In January of this year, it was announced that the U.S. government reached its debt limit. According to the U.S. Department of Treasury, the debt limit is the total amount of money that the U.S. government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The Treasury Department furthermore stipulates that the debt limit does not authorize new spending commitments but rather allows the government to finance existing legal obligations that Congress and presidents of both parties have made in the past. According to the Treasury Department, failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations. A sovereign default would precipitate another financial crisis and threaten the jobs and savings of ordinary Americas. On Wednesday, April 26, 2023, House Republicans delivered Speaker Kevin McCarthy the biggest win of his tenure leading the chamber so far by passing his bill to raise the debt limit and slash spending, a bill that serves as the GOP’s position on how to avoid a debt crisis in the coming weeks. The bill passed in a narrow 217-215 vote. The passage of this bill is a massive political victory for McCarthy as it would ensconce his leadership within the Republican Party.
The legislation would raise the debt ceiling next year in exchange for freezing spending at last year’s levels for a decade—a nearly 14% cut—as well as rolling parts of President Biden’s health, climate, and tax law, imposing work requirements on social programs and expanding mining and fossil fuel production. In 2022, the U.S. government spent $3.15 trillion. Raising the debt ceiling would then prevent the Biden Administration from adding new expenditures to the existing expenditures that the U.S. government has to reimburse. It could be expected that President Biden will veto the bill and refuse to negotiate spending cuts in conjunction with a debt limit increase.
President Biden planned on increasing government spending over the next years to $10 trillion. His 2024 proposed budget has spending that will reach the $7 trillion threshold in 2025, $8 trillion in 2028, $9 trillion in 2031, and $10 trillion in 2033. The U.S. government spends more than it makes. As was aforementioned, the government spend over $3.15 trillion while generating $2.05 trillion in revenue. This is a deficit of $1.1 trillion. As President Biden planned on increasing government spending, this would also lead to higher levels of borrowing, higher interest payments, and low reinvestment, which will result in lower revenue during the following year. Thus, raising the debt limit is used as a shield to prevent the U.S. government from further spending.