Jan 17, 2023

The debt ceiling, explained.

The debt ceiling, explained.
Janet Yellen, the United States Secretary of the Treasury, warned about the dangers of hitting the debt limit. Photo: World Bank / Brandon Payne

Plus, a question about Democrats and immigration.

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take."

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Today's topic.

We are going to hit our debt limit this week. What does it mean, and what happens when we do? Today, we break it down. Plus, a question about Democrats and immigration. 

Quick hits.

  1. Attorney General Merrick Garland appointed a special counsel to investigate President Biden's handling of classified documents. Five more classified documents were found at his Delaware home, and the House Oversight committee is demanding visitor logs for Biden's home, which he says do not exist. (The details)
  2. U.S. inflation rose 6.5% year-over-year in December, marking the slowest annual rate of inflation since October 2021. (The numbers)
  3. Former Nebraska Gov. Pete Ricketts (R) will replace Sen. Ben Sasse (R), who left the Senate to take a job at the University of Florida. (The replacement)
  4. Chinese health officials said that between December 8 and January 12, roughly 60,000 people died in China from Covid-related illnesses. (The toll)
  5. Republican Solo Peña, who lost a state House race in New Mexico in November, was arrested Monday and accused of conspiring with and paying four men who carried out four non-injury shootings at the homes of Democratic officials. (The arrest)

Today's topic.

The debt ceiling (or debt limit). During the recent debate over the next Speaker of the House, one of the key impending issues was the debt ceiling, or debt limit. Several conservative House members used the upcoming deadline to raise the debt limit to leverage a commitment from Kevin McCarthy to force spending cuts by Congress. Since being elected Speaker, McCarthy has confirmed that Republicans won't raise the debt limit without changes to federal spending, including programs like Social Security and Medicare.

What is the debt ceiling? The debt ceiling is a legal limit on how much debt the federal government can incur. It was established in 1917, during World War I, to improve our flexibility to borrow money. Before that, Congress had to approve every issuance of debt with separate legislation.

Today, the U.S. regularly spends more than it collects in revenue. This yearly shortfall is called the deficit. To cover that shortfall, the government borrows money by issuing government securities, or bonds. Investors lend that cash with the expectation the government will pay them back with interest. Together, those loans comprise the national debt. Our debt is held mostly by the public, and a large portion is owned by foreign governments, the federal reserve, U.S. banks, and state and local governments, among others.

If the government hits the debt ceiling and fails to pay interest payments to bondholders, then we would be in default, which would lower our national credit rating, increase the cost of our debt, and potentially set off a global economic crisis.

Due to the risk of defaulting, Congress has repeatedly acted to raise the debt ceiling every time we approach it, which has created criticism that it is an ineffective way to encourage fiscal responsibility. The ceiling has been raised nearly 100 times since its inception, and is now at $31.381 trillion — up from $11.5 billion in 1917. Our current debt ceiling is expected to sustain us until this summer, when our total debt will hit the ceiling.

Now what? On Friday, Treasury Secretary Janet Yellen told House Speaker Kevin McCarthy the U.S. would hit its debt limit on January 19, and the Treasury would initiate "extraordinary measures" to avoid default. Those measures should prevent the government from defaulting until this summer.

“Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations,” Yellen said. “Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability.”

House Republicans want to take advantage of this moment. Because some Republicans are concerned about the debt and deficit, and want to see the federal government's spending shrink in certain areas, there are calls to use the looming debt ceiling as leverage. Essentially, Republicans could refuse to raise the debt ceiling in the House unless Democrats agree to long-term spending cuts.

In 2011, Republicans employed a similar strategy. Two days before the debt ceiling hit, Republicans and then-President Obama avoided default by agreeing to raise the limit in exchange for future spending cuts. However, the showdown roiled markets for months, resulting in the United States’ credit being downgraded while costing taxpayers $1.3 billion dollars in fiscal year 2011.

Other notes: Along with the broad debate about the effectiveness of the debt ceiling, how much money the federal government spends, and what programs are appropriate to cut, there is also a debate about whether the debt ceiling is constitutional in the first place.

Today, we're going to take a look at some arguments about how the debt ceiling should be handled from the right and the left, then my take.

What the right is saying.

  • Many on the right support forcing some kind of spending cut or entitlement reform, but are divided about how to do it.
  • Some criticize the debt ceiling showdown tactic and warn of massive cuts to the military.
  • Others say the debt ceiling is an opportunity for Republicans to force more fiscal responsibility.

The Wall Street Journal editorial board wrote about "the hard reality" of a debt-ceiling showdown.

“Republicans are right to want to stop the reckless spending trends of the last four years. U.S. debt held by the public is now about 100% of GDP, up from 39.2% as recently as 2008 and 77.6% in 2018,” the board said. “The cost of financing that debt is rising fast along with interest rates, and interest on the debt will take up an increasingly large share of federal revenue. Priorities like national defense will be squeezed. Spendthrifts should pay their debts, but they should also have their credit card pulled, or at least limited, so they can’t keep piling up unpaid bills. This is the sensible principle that most of Washington has abandoned in recent years. It’s good for the country that someone in power wants to rein it in.

“The problem is that the House GOP faces an imbalance of political forces. Their majority is only five, which will shrink to four if Rep. George Santos is forced to resign,” they added. “Democrats hold the Senate and the White House. All of Wall Street, bond investors, the credit-rating agencies and the financial world will be warning of debt-limit doom. The press will side as usual with the Democrats. Maintaining GOP unity as the political pressure builds will make the vote for Speaker look easy... the cost [in 2011] was high because defense and domestic social-welfare spending were both capped... Military readiness suffered greatly until Republicans began to trade defense increases for social-welfare increases during the late Obama and Trump years. The world is a more dangerous place now.”

In The Washington Post, Hugh Hewitt said the debt crisis is an "opportunity" for Republicans.

“Congressional Republicans will triumph if they can agree on a few reasonable demands; make those demands specific, understandable and public; then repeat the demands again and again on every television set and over every radio show and podcast. This is about messaging. Any set of compelling and well-articulated demands from the GOP will create pressure on the administration to fold... ‘What’s the ask?’ is the key question for Republicans right now,” Hewitt wrote. “Sen. Tom Cotton (R-AR.) argues that the debt-ceiling legislation traditionally includes measures to control spending. The ‘sequestration’ of the 2011 Budget Control Act is widely regarded as having been a disaster for Pentagon preparedness and national security, so a replay of that is off the table.

“But a rollback of nondefense discretionary spending to pre-pandemic levels? That makes sense. Rep. Chip Roy (R-Tex.), a leading debt hawk, would go further and give the Pentagon a budget haircut as well, rolling defense spending back to 2019 levels. GOP defense hawks will not agree,” Hewitt said. “Along with Cotton’s proposal, the party can insist on undoing the authorization and first appropriation for about 87,000 new IRS staff over the next decade... The GOP could also argue that the debt limit will continue to rise until the flood of migrants into the country ebbs, pointing to the quite obvious costs of uncontrolled migration. Saying that the debt limit won’t go up until the border wall goes up is concise, catchy and compelling, and would focus the country on the border crisis.”

In Fox News, Steve Moore said the debt ceiling could "save America" if House Republicans are willing to stand up to Democrats.

“President Joe Biden, Senate Majority Leader Chuck Schumer, the entire Washington special interest community, are collectively sounding a primal scream that we will have economic Armageddon if there is even a hint of the debt limit expiring this summer," Moore said. "This is upside-down logic. The nation’s good credit standing in the global capital markets isn’t imperiled by not passing a debt ceiling. The much-bigger danger is that Congress does extend the debt ceiling, but without any reforms in the way Congress grossly overspends. We just experienced one painful repercussion of runaway government spending and debt over the past year: The runaway inflation that climbed to a 40-year high – costing the average American family nearly $4,000 in a loss of real take home pay.

“We all hope it doesn’t come to this, but if for some reason bullheaded Democrats refuse to budge and the debt ceiling is not raised in time, this doesn’t cause a debt default. Rather, it immediately prohibits Congress from borrowing more money,” Moore wrote. “It can still spend the tax money that comes into the Treasury each day – but not a penny more. Republicans are working on a contingency plan that ensures the debt payments are met and Social Security checks go out as the top priority. But other low-priority programs – like the Department of Education, foreign aid, energy programs, etc. will shut down until a deal is made. There is no default – unless Biden’s Treasury Department allows a default.”

What the left is saying.

  • The left criticizes any plans to use the debt ceiling as leverage, and calls out Republicans’ history of hypocrisy in driving up the deficit.
  • Some warn about the catastrophic economic prospect of defaulting on the debt.
  • Others say Republicans are not fighting for fiscal responsibility, but merely threatening to break the law by not paying our bills.

In The Washington Post, Catherine Rampell said defaulting on the debt limit would be catastrophic.

"To understand why, you need to know what the debt limit does and doesn’t do. It doesn’t authorize any new spending. But it does enable the federal government to pay off existing obligations that past Congresses had committed to through their previous tax and spending decisions," Rampell wrote. "The consequences of reneging on past bills could be dire. First, refusing to pay off these IOUs would violate the Constitution, which says the 'validity of the public debt … shall not be questioned.' It would threaten the government’s ability [to] deliver on core functions, including paying military salaries. (Support our troops, Republicans say, except maybe when doing so interferes with a political stunt.) Worst of all, not raising the debt limit — that is, defaulting on our debt, for the first time in U.S. history — might cause a global financial crisis.

"If Republicans genuinely cared about practicing fiscal responsibility, they had ample opportunity to demonstrate as much when they had unified control of government during Donald Trump’s presidency. Instead, they passed an unfunded tax cut that added nearly $2 trillion to the deficit. Under Trump’s leadership, Congress massively increased spending, too," Rampell said. "In recent days, Republicans have declared that Democrats are the true fiscal profligates. Never mind, apparently, that Democrats recently passed a bill, with zero Republican votes, that reduced deficits by $238 billion — or that Republicans are actively working to undo key parts of that law’s deficit-reducing mechanisms."

In Slate, Aden Barton expressed skepticism that Republicans would really risk a debt ceiling crisis.

"Andrew Biggs, a senior fellow at the American Enterprise Institute, told me that Republicans face a fundamental tension between their constituency and their ideology. 'Republicans are historically the party of small government. But Republicans are increasingly the party of people who benefit from Social Security and Medicare.' And these programs constitute nearly half of federal spending, so it’s hard to significantly cut the deficit without touching them," Barton said. "So while Congress will certainly have some heated arguments in the coming months, especially around discretionary programs that have modest price tags but high culture-war salience, don’t expect a repeat of the dramatic showdowns we saw 12 years ago.

"So if there is a major budget confrontation this year, it will likely be over discretionary spending, just as it was in 2011, according to Marc Goldwein of the Committee for a Responsible Federal Budget," Barton wrote. "The Republican agenda for non-entitlement spending, though, is difficult to pin down. Ritz gave three examples of Republicans’ current fiscal priorities: Greater defense spending; more resources for border enforcement; and perhaps cutting funding for IRS enforcement. Notice that all three of these actions are likely to increase the deficit."

In Slow Boring, Matthew Yglesias said Republicans "want a huge destructive blowup."

"This is pure, uncut nonsense," he wrote. "Congress controls federal spending through the Social Security Act and through annual appropriations. Congress controls federal revenue through the tax code. Debt is just the differential between what Congress has required. Saying 'you have to spend X, Y, and Z' but also 'sorry you can’t borrow the money' is closer to refusing to pay your credit card bill than to anything else. But also, there is no need to phrase this in terms of an analogy. The law requires the spending that it requires, and there is a legislative process for trying to change the spending laws.

"If Republicans want to implement their vision of balancing the budget by defunding the tax police and slashing Social Security, Medicare, and Medicaid, the way to do it is to lay out a plan like this and then win some more elections," Yglesias said. "We need to get out of this whole dynamic. And the way to do that is for Biden to articulate two points: It is better for the country to raise the debt ceiling than to not raise it. Whether or not the debt ceiling is raised, the U.S. government will one way or another make all the payments that it is legally required to make — the president is not a criminal."

My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. It is meant to be one perspective amid many others. If you have feedback, criticism, or compliments, you can reply to this email and write in. If you're a subscriber, you can also leave a comment.

  • Refusing to raise the limit is more akin to not paying off your credit card than it is to balancing a budget.
  • House Republicans had some good ideas they pushed in their speaker fight — this was not one of them.
  • If you want to balance the budget, balance the budget.

The debt ceiling analogy game might be one of my new favorite things to observe.

Republicans calling for a debt ceiling standoff construct the analogy this way: A business owner (the United States) is in millions of dollars of debt and goes to the bank for a loan or credit card card extension. The bank asks how the business is going to get out of debt, then rejects the business with no loan or credit card extension when it's clear it doesn't have a plan.

Democrats and Republicans criticizing the debt ceiling standoff construct the analogy differently: Someone blows up their credit card, spending more money than they have for decades. Refusing to raise the debt ceiling is more akin to that person refusing to pay the credit card bill for stuff they’ve already bought — which would destroy their credit and harm their reputation — than it is to that person creating a budget to slowly pay down their debt.

It seems pretty obvious to me that the second analogy, while not a perfect fit, is closer to the truth.

As I've said before, and as more informed people have told me, reducing the deficit and the debt does actually matter — but playing chicken on the debt ceiling is not the way to do it. The only real way to lower the deficit and decrease our debt is to raise more money than we spend, which Congress isn't doing right now and didn't do under President Trump. As Rampell said, if Republicans genuinely cared about fiscal responsibility, they could have demonstrated that when they had unified control of government. But they didn't.

What's most frustrating about this whole scenario is that we know this kind of game just doesn't work. Everyone references the 2011 standoff without explaining what the outcome of it was. Credit to Yglesias, who actually fleshed out what happened: Obama and Republicans couldn't agree to a budget cut and tax increase package, so they passed a "sequester," which automatically triggered budget cuts on a deadline unless Congress made a deficit-reducing agreement. Congress failed, and the military budget ended up getting gutted, and then a few years later the military budget was raised above agreed upon levels. A few complicating factors aside, that was essentially the net outcome of the entire standoff — and it caused weeks of global financial turmoil and cost the U.S. a downgrade in its credit rating (which then made borrowing more expensive).

As I said during the House speaker fight: Many of the widely criticized and lambasted reforms demanded by the Freedom Caucus actually had a lot of merit. And on top of that, the entire episode was dramatized to the point of being farcical, as if a few days of fighting over the Speaker would derail the entire government. But with that being said, getting McCarthy to commit to this kind of "legislating" via ultimatum was totally without merit and was probably their most dangerous demand.

I'm still unsure if McCarthy will follow through in a meaningful way and use the debt ceiling as leverage. With Yellen's warning, a lot of attention on the issue, and so many months to make a plan before we are in more serious trouble, I'm hopeful Congress can avoid anything too dramatic here. But the warning bells are ringing, and negotiators need to get to the table now, not later, to avoid a worst-case scenario.

Your questions, answered.

Q: Should we grant an asylum hearing to every immigrant who asks or should there be a hard limit per month? Do you believe that the left would be as pro-immigration as it is if 70% of the immigrants planned to vote Republican?

— Don from Lisbon, Wisconsin

Tangle: The first question is easy: Yes. By the letter of the law, we are obligated to hear out asylum claims, and I think that is a good thing. Will some people traverse hundreds or thousands of miles on a dangerous journey to our borders in order to claim asylum when they know their claim is trumped up? Sure. Will that be really common? No. Many of the people who are coming either have a strong claim or believe they do, and I think it shows moral clarity to give them their day in court.

Of course, we can't come close to doing this right now because we don't have enough judges, lawyers or resources at the border to properly vet and process all the asylum claims. Which is part of why our border is so dysfunctional.

The second question is harder. I suppose I don't really know. My suspicion is that since many immigrants end up being Democrats, other Democrats are more likely to see themselves in the immigrants trying to get here (either legally or illegally), and are thus more likely to sympathize with them and relate to them. In that simple human calculation, I suppose it's possible Democratic support for high levels of immigration would go down if suddenly most of the immigrants coming here were diehard conservatives.

At the same time, there are all sorts of complicating factors around the premise of your question. Some studies, for instance, suggest that more immigration creates more Republicans, because more people want stricter immigration standards during high levels of immigration. Other studies suggest that the government shrinks (a more Republican priority) or stays the same when our border is open, and the government actually grows (a more Democratic priority) when our border is more restricted.

If some kind of crisis led to a mass migration of conservative Australians to our border seeking asylum, I don't think Democrats would suddenly become anti-asylum seekers. I do think they would more strongly consider ways to improve and vet the asylum process. But those kinds of predictions are really hard to make accurately.

Want to have a question answered in the newsletter? You can reply to this email (it goes straight to my inbox) or fill out this form.

Under the radar.

Younger voters are declaring their independence. Just one-third of baby boomers said they were independent in Gallup polling before the midterms, but 52% of millennials and Gen Z said so. A plurality of voters (41%) now say they are independent while just 28% say they are Democrats and 28% say they are Republicans. The trend has grown since 2009. While young voters tend to skew liberal, they don't have the same party affiliation as their parents and grandparents, which gives Republicans an opening to win them over. Axios has the story.


  • $31.12 trillion. The total U.S. national debt as of October 2022.
  • $24.2 trillion. The amount of that debt held by the public.
  • $7.2 trillion. The amount of debt held by foreign and international investors.
  • $1.23 trillion. The amount of the debt owned by Japan in June of 2022, making it the largest foreign holder of U.S. national debt.
  • 1835. The year Andrew Jackson paid off all of the national interest bearing debt, the only president ever to do so.

Have a nice day.

Bill Sumiel was on his way to the dialysis center when he struck up a conversation with his Uber driver. The two spoke about the problems Sumiel was facing, and the fact he was going to need a kidney donor. The driver, Tim Letts, responded with an extraordinary idea: To donate one of his kidneys. Letts told Sumiel that "God put him in his car that day." Miraculously, the two ended up being a match. A year later, Sumiel says he is rehabbing in Delaware and feeling great. ABC7 has the story.

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Isaac Saul
I'm a politics reporter who grew up in Bucks County, PA — one of the most politically divided counties in America. I'm trying to fix the way we consume political news.