A History Lesson on the Debt Ceiling

By Manish Naik, Director of Legislative Services

In January, the country hit its debt ceiling limit, the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations. Defaulting on these obligations has never occurred previously and would result in a major economic crisis, but the Treasury Department has begun using what they call “extraordinary measures” to move money among accounts to keep paying the nation’s bills for the time being. Estimates are that the real debt ceiling deadline, when the Treasury is out of moves and really cannot continue meeting legal obligations, is about six months off.

Meanwhile, the White House and congressional Republicans have engaged in a showdown over raising the debt ceiling. Republicans, particularly in the House, have insisted on significant spending cuts as a condition for any debt ceiling legislation while the White House has insisted there will be no negotiations and that the debt limit should be raised without conditions. This game of chicken has happened before, and the nation came close enough to a default a dozen years ago when the Obama Administration and House Republicans’ stalemate resulted in the country’s AAA credit score being lowered creating turmoil on  Wall Street.

While political experts think that the financial catastrophe that would occur if the United States defaulted on its obligations is dire enough to get both sides to come to an agreement to raise the debt ceiling, the question is what kind of deal will be struck when both sides eventually cross their lines in the sand. In order to secure the holdout votes to win his leadership vote at the beginning of the 118^th Congress, House Speaker Kevin McCarthy agreed to not give in on the debt ceiling. Specifically, Speaker McCarthy’s governing rules outline that the House won’t lift the debt ceiling unless Congress cuts at least $130 billion in federal spending next fiscal year or addresses broader fiscal reforms that tackle the national debt.

Any kind of deal to raise the debt ceiling in exchange for budget reductions would be similar to what occurred in 2011, when Congress passed the Budget Control Act (BCA) which raised the debt ceiling but also imposed spending cuts and caps for a ten year period. The Budget Control Act led to one year of belt tightening in federal FY 2012 and actual across-the-board sequestration spending cuts in FY 2013. Sequestration resulted in the cancellation of approximately $85 billion in budgetary resources across the federal government for the 2013 fiscal year, and a reduction of almost $2.5 billion for the U.S. Department of Education. The specific reductions for education programs resulting from sequestration in FY 2013 included a $727 million cut for Title I and $580 million cut for IDEA Part B.

Congressional leaders lost their appetite for cuts after sequestration was implemented in FY 2013 and kept agreeing to modify the spending caps originally set in the Budget Control Act of 2011, allowing Republicans to resume increases in military spending and Democrats to put more money into domestic programs. But even the adjusted spending caps affected investments in education and cornerstone programs like Title I only realized a net $2 billion increase over the entire ten year period of the BCA. In the two fiscal years since the BCA expired, Title I has received an additional $1. 85 billion in funding. Any deal on the debt ceiling made in Washington that affects future spending will likely jeopardize further increases in education spending if any cuts or budget control measures get put into place. Hopefully congressional leaders and the Biden Administration will be able to raise the debt ceiling without additional cuts or long-term constraints, avoid financial consequences for the nation and global economy, and continue the current trend of investments in key federal education programs.