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Republicans’ Irresponsibility in Playing Political Games with the Debt Ceiling

Real budgetary reforms are needed. A debt-limit fight is the wrong way to advance those reforms.
November 3, 2022
Republicans’ Irresponsibility in Playing Political Games with the Debt Ceiling

In a move that fits with the party’s over-the-top combativeness of recent years, Republican leaders have signaled plans for a debt-limit showdown with President Biden. They believe that, if the midterm election flips control of the House, Senate, or both to the GOP, they can extract budgetary concessions by withholding a needed increase in the government’s borrowing allowance in the second half of 2023. But recklessly manufacturing such a crisis brings alarming economic risks, and the brinkmanship will further inflame the tribalism that is already making orderly democratic governance a serious challenge.

The debt limit is a flashpoint again because budgetary projections indicate it might become a binding constraint on federal activity sometime late next year. Democrats in Congress raised it by $2.5 trillion in December 2021, to about $31.4 trillion. With the federal government expected to run a cumulative deficit of nearly $16 trillion over the coming decade, it will need to be raised again relatively soon. For stability, it would be best to increase it substantially to avoid repetitive partisan showdowns.

Politicians from both parties dislike supporting debt-limit adjustments because their opponents can exploit those votes during election campaigns. But Republicans who are planning to elevate the risk of a default, with all the lasting damage such a calamity would cause, have no intention of advancing a practical solution. They want to appear sober about spending while mostly going along with the status quo.

None of this implies that there isn’t a real problem to worry about. The federal government is running unsustainable deficits, and has been for years. The resulting run-up in debt that has already occurred, and is forecast to accelerate over the next thirty years, is a serious threat to the country’s economic vitality. The Congressional Budget Office’s latest projection shows cumulative federal debt rising from the equivalent of just under 100 percent of GDP in 2022 to 185 percent in 2052. In 2008, it was below 40 percent of GDP.

The debt limit is a particularly inappropriate tool to address the problem of rising federal debt because there is almost nothing that can be done in the short term to avoid the need for more borrowing. The expected budget deficit for 2023 is $1.0 trillion, and it is $1.1 trillion for 2024. It is not possible for these gaps to be closed, or even to be narrowed substantially, via spending cuts and tax hikes. This borrowing is going to occur irrespective of anything Congress does next year because the taxes that will be paid, and the spending that will occur, will be based on laws enacted in previous years. Changes to those laws can make a difference in five or ten years, but not immediately. The debt limit is all but irrelevant to those short-term spending figures.

Further, much can go wrong when the debt limit is used as a political tool. While most members of Congress (of both parties) will want to act responsibly, that is no guarantee that they will be able to outmaneuver a determined minority that believes its objectives are worth the risks from heightened brinkmanship. The result could be an accidental default, or perhaps workarounds orchestrated by the Treasury Department to keep paying bondholders while other claimants get pushed aside. The damage to U.S. credibility would be significant and permanent.

As a general matter, leading Democrats are likely to act more responsibly than their opposites in the GOP, but that does not mean they are blameless. In the early weeks of the Biden administration, the party pushed a $1.8 trillion COVID response bill through Congress that was far more costly than was advisable. Today’s high inflation is partially a consequence of that action. Another is a widening of the near-term deficits that Republicans can say correctly was not their doing (although Republicans did vote for substantial COVID-related economic support in previous bills).

The Democratic party also has long taken a no-compromise position on the fundamental sources of the nation’s fiscal challenges, which are rising costs associated with an aging population and escalating medical expenses. These pressures are pushing up federal spending on Social Security, Medicare, and Medicaid to levels that are well above the historical norm. CBO expects spending on these programs (plus other health insurance subsidies) will rise from the equivalent of 10.7 percent of GDP in 2022 to 15.1 percent in 2052. In 1980, spending on Social Security, Medicare, and Medicaid was 5.9 percent of GDP.

Along with the spending associated with the financial crisis of 2007 to 2009 and the COVID response (the two spikes in the graphs above), the rising costs of these programs has caused the overall fiscal outlook to deteriorate markedly. It would not take many adjustments to CBO’s projection assumptions to push federal debt above 200 percent of GDP within twenty-five years.

Neither party can take on the substantial political risks associated with solving this immense problem on its own, so some compromises are inevitable and necessary. The question is how to bring the parties to the bargaining table.

There are no easy answers here, as many previous attempts at jumpstarting bipartisan talks failed. Even so, it is clear that a debt-limit confrontation is not the way forward. In the middle of a debt-limit fight one year out from the 2024 presidential election, Democrats are not going to agree to serious entitlement reforms and Republicans are not going to agree to major tax hikes.

In the current political environment, Republican leaders may set their sights on tying a debt-limit hike to budget changes that play to the passions of the party’s most strident supporters, perhaps pushing for changes related to immigration or crime. But even these goals are unlikely to be achievable in a debt-limit standoff because President Biden cannot afford to concede anything in the face of transparently partisan threats.

The difficult reality is that addressing the nation’s fiscal challenges requires a level of bipartisan cooperation that remains possible in some contexts (as demonstrated throughout 2021 and 2022) but is rare when both parties have so much to lose, as they do on matters of taxes and spending. An attempt by the GOP in 2023 to gain leverage over important budget decisions with the debt limit will only further deplete the good will that might otherwise make concessions possible when the time is right for a deal.