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It’s Tuesday, the traditional day for elections and for our pause-and-consider newsletter on politics and policy. We think of it as a mini-magazine in your inbox.
YOUR QUESTIONS ABOUT THE DEBT CEILING
By Lisa Desjardins, @LisaDNews
Correspondent
Joshua Barajas, @Josh_Barrage
Senior Editor, Digital
In a matter of 10 days, the United States could find itself without enough funds to pay its bills, and lawmakers are still looking for the keys to a debt ceiling deal.
We are in a better position here at Here’s the Deal. We have a clear mission and direction, thanks to you, who have yet again answered our call for debt ceiling questions last week.
We are happy to answer some here.
What is the debt ceiling again?
The debt limit is a hard ceiling (hence “debt ceiling”) for how much money the federal government can borrow at any time.
The U.S. needs to borrow to pay its bills.
- For most of its history, the U.S. has spent more money than it has taken in. As a result, it borrows large sums of money to pay its bills. The sum of all of that unpaid borrowing is our national debt.
- The national debt is currently more than $31 trillion. You can see what it is, to the penny, here. (Scroll down.)
Why do we have a debt ceiling?
Congress created this system more than a century ago to try to allow for more borrowing in a time of war.
- Lawmakers approved the first debt ceiling in 1917 to allow President Woodrow Wilson to spend the money needed for World War I — without waiting for lawmakers to act.
- Congress at the time set a borrowing limit of $11.5 billion. Any increase required congressional approval.
- Since World War II, the debt ceiling has been modified more than 100 times, according to the Congressional Research Service.
- The latest change occurred in 2021, when the debt ceiling was raised to $31.38 trillion.
When do we hit the debt ceiling?
This is the trillion-dollar question at the moment.
Technically, the U.S. edged right up to the debt ceiling months ago — in January. Since then the Treasury Department has been using accounting maneuvers, known as “extraordinary measures,” to keep the federal government afloat. But those measures are about to run out.
Treasury Secretary Janet Yellen has said a default could happen as early as June 1, if Congress and the president don’t act. Today, the Bipartisan Policy Center placed the most likely “X-date” as sometime between June 2 and June 13.
Now. Let’s talk turkey. Those June 1 and June 2 estimates are “worst case.” There is a possible cushion, and potential mechanisms the federal government has, to extend that a few days. (Think: not paying some bills that can wait.)
But the exact timeline is unclear. And as you’ll see below, the risk is monumental if you cut it too close.
Well, what happens if the U.S. defaults?
This is a very common question, from readers and — truth be told — among the nation’s economic experts.
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Watch the segment in the player above.
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The short answer is: It depends on how long any default lasts and what it looks like, but in general if the U.S. cannot pay its bills, that crunch will lead to economic ripple effects across the country and globe.
If this lasts beyond a day or two, say a weekend, the consequences will be far-reaching. For a protracted default, Yellen said it will be “catastrophic.”
But we need to stress: While there have been moments in U.S. history when the nation missed debt payments, this still would be uncharted waters. It is not clear exactly what a default would look like, which bills would get paid first or even exactly who would decide. (Also note: That uncertainty is already having an effect now.)
What does this mean for you?
This is really the key question. And there are really two crises here that could affect you.
First is the immediate crisis if the U.S. defaults. For average Americans, there are a number of serious potential effects. Quickly, Wall Street and global markets could drop or plunge. That could affect retirement savings, 401K plans, college savings, anything tucked away and invested.
Certain federal programs – Social Security, Medicare, Medicaid, veteran benefits, SNAP benefits, among others – could be among the first affected by a default, according to an analysis from the Bipartisan Policy Center. Also at risk? If Yellen’s current timing estimate holds:
- $12 billion in military and civilian retirement benefits paid on June 1.
- $1 billion in tax refunds scheduled to go out June 7.
- $4 billion in federal salaries, payable on June 9.
The dollar is a global reserve currency and U.S. bonds are seen as one of the most stable investments on the planet. So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, car loan rates. All would become more expensive.
Finally, there is a real concern about the economy — that a default could spark a recession. That could then mean fewer jobs and harder times for businesses, especially small ones.
The other crisis involved here is longer term and slow moving. If the debt is allowed to grow at current rates, it will be unsustainable.
In 30 years, just the interest on U.S. debt would be so unsustainable that U.S. taxpayers would be paying 50 percent of their taxes just for interest. It would lead to dramatic cuts in spending along with increases in taxes to make up the difference.
As part of that, without changes, as soon as 2035, Social Security benefits could face a 23 percent cut in benefits(!). And that cut would grow.
What about the 14th Amendment? Is this an option to address the debt ceiling crisis?
Bob Davis of Portland, Oregon, asked: “Can the 14th be used to stop the debt crisis?”
The 14th Amendment to the U.S. Constitution, passed following the Civil War is well-known as the provision granting citizenship to formerly enslaved people. But it also includes a section declaring, “The validity of the public debt of the United States, authorized by law … shall not be questioned.”
President Joe Biden has said he believes this may give him the authority to unilaterally lift and possibly override the debt ceiling altogether. But he also said he is leery of the idea.
Among the downsides is that using the 14th Amendment this way is untested and deeply debated. The public debt clause was originally written to verify that the U.S. debt was valid and Confederate debt was not. More pragmatically, Biden expects this kind of use would be challenged in court, and those challenges could delay its use past the debt ceiling deadline.
Finally, this would be politically divisive. House Speaker Kevin McCarthy and other Republicans have been clear in their opposition to this deployment of the 14th Amendment.
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More on politics from our coverage:
- Watch: The U.S. is fewer than 10 days away from when the Treasury Department says it will run out of money to pay its debts.
- One Big Question: What happens if Congress fails to raise the debt ceiling? Economics experts explain what could happen in the case of default.
- A Closer Look: Sen. Tim Scott is the newest 2024 GOP presidential candidate. How is the South Carolina Republican distinguishing himself from the growing GOP field of candidates? NPR’s Tamara Keith and Amy Walter of the Cook Political Report weigh in.
- Perspectives: How teens in Missouri are experiencing antisemitism — and what they’re doing about it.
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WHO TO BLAME FOR THE POTENTIAL DEFAULT? AMERICANS ARE SPLIT
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Photo by Drew Angerer/Getty Images
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By Matt Loffman, @mattloff
Politics Producer
Americans’ frustration with Biden (and Congress) has the potential to creep up again amid the high stakes negotiations over raising the debt limit.
And as we inch closer to a potential default, President Joe Biden, Democrats and Republicans have yet to emerge with a deal. House Speaker Kevin McCarthy and congressional Republicans have insisted for months that any agreement to raise or suspend the debt ceiling be accompanied by spending cuts, and for months the president has accused Republicans of holding the economy hostage, saying the debt ceiling and spending cuts should be separate negotiations.
More than half of Americans agree with the president’s position, according to the new PBS NewsHour/NPR/Marist poll.
- 52 percent of Americans say Congress should raise the debt ceiling first to avoid a debt default and then discuss spending cuts separately. This includes 75 percent of Democrats, 30 percent of Republicans and 44 percent of independents.
- But 42 percent of Americans believe Congress should only increase the debt ceiling if it makes significant spending cuts at the same time, even if the U.S. defaults on its debt. That includes 21 percent of Democrats, 65 percent of Republicans and 48 percent of independents.
If the two sides fail to reach a deal in time and the country defaults on its debts, Americans are split on which side would be at fault: 43 percent say Biden while 45 percent say Republicans in Congress, within the margin of error of 3.4 percent. Another 7 percent say both parties would be equally to blame.
Opinions on the debt are once again aligned by party, with 75 percent of Democrats blaming congressional Republicans and 73 percent of Republicans blaming Biden. But independents are more likely to blame Biden, with 47 percent saying the president, 38 percent saying Republicans and 11 percent saying both.
#POLITICSTRIVIA
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Watch Sen. Tim Scott announce his 2024 presidential run in the player above.
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By Cybele Mayes-Osterman, @CybeleMO
Associate Editorial Producer
Republican Sen. Tim Scott of South Carolina announced his candidacy for the Republican nomination for president on Monday.
His entrance widens the field of contenders for the GOP nomination to seven. (This does not include Florida Gov. Ron DeSantis, whose announcement is expected later this week.)
Scott, who has represented South Carolina in the Senate for a decade, was first elected to Congress in 2010 with the backing of the hardline conservative Tea Party. He is the only sitting Black Republican senator, and was the first Black Republican elected to the House of Representatives from South Carolina in over a century.
In more than two centuries, only 11 African Americans have been elected to the Senate. In 1870, this former minister became the first African American to serve in Congress after he was sworn in as senator.
Our question: What was the name of the senator?
Send your answers to [email protected] or tweet using #PoliticsTrivia. The first correct answers will earn a shout-out next week.
Last week, we asked: A former Kentucky governor, who later became the second commissioner of Major League Baseball, integrated the league after approving the contract of this Black player to join the Brooklyn Dodgers. Who was the player?
The answer: Jackie Robinson. The famous athlete and civil rights activist broke the modern era game’s color line when he started at first base for the Dodgers.
Congratulations to our winners: John Cleveland and Diana Nelson!
Thank you all for reading and watching. We’ll drop into your inbox next week. |
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