How they’re different, why they matters
The U.S. Capitol in Washington, DC.
Congress faces two massive tasks over the next month: Funding the U.S. government and increasing the debt ceiling.
These concepts can be confused when they have close deadlines, such as in 2021’s fall.
The deadline for funding the government is this month. Treasury Secretary Janet Yellen warns that unusual measures are needed to keep the debt limit from running out.
These are the differences between these two topics.
Failure to fund the government results in a shutdown, but failure to increase the debt ceiling would lead to default.
A government shutdown occurs when lawmakers are unable to agree on the amount of future bills. In that budget debates deal with expenditures that haven’t yet been approved, they are considered forward-looking.
Republicans and Democrats generally agree that federal spending should be continued to keep the lights on. Workers in the Departments of Housing and Urban Development, Education, Interior, Labor, and Commerce are often forced to return home most of their employees until Congress approves a budget.
The attempt of either side to add amendments or prioritizes into the budgetary bill is where partisan gridlock occurs. These add-ons are almost always what politicians fight over, with regular employees of the government as collateral damage.
Politicians argue over how to pay for their spending, and this is the subject of the Debate Over the Debt Ceiling. This could be trillions of dollars in Covid-19 relief, or even a tax cut deficit.
In this sense, Debt ceiling discussions are retro-oriented.
To get concessions in the future, minorities politicians will not be paying the debts they owe and may threaten to stop the payments.
Legislators face a more common, less severe hurdle when funding the U.S. Government. There is a deadline.
Each year, Congress must approve a federal budget that will finance the government for the upcoming 12 months. Federal government’s fiscal year runs from October 1 through September 30, so a shutdown could occur if Congress doesn’t approve a new budget within the month.
The government must have a budget ready for October.
Over the last decade, government shutdowns have become a common occurrence.
Two government shutdowns happened under former President Donald Trump, with the more recent one between December 2018 and January 2019. This 35-day shutdown, which was the longest in U.S history, saw some 300,000. Federal workers furloughed.
That shutdown was so severe that it cut gross domestic product by 0.1 percent in the fourth quarter of 2018 and 0.2 percent in the first quarter of 2019, according to analysis from the nonpartisan Congressional Budget Office.
On paper, Democrats and Republicans are actually united in their desire to pass a continuing resolution — a type of appropriations bill — to fund the government.
A person who is familiar with McConnell’s thoughts said that the Senate Minority leader, Mitch McConnell from Kentucky, favors a “clean” resolution. Clean bills don’t contain amendments nor partisan policy and permit the government to go on as normal with past budgets.
McConnell, along with his Republican co-workers, are unwilling to allow Democrats to raise or suspend their all-important but unrelated debt ceiling. McConnell prefers Democrats tie a higher debt ceiling to the $3.5 trillion bill for social policy. The budget rules are being used to allow it to pass without the need of any filibuster and only 51 Senate votes.
This will protect his caucus during the 2022 midterm election and force Democrats in toss up races to defend their spending habits from being accused of wasteful.
Democrats want to tie a debt ceiling hike to a funding bill to make Republicans accountable for all the chaos that could result if they elect to filibuster. The bill will need 60 votes to pass in the Senate, which is 50-50 divided between Republicans and Democrats.
Solita Marelli, UBS Global Wealth Management’s chief investment officer for Americas, wrote: “Democratic leaders believe that the GOP would be forced to support this package in face of an adverse market reaction or voter backlash.”
Senate Minority Leader Mitch McConnell, (R-KY), speaks with the media following the Senate Republican policy luncheon at Capitol Hill in Washington. June 22, 2021.
Joshua Roberts | Reuters
“Even if Republicans refuse to supply any votes, and in order to avoid blame, they might choose not to filibuster, letting Democrats pass the CR with only 50 votes,” she added.
CNBC received a letter from Rep. StenyHoyer (Maryland), referring to the House speaker Nancy Pelosi.
In a Sept. 8 letter, Hoyer stated that Republicans would not join Democrats to responsibly address the debt limit. “It would cause a great deal of damage to our economy as well as for the tens and millions of American families.” “I urge Senator McConnell to stop playing dangerous games with our economy and the well-being of so many Americans.”
As worrying as a government shutdown can be, failure to address the debt ceiling is considered by virtually everyone to be an unequivocal disaster.
The U.S. government can legally carry a certain amount of debt, known as the debt ceiling.
The borrowing limit can be increased to a specific dollar amount by lawmakers or it may be suspended until a date. At that time, the ceiling will apply at the highest level of debt.
At the end July 2019, the Treasury Department couldn’t issue bonds for financing prior congressional spending because of a two year suspension of the debt limit.
This is the crux of the problem. The U.S. government can’t honor spending already made. While increasing or suspending the debt limit does not allow for new spending, Treasury is able to keep receiving payments from purchases that were made months or weeks before.
Janet Yellen (U.S. Treasury Secretary) answers questions at the Senate Appropriations Subcommittee hearing, which took place in Washington DC, June 23rd 2021 to discuss the FY22 budget request of Treasury Department.
Pool | Pool | Reuters
That hasn’t stopped Republicans from conflating the debt ceiling with Democrats’ uncertain attempts to pass $4.5 trillion in federal spending. Democrats have been trying to pass both a bipartisan $1 trillion infrastructure bill, and $3.5 trillion to increase the safety net. This is a fight that virtually all Republicans oppose.
Some GOP members argue that voting to raise the debt ceiling implies support for such spending.
For years, the Treasury Department has compared refusing an increase in the debt ceiling with a consumer not paying a bill on a credit card for purchases made over the past month.
Treasury took “extraordinary steps” in order to pay America’s debts, but was unable to issue new debt. Treasury is able to save money by temporarily suspending the reinvestment of government retirement funds.
Treasury will exhaust these measures sometime in October, and the U.S. government is likely to default on the date set by the “drop-dead”. The U.S. could miss payments to Social Security and the military if it exhausts these measures.
A default could have devastating consequences for Americans borrowing every day.
“A delay calling into doubt the ability of the federal government to meet its obligations would likely cause irreparable harm to the U.S. Economy and global financial market,” Yellen said earlier in the month in a written letter to Pelosi.
We have seen from previous debt limit impasses how waiting until the very last moment to suspend or raise the debt limit can result in serious harm for consumers, business, and taxpayer confidence. It also increases short-term borrowing cost and adversely affects the United States credit rating.
Republicans, Democrats, and economists agree that default would have devastating consequences and almost certainly lead to a recession.
A default could lead to the collapse of the national ability to pay its debts on time and cause interest rates to soar across the country.