Two dueling bills in Congress attempt to address the debt ceiling and these actions could include harsh cuts that may affect New Mexicans.
One of the bills would eliminate the debt ceiling altogether while the other expands the debt ceiling and imposes deep cuts, including to social programs like food assistance.
These proposed cuts in the Limit, Save, Grow Act of 2023, which was proposed by House Speaker Kevin McCarthy, a California Republican, on April 19, include recalling unspent pandemic-related funding, ending President Joe Biden’s student loan forgiveness plan, repealing green tax credits, cutting funding to the IRS and limiting other discretionary spending.
The bill’s cuts seek to save taxpayers $45 trillion.
“The spending limits are not draconian. They are responsible,” McCarthy said Wednesday when he introduced the bill. “Federal spending exploded in the past two years when Democrats controlled all, and that doesn’t include the trillions of COVID-era spending. By limiting government spending we will reduce inflation and restore
fiscal discipline in Washington. If Washington wants to spend more, it will have to come together to find savings elsewhere—just like every single household in America.”
Later that day, Senate Finance Committee Chair Ron Wyden, an Oregon Democrat, issued a statement about McCarthy’s proposal.
“Republicans manufactured this crisis, and Speaker McCarthy’s proposal to get out of it would destroy jobs, worsen health care, increase hunger, hurt the climate and make millions of American families poorer. This hostage taking cannot continue,” Wyden said.
Later that day, New Mexico Democrat Ben Ray Luján announced he co-sponsored S. 1190 which seeks to repeal the debt ceiling thereby preventing the U.S. from defaulting on its loans.
Should the debt ceiling be repealed, the issue of safety net programs being cut to service America’s debt would no longer be an issue as well as the politicization of the nation’s debt.
“I think it’s important that in getting rid of the debt ceiling, this would keep us from engaging in this type of annual or semiannual warfare between parties that are keeping the debt ceiling going up or down as a de facto hostage situation of the US economy,” UNM Associate Professor of Finance Reilly White told the NM Political Report.
“The debt ceiling, what happens is, every time the government issues a budget and we spend money on all the things we do about two thirds of that budget go to, we call things like mandatory spending, that’s Social Security, Medicare, stuff like that. Another 30 percent goes towards discretionary spending, half of which is like national defense,” White said. “Then the remainder goes to servicing our debt. Anytime we issue a budget for more money than we actually bring in through taxes, which has been every year since the mid 90s.”
Another issue is if the debt ceiling is repealed, how much more can the national debt take?
“Our national debt can handle more debt,” Reilly said. “It’s unlikely if we had $10 trillion more national debt that would have a really profound effect on our economy, but eventually it will. So if it’s $20 trillion, $30 trillion, $40 trillion; we don’t know actually what the maximum amount the United States could possibly handle without really being a drag. Right now, we have a lot of debt and if that debt were to accumulate beyond a certain measure.”
If the national debt ceiling is neither removed nor expanded, the nation faces possible debt default.
“With Republicans steering us toward a debt default, it’s more critical than ever to eliminate the debt ceiling to ensure that the United States meets our financial responsibilities. Congressional Republicans cannot keep playing this dangerous political game that threatens the economic security of hardworking families and undermining the global economy,” Luján said in a news release. “I’m glad to join my colleagues in introducing this urgently needed legislation.”
War bonds and a rising debt ceiling
The national debt ceiling did not always exist and the only countries with a fixed debt ceiling are the United States and Denmark.
“The U.S. Constitution states that only Congress has the authority to issue debt for the United States,” White said.
The debt ceiling came about during World War I when the U.S. began issuing war bonds to help pay for the American costs of the war by issuing bonds for the American public to buy that matured months later. These were originally $50 per bond with much smaller bonds available to purchase for those who could not afford a $50 war bond.
The $50 of 1917 would be more than $1,100 in today’s money.
In the intervening decades, the U.S. has raised the debt ceiling many times including 75 since 1960.
From 1788-1917, Congressional approval was needed to issue bonds which became cumbersome during WWI.
The Second Liberty Bond Act allowed the U.S. Treasury to “act independently while remaining accountable to Congress,” according to an explainer by J.P. Morgan Chase.
National-level finances and debts have made headlines recently with the United States debt ceiling being met on Jan. 19 following a debt ceiling increase a month earlier.
The U.S. Treasury then announced a suspension period that gives Congress the ability to purchase funds without breaching the debt ceiling.
“The Congressional Budget Office projects that, if the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023—that is, in the fourth quarter of the current fiscal year,” the CBO states in its report on the matter. “The projected exhaustion date is uncertain because the timing and amount of revenue collections and outlays over the intervening months could differ from CBO’s projections.”
McCarthy’s bill is expected to be heard in the House Rules Committee April 25.
S. 1190 was sent to the Senate Finance Committee where it awaits a hearing.