A debate over the debt ceiling is at the center of a dispute over funding that is pushing Washington to the brink of a federal government shutdown.
President-elect Donald Trump has demanded that a provision raising or suspending the nation’s debt limit—something that his own party routinely resists—be included in legislation to avert a government shutdown. “Anything else is a betrayal of our country,” Trump said in a statement Wednesday.
Republicans quickly complied, including a provision in a revamped government funding proposal that would suspend the debt ceiling for two years, until Jan. 30, 2027. But the bill failed overwhelmingly in a House vote Thursday evening, leaving next steps uncertain.
Here’s what to know about the debate over the debt ceiling and the role it’s playing in the shutdown saga:
What is the debt ceiling?
The debt ceiling, or debt limit, is the total amount of money that the United States government can borrow to meet its existing legal obligations. For the Treasury Department to borrow above that amount, the limit must be raised by Congress.
The federal debt stands at roughly $36 trillion, and the spike in inflation after the coronavirus pandemic has pushed up the government’s borrowing costs such that debt service next year will exceed spending on national security.
The last time lawmakers raised the debt limit was in June 2023. Rather than raise the limit by a dollar amount, lawmakers suspended the debt limit through Jan. 1, 2025. At that point, the limit will be automatically raised to match the amount of debt that has been issued by the Treasury Department.
The debt limit vote in recent times has been used as a political leverage point, a must-pass bill that can be loaded up with other priorities.
What is the debt ceiling fight all about?
Trump has tied a demand for dealing with the debt ceiling to the dispute over government funding, saying one should not be addressed without the other.
When he rejected the spending proposal on Wednesday, Trump said that he wanted the debt ceiling debate settled before he takes office next month.
Warning of trouble ahead for Johnson and Republicans in Congress, Trump told Fox News Digital, “Anybody that supports a bill that doesn’t take care of the Democrat quicksand known as the debt ceiling should be primaried and disposed of as quickly as possible.”
What happens if the debt ceiling isn’t raised?
There’s actually no need to raise the debt limit right now. On Jan. 1, when the debt limit is triggered, the Treasury Department can begin using what it calls “extraordinary measures” to ensure that America doesn’t default on its debts.
Some estimate these accounting maneuvers could push the default deadline to the summer of 2025—but that’s exactly what Trump wants to avoid, since an increase would then be needed while he is president.
Lawmakers have always raised the debt ceiling in time because the consequences of failure are stark. Without action, the government would go into default on its debts, a first-ever situation that Treasury Secretary Janet Yellen and economic experts have said could be “catastrophic” for the economy and global markets.
Raising or suspending the debt limit does not authorize new spending or tax cuts; it merely acknowledges past budgetary decisions—that is, current budget law—and so allows the federal government to meet its existing legal obligations. For that reason and others, some have advocated doing away with the limit altogether.
What could the debt ceiling fight mean for Speaker Mike Johnson?
Dealing with the debt ceiling could have ramifications for Johnson, as he angles to keep his job in the new Congress that begins on Jan. 3.
Trump said early Thursday that Johnson will “easily remain speaker” for the next Congress if he “acts decisively and tough” in coming up with a new plan to also increase the debt limit, a stunning request just before the Christmas holidays that has put the beleaguered speaker in a bind.
The last House speaker, Kevin McCarthy, worked for months with President Joe Biden to raise the debt limit. Even though they struck a bipartisan deal that cut spending in exchange for additional borrowing capacity, House Republicans said it didn’t go far enough, and it ended up costing McCarthy his job.
Now, Trump is looking for Johnson to pass a debt ceiling extension just hours before a partial government shutdown.
What are Democrats saying about the debt ceiling debate?
After meeting with his caucus, Democratic Leader Hakeem Jeffries rejected any possibility that his members would bail out Republicans as the shutdown threat looms.
“GOP extremists want House Democrats to raise the debt ceiling so that House Republicans can lower the amount of your Social Security check,” Jeffries posted Thursday on social media. “Hard pass.”
Jeffries and other Democrats say Republicans should honor the spending agreement that was negotiated before Trump got involved. He called the new GOP plan “laughable.”
TEEING UP TAX CUT
The frequency of government shutdowns has reduced since the 1980s but they have become longer and more damaging. The fact that the US government can even have a shutdown all comes down to a quirk in the way the US is governed that no other country has to deal with.
There have been 20 “funding gaps,” when funds were not appropriated to the federal government for a few hours or even days, since 1976. The six times precedingto 1980 did not result in any work stoppage by the federal government. Ten of the funding gaps had little effect on the operations of the federal government, lasting just a few days or less and occurring during weekends.
Four “real” shutdowns, however, have been bruisers. Not just financially but also for the party seen as being responsible for causing the shutdown. The two government shutdowns in 1995, the second lasted 21 days, were credited with helping then-President Bill Clinton win re-election in 1996 with blame falling on the Republicans which controlled both chambers of Congress.
The most costly in history was the shutdown over the holiday season of 2018 to 2019 which lasted for 35 days, costing an estimated $11 billion. This was due to President Trump wanting to grant extra funding for his border wall, but the Senate was determined to stop it from happening. Again, polls found that Americans placed the fault with Republicans.
Why do government shutdowns exist?
Shutdowns happen because Congress is the only body responsible for the allocation of government funding. This means if Congress cannot pass a budget, the president does not have the power to unilaterally decide on funding.
There is a backdoor, called the continuing resolution, which can temporarily fund the government. This is the plan of current House Speaker Mike Johnson; two separate funding deadlines in January and February next year.
The American political system means the president can be in power without having his or her party controllingthe Senate or the House. This makes passing legislation, including budgets, much more difficult, requiring negotiation and compromise on both sides.
In other presidential systems around the world, the president has the authority to keep governments functioning without a budget. In parliamentary systems, prime ministers normally resign if they no longer control the majority in parliament, leading to more elections.
Since 1980, the US federal government has shut down ten times, with the longest taking place over thirty-five days between December 2018 and January 2019.
The 2018-2019 shutdown occurred after Republicans, led by President Trump, withheld their votes on a spending bill to gain funding for the border wall. Democrats who came to hold a majority in the House in early January 2019 did not budge, and in the end, Republicans surrendered. All government shutdowns over the last three decades have occurred when Republicans controlled the House of Representatives.
Congress has until 19 November to pass a bill to continue funding the government and a bill is set to be introduced this week.
Consequences of a shutdown
Shutdowns, especially for a government as large as the US, are logistically difficult and costly.
The Congressional Budget Office estimated the most recent shutdown, which lasted five weeks, decreased economic output by an estimated $11 billion.
About $3 billion had to be spent to pay back furloughed federal workers. The IRS reported an additional $2 billion in losses, which could not carry out tax compliance activities to reduce evasion. The remainder represents economic losses through the secondary effects of the shutdown: slower businesses as furloughed workers stay home, a decrease in public transit systems around Washington DC, and delays in production as businesses evaluate impacts on their own supply chains. A smaller amount in losses was also reported by other agencies for fees, including those associated with the closure of national parks and other services.
Credit rating agencies, such as Moody’s, Standard & Poor’s, and Fitch, closely monitor the fiscal health and stability of governments. Risks of the shutdown have led these agencies to reconsider their assessments of the US government’s creditworthiness; a downgrade in the credit rating would result in higher borrowing costs for the government and weaken investor support in the US economy.
Credit ratings have been sunk by shutdowns before; 5 August 2011. It was the first time the rating had fallen below AAA. Moody’s is the last credit agency remaining to allocate such a score the the US government. Furloughed workers
In the 2018-2019 shutdown, more than 380,000 workers were furloughed, meaning they were sent home and not required to work. An additional 420,000 workers were required to work but were not paid until after the spending showdown ended. Federal workers were compensated after the crisis ended. However, many federal contractors hired by a third party and paid by the government were not paid for the hours lost during the shutdown.
The fact that federal contractors, many of whom are security officers, custodians, cooks, and landscapers, were not compensated was widely condemned by progressive Democrats and activists. Many of the contractors who lost their incomes are low-wage workers who already find themselves in an economically precarious situation.
Could SNAP benefits be impacted by a shutdown?
The fate of SNAP benefits, formally known as food stamps, also fall into limbo during a prolonged shutdown. According to the non-partisan NGO, the Committee for a Responsible Federal Budget, the funding for SNAP benefits is a mandatory line item in the budget, but the funds to support states in the distribution of the benefits are not. Federal law gives the US Department of Agriculture (USDA) a month to send benefits once a shutdown begins.
Based on the actions taken by the USDA during past shutdowns, the agency would be able to distribute the December SNAP payments. The organization also warned that stores that accept the Electronic Benefits Transfer (EBT) cards that SNAP benefits are loaded onto may be unable to renew their licenses, meaning that those receiving benefits may have fewer options when shopping.
Congress has again failed to pass a budget, leaving the threat of a government shutdown looming. Though this has become an increasingly common situation for the public and fuels voter frustration weeks before the election, many are unaware of the implications for the average family when the government shuts down.
The Republican-led House of Representatives is struggling to agree on a continuing resolution (CR) that can pass in Congress’s lower chamber.
What is a continuing resolution?
A type of appropriations bill, a continuing resolution is a short-term legislative mechanism to fund the government. A CR is used when leaders are unable to fund the government for an entire year.
The cost of the 2018-2019 government shutdown
When the government runs out of money, federal workers whose work goes unfunded are sent home. While they go without pay during the shutdown, they are paid on the backend, which means that the taxpayer funds Congress’s failure.
The Congressional Budget Office, which conducts economic analysis for the legislative branch, found that the 2018/2019 shutdown cost the taxpayer $18 billion. In addition to back pay and other expenses that are paid after the shutdown, the event also slowed economic growth in the first quarter of 2019 by an estimated $8 billion.
How much could a shutdown cost now?
Not knowing if a shutdown will happen and indeed how long makes guessing the damage difficult. However, some estimates argue that each week of a shutdown is estimated to reduce GDP growth by about 0.2 percentage points.
In the US, one out of five seniors depend on Social Security for ninety percent or more of their income. These critical benefits keep seniors afloat, and it takes a lot more than Congressional failure to stop sending these checks.
These benefits are protected because their funding does not form part of the same budget process Congress is currently debating.
How will a shutdown impact the Social Security Administration?
When the risk of a government shutdown approaches, the White House asks federal agencies to provide a contingency plan. These have yet to be published, but since the country found itself in the same situation last year, we can look at the Social Security Administration’s plan (SSA) provided by Chad Poist, who serves as the SSA Deputy Commissioner for Budget, Finance, and Management.
“Our continuing functions related to making accurate payments during a lapse in appropriations is consistent with our previous contingency plan,” wrote Poist, confirming that benefits will continue to be paid in the case of a shutdown. Mr. Poist also cited legal precedents set during previous shutdowns wherein the SSA was mandated to continue making Social Security payments.
Services that are halted
This does not mean that beneficiaries will not encounter difficulties when faced with issues relating to their benefits.
Mr. Poist’s plan did outline several activities that would be stopped during a shutdown, including the processing of Freedom of Information Act (FOIA) requests, overpayment processing, and the replacement of Medicare cards, among other activities typically carried out.
These responsibilities must be cut because around 8,500 SSA workers will be furloughed. In other words, these government employees will be sent home without pay until Congress passes a funding bill.