.
Trump’s Agreement & the Political Ramifications
That brings us to this week’s agreement. To the dismay of House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell, Trump aligned himself with their Democratic counterparts, Nancy Pelosi and Chuck Schumer to approve an increase in the debt ceiling.
The reasoning behind Trump’s move is unclear. It’s been speculated that he wanted the optics of a bipartisan win, or simply wanted to stick it to Ryan and McConnell, two men with whom there’s no love lost. No matter his reasoning, the effect is the same: the government will be funded for an additional three months and relief money will be going to areas devastated by recent hurricanes. All said, Trump’s agreement was in the country’s best interest, whether intentional or not.
That said, politically speaking, it was the wrong move for Republicans. Democrats are, unsurprisingly, pleased with this week’s turn of events. After all, this gives them another chance to use the debt ceiling as a bargaining chip in December. Republicans on the other hand, are furious for the same reason: their opponents were handed that leverage for free. Both parties would be wise to realize that the door swings both ways, and take a look at ways to prevent these issues in the future.
The Future of the Debt Ceiling
Given the potentially disastrous consequences of failing to approve a must-pass bill, why do we have a debt ceiling at all? The idea of removing the debt ceiling entirely has been floated by politicians and economists alike. In fact, during a meeting on Wednesday, Chuck Schumer and Donald Trump agreed, in principle at least, to discuss a plan to do away with the debt ceiling process. Instead, the debt limit would raise automatically as Congress makes appropriations.
Where those discussions go is anyone’s guess at this point, but it’s a start. Eliminating the debt ceiling is the right move. The issue is simply too dangerous to make into a political argument. Neither party should be allowed to hold the country’s financial well-being hostage for the sake of their political agenda. Still, there will be members of Congress who will argue that they are losing a valuable political tool by removing the debt ceiling and will fight tooth and nail to keep the process in place. But just because Congress has used this very issue for political gain in the past doesn’t mean the trend should continue.
It’s time to put country over politics and eliminate the debt ceiling for good.