The US government is once again nearing the limit on how much debt it can take on, a familiar deadline that will force the country’s political elite into high-stakes negotiations over averting a default.
The world’s largest economy has never failed to meet a debt payment before, and though standoffs like these have become familiar in Washington, Democrats and Republicans are expected to eventually reach a compromise before the limit may be reached in December. The looming deadline comes as Democrats appear near an agreement to unilaterally pass a social services spending plan backed by President Joe Biden, as well as an infrastructure bill that has attracted some Republican support.
But calls are growing to put an end to the legal limit, with several economists saying the brinksmanship is unnecessary and potentially damaging.
Democratic House Speaker Nancy Pelosi, who will play a major part in forging any compromise with Republicans, acknowledged “a number of plans” to eliminate the debt ceiling in a Sunday interview with CNN.
IMF Chief Economist Gita Gopinath said it was “highly unproductive to have the situation of brinksmanship with respect to the US debt ceiling” and described it as “something that should be reformed.”
Two Democratic House lawmakers have introduced legislation to transfer the authority to raise the debt limit to the Treasury secretary. “The problem with the debt ceiling is that it does nothing to address the problem of government debt and only serves as a political tool for political parties,” said Brendan Boyle, one of the bill’s sponsors.
Treasury Secretary Janet Yellen has signaled support for reforming the limit.
“I believe it’s very disruptive to put the president and myself, the Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions,” she told a House committee last month.
Steve Pressman, an economics professor at Monmouth University, described the debt limit as forcing lawmakers to essentially make the same decision twice: one to approve the spending, the second to raise the borrowing ceiling to pay for it. “It is all political now, which is another good reason... (to) just get rid of this stupid thing,” he told AFP. “We’re just spending too much time and too much effort on it.”
Only a few countries have a similar debt control mechanism. In Denmark, it’s set so high “that there was no way within the next century that they would approach it,” Pressman said.
Four Democratic House and Senate lawmakers have proposed legislation abolishing the ceiling altogether.
“We should eliminate the debt limit to permanently lift the threat of default from our economy and focus on the urgent work the American people expect Congress to do,” said Michael Bennet, one of the Senate sponsors.
Earlier in October, Steny Hoyer, the number-two Democrat in the House of Representatives, told colleagues in a letter “the House will explore options to remove the threat that the debt limit poses over the long term, now that Republicans have demonstrated a willingness to weaponize it for partisan purposes.”
A bill to end the limit could be considered as soon as this month, he said. Democrats and Republicans have already begun negotiations to avoid a default, hoping to forge a compromise like the one they agreed to earlier in October to temporarily raise the ceiling.
An agreement could suspend the limit for months or even years, or raise it by a certain amount. Before the agreement was reached earlier this month, Republicans had refused to vote for a debt limit increase, saying that since Democrats controled Congress, they would have to do it unilaterally, though they later agreed to a short-term increase.—AFP