by Laura Walling, Senior Director of Government Relations, Goodwill Industries International
Another crisis has been temporarily averted by Congress…for now. After a weeks-long standoff on the debt limit, the Senate passed a short-term measure that increased the ceiling by $480 billion, which will last until early December. The House is expected to pass the measure next week, averting the October 18 date when Treasury Secretary Janet Yellen stated the US would begin to run out of money and would default on our debts. With this temporary fix, the date is pushed until December 3, which is also when the recently passed continuing resolution ends. If Congress doesn’t extend the continuing resolution or pass a funding measure, the government will shut down.
Given that the same fights will be taking place all over again in a few weeks, one may want to save this blog as a refresher of what all the fuss is about related to the debt ceiling. The debt ceiling, or debt limit, is the maximum amount of money that the federal government can borrow to meet its existing legal obligations, including Social Security, military salaries, and interest on the national debt. Once the government hits the debt ceiling and exhausts all other options, it can no longer borrow; since the US government runs an annual deficit, it will run out of money soon after it hits the limit and temporarily default on obligations.
A default, or even the perceived threat of one, could have serious negative economic implications. Both domestic and international financial markets rely on the stability of the US economy and debt instruments. A default would cause chaos in those markets. Interest rates would rise, ultimately affecting car loans, credit cards, home mortgages, business investments, and other costs of borrowing and investment.
Those who rely on regular payments from the federal government—from unemployment benefits, Supplemental Nutrition Assistance Program benefits to purchase healthy food, to Medicare and Medicaid provider payments, to military and federal salaries, and veterans’ benefits—could also face serious disruptions to their income if checks are missed or delayed. Delays could last days or weeks and could grow over time.
Republicans want to force Democrats to ultimately use the reconciliation process to avoid default, which would require a monetary amount to be placed on the debt ceiling. Democrats would rather suspend the ceiling or extend the debt limit for a certain amount of time. However, to pass such a measure would require 60 votes to avoid a filibuster and Democrats only have 50. Using reconciliation would allow the measure to pass with only 50 votes and using Vice President Harris to break the tie.
Democrats are also still working on a reconciliation measure to advance priorities within President Biden’s Build Back Better agenda, including investments in workforce development, free community college, paid leave, and childcare. Negotiations are still underway to land on a top line number (likely $1.9-$2.2 trillion) and what is in the bill. Initial provisions in the House passed $3.5 trillion will have to be cut or significantly reduced by shortening the length of investments and/or limiting eligibility with income restrictions. Progressive Democrats in the House are still holding firm that they will not support the bipartisan infrastructure bill, now scheduled for a vote by October 31, until after the Senate passes a reconciliation bill.
While the deadlines may be arbitrary and the chaos self-manufactured, the need for these investments is real and the impact – should we have a government shutdown or ultimately default on the debt – could be disruptive and disastrous. We will continue to keep you informed as the drama continues to unfold.