As we kick off May, the ticking policy time bomb getting all the attention in Washington D.C. is the debt ceiling. As a point of background, the debt ceiling is the cap on the total amount of money the federal government is able to borrow to make its payments to fund its government and meeting its financial commitments (including paying debts). The US government runs budget deficits; as a result, it relies on its ability to borrow huge amounts of money to pay its bills. Among these debts? Funding for social safety net programs, interest on the national debt and salaries for members of the armed forces.
In terms of politics, neither party wants the debt ceiling to be breached. At one point, I heard the debt ceiling described to me by a hill staffer as ‘a necessary thing that you hopes come due when you’re in the minority so you can score political points off of it’. Truly breaching the debt ceiling would be economically devastating, with consequences that could plunge the US and broader global economics into financial crisis.
The tension at the center of this current debate is not if the debt ceiling should be raised. Rather, Democrats believe the debt ceiling should be passed as a stand alone issue, and Republicans want to leverage the debt ceiling to accomplish broader policy goals. This is not the first time Congress has needed to raise the debt ceiling. While the United States has hit the debt limit before, it has never run out of resources and failed to meet its financial obligations. The debt ceiling was most recently raised in 2021. For this iteration of the debt ceiling debate, the US technically hit the debt limit on January 19, 2023. As is the case with debt ceiling, though, the fed exercised ‘extraordinary measures’ to continue making payments. Most recent estimates indicate these measures will run out by June 8.
In late April, the House passed the GOP bill HR 2811, the “Limit, Save, Grow Act of 2023. This represents a slightly revised Republican leadership bill to increase the debt ceiling, cut discretionary spending for fiscal year (FY) 2024 to FY 22 levels and then cap discretionary growth at 1% per year for the following 9 years (until 2033, and make other changes that cut mandatory spending and end some of the Administration’s key initiatives, including the student debt relief plan. In terms of an education impact, a return to FY22 spending levels would mean a $850 million reduction in Title I.
What’s Next? The Democratic Senate will not consider the bill and the President issued a veto threat. The bill is a marker for what Republicans want in any upcoming negotiation to increase the debt limit. Congress needs to increase the debt limit sometime in the next month or two (as mentioned above) or the country will start defaulting on obligations it has already made, which includes paying government benefits like Social Security and Medicaid, and interest payments on the debt. President Biden is expected to sit down with Speaker McCarthy to formally begin negotiations for a debt ceiling deal. There is some speculation Congress may pass a shorter-term debt ceiling bill, using an amount that would raise the issue again later this fall, closely aligning with the annual appropriations process.
AASA believes the debt ceiling must be raised as a clean bill, not held hostage for additional policy accomplishments. The time to establish goals around fiscal restraint and responsibility is when budgets are being crafted and adopted, not after debts have been occurred. Related to this position, AASA joined four national education organizations in a letter address to the House Appropriations Committee. The letter weighs in on FY24 appropriations process as well as responds to the House GOP proposal for raising the debt ceiling. Read the full letter here