Once again, the United States is facing a debt ceiling crisis. Unless Congress acts soon to raise the debt limit, possibly as early as June, the federal government will find itself unable to pay all its bills, leading to delays in payments to Social Security beneficiaries, health providers, and many others. Even interest payments on U.S. Treasuries could be affected—a situation that likely would lead to turmoil in global financial markets, a credit-rating agency downgrade of U.S. Treasuries, and permanently higher interest rates on federal debt. In short, we are on the edge of what could be an economic catastrophe.
This predicament is wholly a political one, not an economic one, and it is not one we should allow to recur. The debt limit should be abolished once and for all. To be sure, our country faces many long-term challenges, but these problems are best addressed through the normal political process, not through a process in which one side holds the economy hostage to extract political concessions. And this is all the debt limit debate is about. Failing to raise the debt limit in itself has no effect on our fiscal trajectory. The debt limit does not govern the revenues and spending obligations of the federal government—those are governed by legislation enacted by current and previous Congresses. And any changes to the debt going forward will come from new legislation from current and future Congresses. Failure to raise the debt limit is all cost and no benefit.
Some might argue that the level of debt today is so catastrophic that using the debt ceiling as a political weapon is a "necessary evil" because it will force politicians to take unpopular action. But there is little evidence that debt ceiling impasses have led to any long-term fiscal restraint. Indeed, the debt rose from 70 percent of GDP in fiscal 2011, the year the Budget Control Act was passed as part of the resolution of that year's debt ceiling crisis, to 79 percent of GDP in 2019, the year before the pandemic.
The Budget Control Act created a special congressional committee to reduce future deficits. It failed, triggering across-the-board spending cuts that slowed the recovery from the Great Recession, which not only kept the unemployment rate higher than was necessary but also contributed to the rise in debt. And the pre-pandemic increase in the debt reflects, in part, the tax cuts enacted in 2017—and the three unconditional increases in the debt limit that Republicans approved during the Trump presidency.
Moreover, today's debt level does not pose a near-term catastrophic threat. Even considering the recent rise in interest rates, interest on the debt as a share of GDP in 2023 is projected to be more than 20 percent lower than it was in the mid-1990s—a time of strong economic growth. To be sure, action will have to be taken at some point to raise taxes and/or cut spending, but the situation today is not dire.
The questions of how to address our long-term fiscal sustainability problem—when changes should be made, what is the mix of spending cuts and tax increases we need, which specific policies are best—require careful deliberation. And it is crucial to remember why we care about the debt. We worry that too large a debt will impose costs on future generations—because they will have to make interest payments on a larger debt and because debt can crowd out private investment. But then proposing cuts like those in the Republican debt limit package—to programs like Medicaid and SNAP—which have been shown empirically to help children prosper as adults, or programs that address climate change, in order to bring down the debt makes no sense. Cutting these programs to reduce the debt leaves future generations worse off, not better off.
Our country faces a lot of long-term economic challenges—high levels of inequality and limited economic mobility, slow productivity growth, climate change, high health care costs, and an unsustainable trajectory for the federal debt. We should address those. Political bickering over the debt ceiling—which so far has always been raised or suspended, often at the last minute—is a waste of time and energy, creates unnecessary uncertainty, threatens the benefits of issuing the world's safest asset and undermines public confidence in our political institutions.
Louise Sheiner is the Robert S. Kerr Senior Fellow in Economic Studies and policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. She previously served as a senior economist at the Board of Governors of the Federal Reserve System, the deputy assistant secretary for economic policy at the U.S. Department of the Treasury, a senior staff economist for the Council of Economic Advisers and an economist at the Joint Committee on Taxation.
The views expressed in this article are the writer's own.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
