Treasury Secretary Janet Yellen told congressional leaders that the U.S. government would hit its borrowing limit on January 19, already setting off the budget battles that will be waged throughout this year. This debt ceiling is the equivalent of the government’s credit card limit and is procedurally separate from the annual budget and appropriations process.
 
While technically hitting the $31.4 trillion borrowing limit this week, the deployment of “extraordinary measures” allows the Treasury Department to manipulate how and when the bills are paid and keeps the government functioning until late spring without triggering a global financial crisis.
 
Congress now has several months to decide how to address the debt ceiling. Without congressional action, the government will default on the public debt, global creditors will lose faith in the U.S. Treasury’s ability to pay its debt, and certain government payments like Social Security and military salaries could be in jeopardy. Most recently, the choices for Congress to deal with the debt ceiling have been either to vote to raise the limit by a certain dollar amount or suspend the debt limit trigger until a certain date.
 
How this Congress will move forward is uncertain due to the political differences between the House and Senate.
 
Conservatives in the House want to use the debt ceiling as a reason to shrink the government and government spending. In his deal-making to secure the speakership, Rep. Kevin McCarthy (R-CA) promised conservative members he would ensure spending cuts when the debt ceiling was addressed. These members want any increase in the debt ceiling to be paired with equivalent spending cuts. McCarthy has said publicly that he does not want to default on government debt but will propose some kind of “budget agreement or commensurate fiscal reforms” in exchange for increasing the debt ceiling.
 
Also, as part of his speakership negotiations, McCarthy promised conservative members he would agree to lower the spending cap on annual appropriations to last year’s FY 2022 levels, which would require $130 billion in cuts from the recently enacted FY 2023 consolidated appropriations bill. If cuts this deep survive the appropriations process in the House, none of the bills will be bipartisan and they will be significantly below what is expected from the Senate.
 
While Democrats in the Senate have no interest in defaulting on the public debt, their slim majority requires a bipartisan solution on budget and spending legislation to meet the required 60-vote threshold. Incoming Appropriations Committee Chair Patty Murray (D-WA) and Ranking Member Susan Collins (R-ME) released a joint statement stating their desire to have a bipartisan process for FY 2024. Thus, any dramatic proposals from the House would have to be moderated before final reconciliation with the Senate, and signature by the President.
 
The House proposal to combine the “debt ceiling” with “government spending” makes for good headlines but convolutes what the government owes on public debt with the annual budget and appropriations process for agency programs. When Congress faced a similar scenario in 2011, the solution was naming a Joint Select Committee on Deficit Reduction, aka the “Super Committee on Budget Reform,” that crafted 10-year statutory spending caps and sequestration to rein in spending and lower the deficit. To get to that agreement, Republicans and Democrats had to agree on how to move forward in a way that also secured President Obama’s signature on the legislation.
 
How the players in the current environment get to such an agreement will play out over the coming months. President Biden’s FY 2024 budget request is expected to be released in March and will lay out the administration’s priorities for the next fiscal year. Biden’s budget will most likely propose increases in spending with some deficit reduction, which will be dismissed by the House, but could be used as a framework by Senate Democrats.
 
The debt ceiling politics layered on top of this gaping divide on spending portend intense budget battles and a possible government shutdown before final agreements can be forged.