President-elect Donald J. Trump injected debt limit politics into already-fraught congressional spending talks this week, urging lawmakers to lift the debt limit or abolish it entirely before he takes office next month.
The re-emergence of the debt limit comes 18 months after Republicans and Democrats staved off a fiscal crisis and agreed to suspend a cap on how much the government can borrow until after the 2024 presidential election. That was supposed to clear the decks and sidestep a politically difficult vote during the heat of campaign season.
But now the problem is waiting for Mr. Trump. As he prepares to push an agenda of tax cuts and border security, Mr. Trump fears that a debt limit fight next year could interfere. His plans are expected to cost trillions of dollars, much of which will most likely need to come from borrowed funds. A drawn-out debt limit fight next year could force Mr. Trump and Republicans to bow to the demands of Democrats and could consume the congressional calendar.
“This is a nasty TRAP set in place by the Radical Left Democrats!” Mr. Trump wrote on social medial on Wednesday night.
Republicans are always reluctant to lift the debt limit, particularly when a Democrat is in the White House, saying it enables runaway spending. G.O.P. lawmakers regularly use it as a tool to extract concessions, such as spending cuts, from Democrats when they are in power.
But Republicans will soon control Congress, as well as the White House, putting the onus squarely on them to either deal with the debt limit or face the prospect of a default. The standoff over the debt limit last year roiled markets and led to a downgrade of the long-term credit rating of the United States. Mr. Trump would like to avoid a similar scenario on his watch.
By addressing the debt limit during the final weeks of the Biden administration, Republicans could prevent Democrats from weaponizing it against them once they are in power. And, as Mr. Trump has made clear, he could then blame Mr. Biden for increasing the borrowing cap.
“It’s clear Trump wants to clear the deck so he doesn’t have to have a budget/debt limit showdown on his watch to clean up the mess from the Biden spending sprees,” said Stephen Moore, a Heritage Foundation economist who has been an adviser to Mr. Trump.
But it is far from certain that Democrats would go along with the plan, given that they have already blasted Mr. Trump’s push to extend all of the 2017 tax cuts and enact new ones.
Democrats have long criticized Republicans for playing dangerous games with the debt limit, and called for it to be abolished. But it is not clear how willing they might be to let go of it as a potential source of leverage. And while Mr. Trump has indicated that he is willing to spearhead a move to eliminate the debt limit, many Republicans might fear that following his lead would be fiscally reckless.
What is the debt limit?
The debt limit is a cap on the total amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations.
Because the federal government runs budget deficits — meaning it spends more than it brings in through taxes and other revenue — it must borrow huge sums of money to pay its bills. Those obligations include funding for social safety net programs, interest on the national debt and salaries for members of the armed forces.
Approaching the debt ceiling often elicits calls by lawmakers to cut back on government spending. But lifting the debt limit does not actually authorize any new spending — in fact, it simply allows the United States to spend money on programs that have already been authorized by Congress.
When will the debt limit be reached?
After a protracted fight, lawmakers agreed in June 2023 to suspend the $31.4 trillion debt limit until Jan. 1, 2025.
On that day, the limit would have to be increased by the amount of debt that has been incurred since the suspension — about $5 trillion. If it is not lifted or suspended again, the Treasury secretary will then have to use “extraordinary measures” to ensure that the United States pays its bills, including interest payments to investors who have bought government debt. Those payments are essential to preventing the United States from defaulting on its debt.
It is not yet clear how long the Treasury secretary will be able to use extraordinary measures, which temporarily curb certain government investments so that the bills can continue to be paid. However, it is expected that the so-called X-date would come sometime in the middle of next year.
“The summer could be a period that we zero in on as an X-date time frame,” said Shai Akabas, the executive director of the Bipartisan Policy Center’s Economic Policy Program, adding that natural disasters or new legislation passed early next year could bring that date forward.
How could the debt limit complicate Trump’s agenda?
Republicans will soon control the White House, the Senate and the House, but with narrow majorities. That means Republican lawmakers will have to work with Democrats on most legislation to find enough votes for passage.
That is what happened during Mr. Trump’s first term, when Republicans controlled Congress but were reluctant to raise the debt limit. Mr. Trump was trying to force Democrats to fund his proposed border wall, threatening a government shutdown as a debt limit deadline approached.
Ultimately, he had to rely on Democrats, who drove a tough bargain over his demands, and he broke with his party to strike a deal with Democrats. Republicans were frustrated at the time over an agreement that included disaster relief money and a debt limit increase without including many of their policy priorities.
The machinations over the debt limit distracted Republican efforts to pass the Tax Cuts and Jobs Act, although lawmakers ultimately pushed it through at the end of 2017.
Republicans most likely want to avoid another paralyzing event this time around as they determine which of their many priorities they want to push through first. They are still deciding whether to first focus on extending the 2017 tax cuts next year, which is estimated to cost $4 trillion over 10 years, or to prioritize border security legislation.
They will need the votes of Democrats to deal with the debt limit, and a long standoff could hobble their ability to get other things done.
Abolish the debt limit?
One idea that Mr. Trump floated this week was to do away with the debt limit entirely.
According to the Constitution, Congress must authorize government borrowing. In the early 20th century, the debt limit was instituted so that the Treasury would not need to ask Congress for permission each time it had to issue debt to pay bills.
During World War I, Congress passed the Second Liberty Bond Act of 1917 to give the Treasury more flexibility to issue debt and manage federal finances. The debt limit started to take its current shape in 1939, when Congress consolidated different limits that had been set on different types of bonds into a single borrowing cap.
But the drama surrounding the debt limit has led to bipartisan calls for it to be ended. Treasury Secretary Janet L. Yellen in 2021 called the debt limit “destructive” and said it should be eliminated. Her predecessor, Steven T. Mnuchin, expressed similar sentiments in 2017 when he described it as a “somewhat ridiculous concept” that does not limit spending.
Mr. Trump previously suggested that the borrowing cap was not necessary and said this week that the “Debt Ceiling guillotine” should be either extended or terminated before he takes office.
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