President-elect Donald Trump on Wednesday rejected Congress’ bipartisan plan that would have temporarily funded the government and dodged a serious shutdown that could begin on Friday night.
But Trump didn’t just criticize Congress’ latest spending deal, which also would have provided disaster relief, pay raises for lawmakers and other initiatives. The president-elect has also called on lawmakers to raise the debt ceiling – or get rid of it – as they race to avoid a shutdown over the holidays.
Getting rid of the country’s debt limit would be the “smartest thing it [Congress] could do. I would support that entirely,” Trump told NBC News.
But what is the debt ceiling? When will the US hit its debt ceiling? Here’s what you need to know.
More:Will there be a government shutdown? Live updates on the latest from Congress
The debt ceiling is the limit placed by Congress on the amount of debt the government can accrue. In order to pay its bills to those it borrowed from and dole out money for everything from Medicare benefits to military salaries, the government needs more money, so the debt ceiling has to be raised.
Created in 1917, the legislative cap has to be raised by a majority vote in both the Senate and the House of Representatives. That vote does not pledge any additional spending. It merely raises the limit on the amount of money the government can borrow to pay back commitments already agreed upon by Congress.
However, over the years both parties have tied it to government spending and used the debt ceiling as a cudgel to force the hand of the president.
The current debt limit suspension ends on January 1, 2025. The agreement allows a few extra months for the Treasury Department to use what’s known as “extraordinary measures” to keep the country afloat.
The U.S. did reach the debt ceiling last year, in late January. Following that, Treasury Secretary Janet Yellen said “extraordinary measures” were taken so the country could pay its bills and avoid default as the two parties battled it out.
A default would occur if the U.S. failed to pay bondholders who have lent money to the government.
The United States has never defaulted on its debts. That’s part of why U.S. Treasury bonds are viewed as a safe investment and used by some banks as a backstop to counteract risky investments. A default would throw both the domestic and global economies into chaos.The U.S. Treasury website warns that a default on the debt “would precipitate another financial crisis and threaten the jobs and savings of everyday Americans.”
In 2013, when the government careened toward default before raising the debt limit at the last minute, the economy lost 1% of GDP.
The debt ceiling is routinely raised to accommodate repayment of the country’s debt. The last time it was raised was in 2021.
The debt ceiling was suspended last June. Where raising the debt limit sets a specific cap, a suspension declines to set a dollar amount.
Days before a looming debt ceiling default, President Joe Biden and House Speaker Kevin McCarthy struck a deal to suspend the debt ceiling limit in exchange for caps on future spending and other demands from the GOP.
While it has become increasingly politicized, for years it was viewed more as bureaucratic government business than a mechanism for policy change.
In 2011, then-President Barack Obama and Republicans in Congress reached a stalemate, but they agreed on a deal to raise the ceiling just two days before the Treasury would have run out of money.
As fear grew last year over the failure to reach a deal on raising the debt ceiling last year, the White House was said to be considering an option of last resort: an untested legal theory that involves invoking the 14th Amendment.
After a meeting with congressional leaders on May 9, 2023, Biden told reporters he had not ruled it out as an option.
The 14th Amendment deals mainly with equal protections granted to citizens under the law. However, the fourth section reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
Some legal scholars believe Biden could draw upon this clause to claim that he has the power to authorize the Treasury to repay U.S. debts even if Congress does not raise the ceiling. The move, considered but ruled out by the Obama administration, would likely get caught up in the courts.
Denmark also has a debt ceiling. However, it does not share in the same debate or political brinkmanship.
For one, parliament has more principal power in the Danish government, preventing the kind of legislative-executive branch showdown seen in the U.S. Additionally, CNN reports, Denmark is more fiscally conservative than the U.S., so it has less debt and set its original ceiling much higher than its actual debt levels.
Raising the debt ceiling means increasing the amount of debt the country can accrue in order to pay its bills.
It is unrelated to future spending and is instead a limit on the amount of money the government can borrow to meet its existing legal obligations like payments to Social Security and Medicare.
U.S. government bonds have long been viewed as a safe investment because debts are always paid back on time. However, if the US were to default and for the first time in history fail to pay back those debts the value of government bonds would depreciate and the global market would enter a tailspin.
Treasury bonds are used as collateral for loans internationally as well as to cushion bank losses, among other things.
Trump’s call to get rid of the debt ceiling isn’t the first time the idea has been floated in Washington. In fact, some Democrats have supported getting rid of it recently.
“I agree with President-elect Trump that Congress should terminate the debt limit and never again govern by hostage taking,” Democratic Sen. Elizabeth Warren, one of the most prominent progressive voices in Congress, shared on X on Thursday.
Some of Trump’s fellow Republicans, however, have previously balked at this idea. Many conservative lawmakers prioritize – and make campaign promises about – reducing the nation’s debt.
A version of this story was published in June 2024.
