The history of the debt ceiling crisis in the US highlights an artificial struggle built into its democracy. If the pressure point is mere contrivance, though, does that mean it can be unmade? Or do the problems with US democratic action run too deep?
In 2011, the US was still recovering from the 2008 recession. National debt as a percentage of gross domestic product (GDP) had shot up from 68 percent in 2008 (the year bank bailouts started, under George W. Bush) to 95 percent, in part after the American Recovery and Reinvestment Act under Barack Obama. In 2009, a right wing group known as the Tea Party, catalyzed by business analysts from fields that had triggered the recession in the first place, convinced many US citizens that government spending, not an under-regulated free market that had just crashed the global economy, was the most pressing economic issue. These concerns were tethered in part to fears arising from Greece’s economic freefall, and threats (later realized on flawed data) of an historic downgrading of the US credit rating. After gaining the House in 2010 midterm elections, Republicans leveraged debt ceiling talks in Congress to push for massive future cuts to state programs.
But the debt ceiling is an unusual place for these kinds of negotiations—at least, in most every other democratic nation. Although the US has always carried national debt, starting with over 43 million in 1783 from outstanding financial obligations after its War of Independence, the country stands distinct in the world today for how it has contrived an added pressure point that complicates the system of checks and balances expected of a modern democracy.
In 2011, that pressure point was weaponized by Republican members of Congress, by their own admission. As then-Senate Minority Leader Mitch McConnell told reporters after forcing the government into future budgetary concessions two days before an anticipated default, “I think some of our members may have thought the default issue was a hostage you might take a chance at shooting. Most of us didn’t think that. What we did learn is this: it’s a hostage that’s worth ransoming.”
Worth ransoming for whom, though?
For the last nine years, US debt has been over 100 percent of GDP, and it is currently at 135 percent, with a debt of $31.46 trillion to a nominal GDP of $23.32. This past decade’s figures were created in part by oil industry shocks, tax cuts, trade wars, Brexit, COVID, and recent inflation and loan-debt reduction measures: in short, from losses to GDP, losses to tax income, and increased appropriations for medical and economic crises. The last time US debt was over its annual GDP, the country had just come out of World War II, dedicating itself not only to local and European recovery but also to the new Cold War. Investment was key then for future prosperity.
Similarly, today’s global debt-to-GDP ratios illustrate that it’s not the number itself that causes problems. Japan’s debt as of 2022 was 225.9 percent of its GDP, thanks to investment in social welfare for its aging population. Venezuela’s can’t be properly pinned down due to data manipulation: it could be anywhere from the mid 50s to the high 200 or even 300s. Other countries with high debt-to-GDP ratios include a wide range of economies: Sudan, Greece, Lebanon, Italy, Portugal, Libya, and Singapore. In all cases, these countries are appropriating funds without a clearly defined store of extant financial reserves to pay back all debts if they came due tomorrow—and yet, only in some cases has this borrowing pattern yielded collapse.
For the US, though, the White House has been quite clear that the current debt ceiling is a crisis. In “The Potential Economic Impacts of Various Debt Ceiling Scenarios”, analysts note that even just fear of an impending default has already increased borrowing costs for the government, and also the cost of insuring US debt. The US has never defaulted on its debt, but if it were to happen, officials argue that it would ruin the low unemployment rate, imperil the recent creation of 12.6 million jobs, upend consumer spending, and limit the ability of the government to implement policies directly aiding households and businesses in distress.
But if it’s not the number itself, what’s actually creating this crisis?
The declaration is. The stated refusal—or threat to refuse—not to honor the debt.
That’s it. That’s the word game on which so much turmoil currently hangs.
The creation of a ruinous decision point
It’s not even that most countries don’t have rigid debt ceilings; it’s that the US is well and truly singular in how it has naturalized a fear of default in congressional power plays. First, Congress passes spending (appropriations) bills, which increase the deficit over a given fiscal year as the government pays for its initiatives. But then Congress also gets to rule on approving an increase to its national debt cap, which is what allows one of its two funding mechanisms, the Treasury, to continue to make good on outstanding payments. (The other funding mechanism being taxes.)
If this seems a bizarre ritual—the idea that Congress can both authorize spending and tax cuts, then later demand budget reductions before it fulfills its 14th Amendment obligation to recognize the debts stemming from those bills and tax cuts—that’s because it is. The closest example of another democracy with an absolute debt ceiling, Denmark, has its number set so high that it is never at risk of default. Instead, most countries use a model that sets an upper limit for debt as a percentage of GDP, with only the occasional country, like Poland, coming close to defaulting on those grounds. And yet, rare is the country with anywhere near as rigid an obligation not to surpass its stated ideals. Furthermore, countries lacking hard debt ceilings might still experience percentage caps as a requirement of regional association membership, but even those geopolitical bodies are fairly lax on follow-through.
This is because most of the world recognizes that financing is a confidence game, and has no interest in jeopardizing its place in that game through the creation of an additional crisis point around the decision to honor a country’s debts.
What’s happened in the US is something different: something driven both by the historical persistence of an extra pressure point in everyday congressional affairs, and by the long term consequences of Citizens United v. Federal Elections Committee (2010). Financing is a confidence game: and some people really enjoy playing that game, at everyone else’s expense.
US histories of debt ceiling debate
There was a period in US history when it made some sense to revisit the consequence of fiscal decisions made by Congress while discussing the debt ceiling.
The debt ceiling itself is a 20th century construct in the US, started in 1917 as a cap on one financial instrument’s ability to accumulate debt without oversight around World War I. It wasn’t until 1939 that the concept of a debt ceiling then applied to all financial instruments, and not until 1953, under Dwight D. Eisenhower, that the country neared its ceiling of $275 billion. The Senate at first did not approve an increase, forcing the country to dip into gold reserves and cut spending to reset the economy. The next year, a new debt ceiling was passed, and conversation around financing emerged when discussing subsequent increases in the coming years.
The difference, though, is that those conversations were necessary in the absence of another key check-and-balance: The Budget and Impoundment Control Act of 1974, which among other things created the House and Senate Budget Committee, and also the Congressional Budget Office. Much more logically, this legislation centers fiscal responsibility discourse and oversight around the procedures and parameters surrounding any budget resolution: when appropriations and tax cuts are discussed, not when the bills for both come due. In 1979, this move was reinforced with the Gephardt Rule: the idea that when a budget was passed, a debt ceiling that accorded with its financial asks was intrinsically sanctioned, too. No more added crisis.
Well, at least until 1995, when the first Republican-controlled Congress in 40 years brought back the idea of a second pressure point: once when a budget was passed, and once when the bills coming due bumped against an old debt ceiling. The argument was that a second vote would increase public transparency and accountability. The ability to look at the raw number in the national debt, removed from any context underpinning its size, would increase “fiscal responsibility”.
In practice, in the 21st century, it has instead offered a new site of performative political crisis—and yet, even then, not a consistent one. In 2011, Republicans held the debt ceiling “hostage”, but this was and remains an atypical power play: Democrats didn’t make budget negotiation demands during debt ceiling deliberations under George W. Bush or Donald Trump, and Barack Obama did not accept further Republican “hostage-ransoming” again under his term. The current 2023 scenario is only the second time this has happened on the 21st century.
It’s also not surprising, though, because the current political landscape in Congress is extreme, and divided. Republican House Speaker Kevin McCarthy only gained his position after 14 failed ballots: the longest time in a century that the chamber had been without a leader, and a situation only placated by concessions that keep his position unstable. His staunchest opposition within the Republican Party is the Freedom Caucus, a group far more obstructionist than the Tea Party forebears of the 2011 debt ceiling crisis. The difference in financing models for these politicians matters, too: whereas traditional members rely on moneyed donors to fund their campaigns, Freedom Caucus members have significant small-donations backing, fueled by their commitment to performative stunts on social media as in office.
This situation relates to the long term fallout of Citizens United, wherein the Supreme Court ruled that limits to corporate funding of independent political broadcasts were unconstitutional under the First Amendment. That decision also informed SpeechNow.org v. FEC, which allowed super PAC donations far more relaxed oversight than those under direct campaign jurisdiction. Campaign spending from corporations increased 900 percent between the 2008 and 2016 presidential elections, and 5 billion was spent by “well-funded special-interest groups” in the 2018 midterm elections. The rate of undisclosed donations also skyrocketed.
In today’s debt ceiling talks, President Joe Biden is offering a one-year freeze on budget growth rather than Republicans’ sought-after active reductions, but also considering their demands for increased work requirements on welfare programs and laxity around critical environmental regulations. However, this latest pressure point was first caused by the long term cost of tax cuts made under the last president.
Earlier this year, the Congressional Budget Office estimated that those cuts have a long term impact on national debt of $3.5 trillion. Many related provisions naturally sunset in 2025, but Republicans are intent on keeping them active even while calling for spending reductions elsewhere. Republicans claim that these tax cuts help “small business” and middle-class families, but the Government Accountability Office found that the clear winners of Donald Trump’s Tax Cuts and Jobs Act of 2017 were the corporations. Their average effective federal income tax rate dropped to 9 percent for profitable large corporations in the bill’s first year, and the number of corporations paying nothing at all rose to 34 percent.
In short: a lot of emboldened corporations campaign spending has reaped excellent rewards in the form of congressional advocacy in favor of corporations, at cost to the rest of the US during this latest debt ceiling crisis.
Going forward, out of artificiality
Far from being altogether bleak, though, the current situation in US democracy offers a stark reminder that political systems are the products of our collective agreement to abide by rules of our own creation. There is nothing inevitable, nothing written in stone, about the shape of our financial systems and the extent to which they can and should dictate the shape of surrounding political policy.
In the US, other solutions existed for Biden, just as they did for Eisenhower when faced with congressional obstruction around his first request to raise the debt ceiling. The minting of a $1 trillion dollar platinum coin by the Treasury has been raised by Biden aides and economists alike, as an arbitrary but perfectly serviceable option to keep US accounts afloat. So too has the much easier fix of Biden simply treating the debt ceiling crisis as unconstitutional under the 14th Amendment, as he’s been encouraged by Senate Democrats to do.
But there’s actually good reason that Biden is not taking that option too seriously at present: because this is still, at the end of the day, a confidence game. Unfortunately, because he did not take the 14th Amendment option sooner, if he were to invoke the unconstitutionality of the debt ceiling now, he would open himself to a formal appeals process that would go past the estimated Treasury deadline—which would in turn mean that, as far as the world was concerned, the US would have announced a lack of confidence in its ability and/or willingness to pay its debts.
And that would have drastic consequences for the US economy, as discussed above.
Thus, at this juncture Biden has gambled on fruitful negotiations with a precarious Republican leader, even as members of the Freedom Caucus stands ready to obstruct whatever agreement might emerge from their talks—because that’s how small-donation politicians advertise themselves to future campaign funders in a heavily moneyed political economy: through their ability to hold Congress hostage, too.
It didn’t have to get to this point.
But many recent manifestations of political corruption have now converged around a storied artificial stressor in the US political process.
And if the US survives it more or less unscathed?
Advocates of a more robust US democracy must not let the conditions leading to this debt ceiling crisis go unaddressed in future congressional sessions. It is time—long overdue—for more sustainable procedural reforms.