May 9, 2023
Steve Wormhoff
director of federal policy
May 9, 2023
President Biden urged Congress to raise the legal limit on the amount of debt the federal government can issue, as it has donemore than 100 timesSince World War II. Congress has raised the debt ceiling three times during the Trump administration, twice with Republicans controlling both houses of Congress. These were "clean" increases in the debt limit, meaning no one tried to force former President Trump into concessions to raise the debt limit because lawmakers in both parties acknowledged that allowing the country to exceed the limit would cause the federal government to default on its debt, causing a financial disaster beyond our imaginations.
But now House Republicans are pretending things are different. House Speaker Kevin McCarthy has insisted that his lawmakers will not vote to directly raise the debt ceiling, but will instead demand deep budget cuts in exchange for raising the ceiling. The bill they passed in April would raise the debt ceiling in the short term, but it would alsodrastic cuts in public investmentsAmericans must work hard to get into the middle class, while cutting back on efforts to ensure that the wealthiest Americans pay their taxes.
Recently, Rep. Jared Golden (D-Maine) proposed that Democrats and Republicans negotiate a deal that could include higher taxes on the wealthy and corporations to reduce the budget deficit.
Congress should absolutely raise taxes on the wealthy and corporations to generate revenue and improve the fairness of our tax code. President Biden has several suggestions for how to do this. But that's very different from whether we should raise the debt ceiling to pay off the debt the country has already taken on and prevent economic disaster.
Raising the debt ceiling refers to decisions Congress has already made, not future budgets
The debt ceiling that exists today was actually createdfacilitate, it's not hard, the federal government issues bonds. Prior to 1917, Congress passed laws authorizing the issuance of bonds to finance certain projects under certain conditions. Legislators began to see this as a burden, and in 1917 they passed legislation allowing the federal government to issue general-purpose bonds at levels that seemed appropriate at the time. Since then, Congress has raised the debt ceiling several times.
But now Congress has created a strange situation by passing laws that set a limit on the federal debt and then passing laws that require borrowing above that amount. The tax laws enacted by Congress do not generate enough revenue to cover the spending provisions enacted by Congress. The mismatch between the two is the federal deficit, which requires government borrowing and will soon require borrowing in excess of the current debt ceiling.
If Congress does not raise the debt ceiling, there is no way for the President to implement all the laws that Congress passes. Either the president will stop enforcing the debt ceiling or he will stop enforcing various spending laws that require payments for everything from welfare benefits to military pay to interest on lenders. And there is a strong argument that the last resort is to defy the consumption lawsforbiddenAs required by the Constitution, "the validity of the public debt of the United States ... shall not be questioned."
Instead of creating a bizarre constitutional crisis (and financial market chaos) with conflicting laws, Congress would raise the debt ceiling. This isn't really about future tax and spending decisions by Congress, it's about honoring the decisions you've already made and paying the bills you've already incurred.
Of course, some current members of Congress might object, since they are not the ones who owe the debt. But they are not completely different people either. All current members of the House GOP leadership were in Congress in 2017, when Republicans passed Trump's tax cuts without a single Democratic vote even though they were expected to add $1.5 trillion to the debt over a decade. Of the 221 Republicans in the House today, 87 were in the House in 2017. That includes Jason Smith, chairman of the Ways and Means Committee, which has jurisdiction over tax legislation that could reduce the budget deficit, but has supported Trump's tax cuts. .
These individuals threaten to exceed the debt ceiling, leading to economic disaster unless others make sacrifices to pay off the debt they have accumulated (at least in part). One thing they were right about during the Trump administration is that the need to raise the debt ceiling is a very different issue than how much revenue we should raise or how much we should spend.
Congress has many options to improve our fiscal health by raising revenue
Let's assume, on all evidence, that Republican leaders in Congress really do care about the budget deficit. What options for reducing the deficit have you not considered? Opportunities to increase income.
Policymakers should consider these options because the various tax cuts enacted by Congress in recent years are the cause of the budget deficit we face today. arriverecent reportsThe Center for American Progress explains that back in 2012, the Congressional Budget Office projected that the federal government would indefinitely raise enough revenue to cover federal spending beyond debt interest payments, meaning the debt would shrink over time.
But that changed in a year when Republicans in Congress pushed to extend the Bush tax cuts after they expired at the end of 2012, and then-President Barack Obama agreed to compromise to make some of the cuts permanent. Fiscal outlook worsens further with Trump's 2017 tax cuts (proposed by House Republicans)make permanentThis favors the richest families the most).
So it makes perfect sense for lawmakers to consider ways to reverse that trend and raise taxes, at least for the wealthiest Americans and profitable corporations. arriveA recent ITEP reportExplaining that President Biden's recent budget plan has many options in this regard.
Partial repeal of Trump's corporate tax breaks: $1.3 trillion
Instead of extending all the temporary parts of Trump's tax law, as Republicans have proposed, Congress should go in the opposite direction, cutting the permanent parts of the 2017 law. The most important among the permanent provisions is the reduction of taxes. legal office. The 2017 law reduced the corporate tax rate from a progressive structure (with a top rate of 35% for the largest companies) to a flat rate of 21%.
Conservative lawmakers argued it was a necessary reform that would make the United States more competitive. In fact, due to the large number of deductions and credits included in the tax code, most companies pay an effective tax rate that is much lower than the maximum statutory rate. Before Trump's laws, America was a great place to do business, andYesA lot seems to have changed. President Biden has proposed reversing part of that cut by raising the corporate tax rate to 28%, which would raise more than $1.3 trillion over the next decade.
Make multinationals pay what they owe: $1.3 trillion
Congress can then pass laws to implement the global agreementStop tax evasion by offshore companiesRecognizing that the international tax system is ripe for abuse, the White House has proposed reforms that would raise an additional $1.3 trillion. multinationalreduce your tax billOpen the boxes of small countries with negligible postal tax rates, then tell the IRS that's where they get all their income. About 18,000 companies have their "headquarters" in one five-story building in the Cayman Islands, and in 2019, American companies claimed to make profits more than ten times larger than the entire local economy. This is a ridiculous abuse of international law and Congress could end it tomorrow.
End favorable tax treatment for millionaires and billionaires: $650 billion
Congress could also raise $650 billion by requiring the super-rich to pay taxes on their incomes every year like everyone else. Unlike the average American who pays taxes on every paycheck, the super rich can choose when to pay taxes. It's understandable that a billionaire whose net worth increases year after year has income, but that income is often an increase in the value of tax-evaded assets under current rules. Tax is paid only when the income-generating asset is sold. Even worse, billionaires like Elon Musk can use their assets as collateral to buy things like social media companies and then tell the IRS they never received any income. Even if they sell the property and realize the proceeds as income, they are taxed at a lower rate than earned income. As crazy as it sounds, the tax code often requires people who work 50 or 60 hours a week to help support their families to pay a higher tax rate than super-wealthy investors who just make money.
Stabilizing Medicare for the Next Generation: $650 billion
the white house has another oneplan protectionOne of the leading programs for retirees in the country. The president proposed raising the Medicare tax by 1.2 percentage points for people making more than $400,000 and closing loopholes that wealthy business owners use to avoid paying Medicare taxes entirely. These two reforms will ensure that the Medicare trust funds remain solvent for another 25 to 30 years beyond current estimates. It's a common-sense proposal, but Republican lawmakers (who insist they won't cut Medicare) say reform "They won't see the light of day.”
Those are just the biggest revenue-raising proposals in Biden's plan. In all, the proposed budget would add nearly $5 trillion in new revenue over the next decade, coincidentally, the exact amount the CBO director saidThere is a need to restore the budget deficiton a historical level. To be clear, there should be no debate about whether the government will pay bills that Congress has already made. But if Republicans in Congress are serious about reducing the deficit, they should abandon their push for lower taxes and recognize that revenue is at least part of the solution.
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FAQs
What happens if the debt ceiling is raised? ›
Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.
What is the debt ceiling deal? ›Understand the Debt Limit Deal. Lifting the debt ceiling. The deal reached by President Biden and Speaker Kevin McCarthy will suspend the nation's debt limit until January 2025. This will allow the government to keep borrowing money so it can pay its bills on time.
Is the debt ceiling bill passed? ›The House on Wednesday overwhelmingly passed legislation negotiated by President Biden and Speaker Kevin McCarthy to suspend the debt ceiling and set federal spending limits, as a broad bipartisan coalition lined up to cast a critical vote to pull the nation back from the brink of economic catastrophe.
Did the US raise the debt ceiling? ›The debt ceiling had been increased multiple times since the 2013 debt ceiling standoff, all without budgetary preconditions attached; the most recent increase was in December 2021.
Who owns the most U.S. debt? ›According to usafacts.org, as of January 2023, Japan owned $1.1 trillion in US Treasuries, making it the largest foreign holder of the national debt. The second-largest holder is China, which owned $859 billion of US debt.
What happens if we don't raise the debt ceiling? ›If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession. The economic effects of such an unprecedented event would surely be negative.
Who does the US owe debt to? ›Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.
Who won debt ceiling deal? ›House Speaker Kevin McCarthy
McCarthy is perhaps the biggest political winner out of the debt-ceiling fight, overcoming discontent from the right flank of his party and squeezing spending concessions out of the White House after Biden initially refused to negotiate over the debt ceiling.
In this graphic, Julie Peasley shows how many one-dollar bills it would take to stack up to the total U.S. debt of $31.4 trillion.
What is in the new debt ceiling bill? ›Some $886 billion will be spent on defense, according to the bill text. The debt ceiling bill that House Republicans passed in April would have returned discretionary spending to fiscal 2022 levels and then limited the growth in spending to 1% for a decade. Defense spending would have been protected.
Has the US ever been out of debt? ›
By January of 1835, for the first and only time, all of the government's interest-bearing debt was paid off. Congress distributed the surplus to the states (many of which were heavily in debt). The Jackson administration ended with the country almost completely out of debt!
Why is the US in such high debt? ›Flashpoints that greatly contributed to the debt over the past 50 years include the wars in Iraq and Afghanistan, the 2008 financial crisis and the 2020 COVID-19 pandemic -- the latter two prompting sweeping stimulus measures from Congress that cost trillions of dollars.
What happens if the US defaults on its debt? ›U.S. debt, long viewed as ultra-safe
Its debt, long viewed as an ultra-safe asset, is a foundation of global commerce, built on decades of trust in the United States. A default could shatter the $24 trillion market for Treasury debt, cause financial markets to freeze up and ignite an international crisis.
| Rank | Country | U.S. Treasury Holdings |
|---|---|---|
| 1 | 🇯🇵 Japan | $1,076B |
| 2 | 🇨🇳 China | $867B |
| 3 | 🇬🇧 United Kingdom | $655B |
| 4 | 🇧🇪 Belgium | $354B |
China and Japan are the largest foreign investors in American government debt. Together they own $2 trillion — more than a quarter — of the $7.6 trillion in US Treasury securities held by foreign countries.
Who owes the US the most money? ›Which countries hold the most US debt? Over the past 20 years, Japan and China have owned more US Treasuries than any other foreign nation.
Which country has no debt? ›| Characteristic | National debt in relation to GDP |
|---|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 2.92% |
| Hong Kong SAR | 4.26% |
A default on U.S. debt could trigger a worldwide recession and upend stock markets in addition to wreaking havoc in Americans' financial lives.
Does the debt ceiling affect Social Security? ›If the US is not able to pay all its bills for the first time ever, senior citizens could quickly feel the pain.
Why does China buy U.S. debt? ›Key Takeaways. China invests heavily in U.S. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep its currency—the renminbi (RMB)—low compared to the U.S. dollar.
Does China have more debt than the US? ›
Therefore, China's national debt has surged almost three times that of the United States in the past 12 months. In the third spot, Japan has a national debt of $13.36 trillion, indicating a drop of $1.49 trillion YoY.
How much does the federal government owe to Social Security? ›As of December 2022 (estimated), the intragovernmental debt was $6.18 trillion of the $31.4 trillion national debt. Of this $6.18 trillion, $2.7 trillion is an obligation to the Social Security Administration.
How long will it take to pay off the US national debt? ›To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.
How much of the US population is debt free? ›Fewer than one quarter of American households live debt-free. Learning ways to tackle debt can help you get a handle on your finances.
Who has the biggest debt in the world? ›According to data published by London-based investment fintech Invezz, Japan, Greece, Italy, Portugal, and the US are the top five nations with the highest level of government debt.
How can we reduce US debt? ›Of course, just as with an individual or family, cutting spending and increasing revenue are smart first steps. Beyond that, the government considers things like new taxes, a higher retirement age, removing loopholes from the tax code, and more to reduce annual deficits and the national debt.
What is the name of the debt ceiling bill? ›H.R. 5415 - 117th Congress (2021-2022): Debt Ceiling Reform Act | Congress.gov | Library of Congress.
What is the bill number for the debt ceiling bill? ›Measure Number: H.R. 3746 (A bill to provide for a responsible increase to the debt ceiling. )
Could the US pay off its national debt? ›If all Americans pitched in, it would take $94,000 from each one of us, every man, woman and child, to pay off the national debt. The U.S. national debt, in dollars, is by far the largest in the world. But we also have the largest economy in the world.
Who does the US borrow money from? ›The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government.
Is China in a debt crisis? ›
China's $23 Trillion Local Debt Crisis Threatens Xi's Economy - Bloomberg.
Why can't the US make more money to get out of debt? ›The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.
How much debt does the US owe to itself? ›Nearly all of that debt – about $31.38 trillion – is subject to the statutory debt limit, leaving just $25 million in unused borrowing capacity. For several years, the nation's debt has been bigger than its gross domestic product, which was $26.13 trillion in the fourth quarter of 2022.
What happens to the price of gold if the US defaults? ›If the U.S. government defaults on its debt - as it appears at risk of doing at the moment - it would very likely prove to be a bullish catalyst for gold prices for at least two reasons: Gold has traditionally been viewed as a safe haven, so whenever major macro disruptions occur, gold prices tend to shoot higher.
How likely is the US to default? ›There's just a 2% possibility the U.S. government will default on its loans, according to analysts at Deutsche Bank, despite days of stalled-out negotiations.
What would happen if U.S. defaults on debt? ›U.S. debt, long viewed as ultra-safe
Its debt, long viewed as an ultra-safe asset, is a foundation of global commerce, built on decades of trust in the United States. A default could shatter the $24 trillion market for Treasury debt, cause financial markets to freeze up and ignite an international crisis.
Even if Congress passes a bill to raise the debt ceiling and President Joe Biden signs it, it could take months before stocks and other financial markets move on. Even once a deal is reached, it could take months before stocks and other financial markets move on.
What happens if the US fails to pay its debt? ›'Catastrophe' A default on U.S. debt could trigger a worldwide recession and upend stock markets in addition to wreaking havoc in Americans' financial lives.
What country has no debt? ›| Characteristic | National debt in relation to GDP |
|---|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 2.92% |
| Hong Kong SAR | 4.26% |
Two decades of tax cuts, recession responses and bipartisan spending fueled more borrowing — contributing $25 trillion to the total and setting the stage for another federal showdown. WASHINGTON — America's debt is now six times what it was at the start of the 21st century.
How to survive debt crisis? ›
- Maximize Your Liquid Savings.
- Make a Budget.
- Minimize Your Monthly Bills.
- Closely Manage Your Bills.
- Non-Cash Assets and Maximize Their Value.
- Pay Down Credit Card Debt.
- Get a Better Credit Card Deal.
- Earn Extra Cash.
Generally, too much debt is a bad thing for companies and shareholders because it inhibits a company's ability to create a cash surplus. Furthermore, high debt levels may negatively affect common stockholders, who are last in line for claiming payback from a company that becomes insolvent.
Has the US ever been debt free? ›On January 8, 1835, president Andrew Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.
Can you live in America without debt? ›It might appear impossible, but many consumers succeed in living their entire lives without any debt. People of a variety of ages and income levels have made this choice. It's not an easy feat, but if it's something you truly want, don't let naysayers talk you out of it.
Has the US never been in debt? ›The U.S. has had debt since its inception. Our records show that debts incurred during the American Revolutionary War amounted to $75,463,476.52 by January 1, 1791. Over the following 45 years, the debt grew. Notably, the public debt actually shrank to zero by January 1835, under President Andrew Jackson.
Does China owe the US money? ›As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).