President Joe Biden has called congressional leaders to the White House tomorrow to try to avert a default on the $31.5 trillion national debt, which could occur as soon as June 1.
“Somebody needs to go in there with a plan” – one that is realistic, not ideological, says former Democratic Sen. Kent Conrad, who helped negotiate a resolution to the 2011 debt limit crisis.
Why We Wrote This
Debt limit negotiations have often been framed around the espoused goal of compelling greater fiscal discipline. But this round is particularly high-stakes, with each side digging in.
“Republicans don’t want to raise revenue. Democrats don’t want to touch entitlements. The hard reality is you have to have some of both,” adds Mr. Conrad. “That takes a bipartisan commitment, and a bipartisan approach.”
The scale of the problem is hard to fathom, but economists testifying at a recent congressional hearing tried to put it into perspective: A million dollars in $100 bills could fit in a backpack; by comparison, America’s $31.46 trillion debt would take up 31½ football fields with construction pallets stacked two deep, and each containing bills totaling $100 million. Another expert noted that within 30 years, interest on the debt could consume 70% to 100% of U.S. revenue.
The House Problem Solvers Caucus has proposed raising the debt ceiling through the end of 2023 to avoid default, and appointing a commission to get the nation’s fiscal house in order.
As the United States hurtles toward default on its record debt, Tennessee Rep. Tim Burchett is eating peanut butter and jelly sandwiches at his desk for dinner.
He doesn’t come from money. His parents – survivors of the Depression – lived within their means. So has his state, which is constitutionally mandated to balance its budget. Now he’s calling for the nation to do likewise, armed with a squirt bottle of Welch’s grape jelly in a town where dining out is de rigueur.
Congressman Burchett was one of four House Republicans who voted against a GOP bill two weeks ago that would raise the national debt limit by $1.5 trillion in exchange for spending cuts to help get the nation’s fiscal house in order. The debt currently stands at just under $31.5 trillion.
Why We Wrote This
Debt limit negotiations have often been framed around the espoused goal of compelling greater fiscal discipline. But this round is particularly high-stakes, with each side digging in.
“I did not vote for [raising the debt limit] under Trump, and I thought it’d be very disingenuous if I did it here,” says Representative Burchett in a phone interview, pointing out that even under this latest Republican plan, the debt would continue to grow by about $1.5 trillion each year. “It’s going to destroy this country.”
Tomorrow congressional leaders will meet with President Joe Biden at the White House to try to avert a default on the debt, which would occur if the limit isn’t raised and could have long-term consequences for the U.S. economy and its global standing. The deeper issue is how to bring spending and revenue into better balance, as America’s rising debt – blamed on everything from the war on terror to Trump tax cuts to pandemic spending – exceeds World War II proportions for the first time.
“Somebody needs to go in there with a plan – and a plan that is realistic, not a plan that is ideological,” says former Sen. Kent Conrad, a North Dakota Democrat who helped negotiate a resolution to the last major debt limit crisis in 2011 as Senate Budget Committee chairman.
“Republicans don’t want to raise revenue. Democrats don’t want to touch entitlements. The hard reality is you have to have some of both,” adds Mr. Conrad, who now co-chairs the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings. “That takes a bipartisan commitment, and a bipartisan approach.”’
At an impasse
The near-term need – to boost the debt limit – doesn’t necessarily require a larger fiscal deal to be cut, though the two have often been paired. For Republicans demanding spending restraint, one option is to agree to a debt limit hike now and then pin their demands to other legislation, such as on appropriations later this year.
But for now the parties appear to be at an impasse.
House Speaker Kevin McCarthy, whose caucus includes hard-line fiscal conservatives who opposed raising the debt ceiling or wanted deeper spending cuts in exchange for doing so, has little wiggle room for bargaining. He got House Republicans to pass the Limit, Save, Grow Act on April 26 – albeit with just one vote to spare. But Democrats firmly oppose the GOP debt limit bill, which has virtually no chance of passing the Democrat-led Senate.
Unless a different solution is reached, the Treasury Department is expected to default on its obligations on or around June 1. Already the Treasury has been using “extraordinary measures” to pay federal bills, after hitting the congressionally mandated debt limit in January.
Experts warn that that would tarnish America’s creditworthiness, raise interest rates on everything from mortgages to car loans for years to come, and perhaps plunge the nation into a recession. It could also prompt a global shift away from the dollar as the currency of choice.
“Crashing the global economy if we don’t get what we want isn’t policymaking,” said Senate Budget Committee Chairman Sheldon Whitehouse, a Rhode Island Democrat, at a hearing May 4. “It’s hostage-taking.”
Nearly 32 football fields of $100 bills
A million dollars in $100 bills could fit in a school backpack; by comparison, the U.S. debt of $31.46 trillion would take up 31½ football fields with construction pallets stacked two deep and each containing bills totaling $100 million, said Jason Fichtner, chief economist of the Bipartisan Policy Center, at the Senate Budget Committee hearing last week.
At the same hearing, Brian Riedl of the Manhattan Institute said that current deficit projections would add $20 trillion to the debt over the coming decade, with the long-term picture even more sobering.
According to a forecast from the nonpartisan Congressional Budget Office, baseline deficits would rise to $114 trillion – mostly due to Social Security and Medicare shortfalls – over the next 30 years. Within that period, it would take half the nation’s tax revenues just to pay the interest on the national debt. If interest rates rise, interest costs could rise to 70% to 100% of tax revenues. That would be akin to having to put one’s full salary toward interest on a credit card, leaving no income to pay off the card or even cover purchases – thus adding to the bill, and the amount of interest owed.
Democrats see the solution as raising tax revenues, including by giving the IRS $80 billion for enhanced auditing power, among other things, and by proposing new taxes on the super-rich. Republicans see the main problem as runaway spending. In their Limit, Save, Grow debt limit bill, they proposed cutting most of the $80 billion for the IRS, repealing clean energy provisions and tax incentives, rescinding unspent COVID-19 relief funds, and increasing work requirements for recipients of Medicaid and other benefit programs.
The Congressional Budget Office estimates that the bill would save $4.8 trillion over the next decade. That would reduce projected deficits to $1.52 trillion per year, down by $480 billion per year. National debt held by the public would still grow, however, from 98% to 106% of gross domestic product – though less than the 118% currently projected.
The budget that President Biden proposed in March would cut the deficit by $3 trillion over the coming decade by raising revenues, including through a new minimum tax on billionaires and a repeal of Trump tax cuts for corporations and the wealthy, according to a White House fact sheet.
J. Scott Applewhite/AP
A possible solution
Former Senator Conrad, who was involved in multiple negotiations over the debt limit during his two decades in the Senate, says that the contours of the negotiations have been well defined for years. “Same song, second verse,” he half-jokes.
One solution he sees would be for members of Congress to raise the debt limit for a limited period and appoint a commission to work out the thornier issues of how to balance U.S. fiscal policy. Indeed, the House Problem Solvers Caucus has proposed just that, raising the debt ceiling through the end of the year while appointing a commission “to stabilize long-term deficits and debts.”