Debt Ceiling Negotiations: Who’s in Control?

The National Debt: A Debate as Old as the Country Itself

News Analysis

Back in 1790, Alexander Hamilton proposed a bold plan to Congress: the federal government should assume the wartime debts of the 13 states and retire them with funds borrowed at a lower rate of interest. This would strengthen the role of the federal government and ensure good credit with other countries. But not everyone agreed. Thomas Jefferson, then the secretary of state, argued that public debt was the greatest danger to be feared. Southern states also objected to the plan, but eventually, a compromise was reached. And with that, the national debt was established, making it older than the country itself. Today, as President Joe Biden and House Speaker Kevin McCarthy negotiate over the debt ceiling, they carry on a debate as old as the country itself.

The Blame Game

Assigning blame for the federal debt has become a political sport, especially in recent years. Republicans blame Democrats for being “addicted to spending,” while Democrats blame the Donald Trump-era tax cuts for the ballooning debt. In fact, both increased spending and decreased revenue have driven the debt higher over much of America’s history. Generally, wars have done the most financial damage. The national debt shot up by triple digits during the Civil War, World War I, and World War II. And the tax cuts of the 1980s produced double-digit annual increases in the debt for nearly a decade.

Biden’s Bet

On Jan. 13, U.S. Treasury Secretary Janet Yellen informed Congress that the country was approaching the statutory debt limit. If the debt limit is reached, the government must stop borrowing money. Since the country operates at a deficit budget, ongoing borrowing is necessary to pay the bills. Without the ability to borrow, the government would have to begin delaying bill payments. McCarthy immediately made it clear that Congress would not consider raising the debt ceiling unless Democrats agreed to cut spending. The two leaders met on Feb. 1 to discuss the matter, a meeting both described in positive terms. However, the president insisted that he would not negotiate over lifting the debt limit, as that would endanger both the American economy and the full faith and credit of the United States. As for spending cuts, Biden said there was no point in meeting until Republicans produced a budget showing exactly which cuts they intended to make. That began a three-month standoff during which McCarthy repeatedly called for negotiations, which Biden ignored.

McCarthy’s Coup

On the afternoon of April 25, Republicans introduced the Limit, Save, Grow Act into the House of Representatives. The bill proposed to raise the debt ceiling just enough to reach into early 2024 while limiting federal spending to the 2022 level, capping spending growth at 1 percent annually for a decade, clawing back unspent COVID-19 money, increasing work requirements for some Medicaid and the Supplemental Nutrition Assistance Program (SNAP), and loosening permitting requirements for oil and gas drilling. The next afternoon, while President Biden prepared to host South Korean President Yoon Suk Yeol for a state dinner, McCarthy brought the Limit, Save, Grow Act to a vote. It passed by one vote. Just like that, McCarthy had achieved a major victory, confounding naysayers by passing a bill that both increased the debt limit and staked out Republican budget demands for 2024 and beyond. Five days later, Biden invited McCarthy to the White House to discuss the debt limit.

At the Table

On May 1, the same day that Biden issued his invitation to McCarthy, Yellen again notified Congress of the impending x-date when the government would no longer be able to meet its obligations in full. The date would likely come in June, Yellen said, possibly as early as June 1. She urged Congress to act. By assigning responsibility for the debt crisis to each other, Biden and McCarthy both hoped to win public opinion to their side. The president, though, seemed to have an ace in the hole.

The national debt has been a topic of debate since the country’s founding. Today, as President Joe Biden and House Speaker Kevin McCarthy negotiate over the debt ceiling, they carry on a debate as old as the country itself. Assigning blame for the federal debt has become a political sport, especially in recent years. On Jan. 13, U.S. Treasury Secretary Janet Yellen informed Congress that the country was approaching the statutory debt limit. McCarthy immediately made it clear that Congress would not consider raising the debt ceiling unless Democrats agreed to cut spending. That began a three-month standoff during which McCarthy repeatedly called for negotiations, which Biden ignored. On the afternoon of April 25, Republicans introduced the Limit, Save, Grow Act into the House of Representatives. The bill proposed to raise the debt ceiling just enough to reach into early 2024 while limiting federal spending to the 2022 level. The next afternoon, McCarthy brought the Limit, Save, Grow Act to a vote. It passed by one vote. Just like that, McCarthy had achieved a major victory, confounding naysayers by passing a bill that both increased the debt limit and staked out Republican budget demands for 2024 and beyond. Five days later, Biden invited McCarthy to the White House to discuss the debt limit.