Debt ceiling is a term that refers to the maximum amount of money that can be legally borrowed by the US government. In order to keep tabs on how much debt is taken on in a given year, Congress has passed various pieces of legislation over the years requiring a vote on raising or suspending the debt limit. The current debt ceiling cap is set at $20 trillion and will likely need to be raised before October 1st 2017 because it’s been automatically suspended since March 9th 2015 when it reached its previous limit.
While putting in place measures for controlling spending and addressing budget deficits are often proposed as alternatives to raising or suspending the debt ceiling, most economists agree that increasing borrowing capacity instead of restricting spending can help avoid default and prevent major economic fallout.
Historically, the debt ceiling has only been raised 74 times since 1939. The most recent vote to raise the limit was in 2015 when it passed by a narrow margin with mostly Democratic support due to opposition from members of the Tea Party movement who are opposed to raising the debt ceiling as a sign of fiscal irresponsibility on the part of lawmakers. This time around, many Republican representatives and senators are also saying they will oppose any increase without corresponding reductions in government spending or entitlement cuts. However, there is still concern that some may be persuaded by Trump’s business background and his promises of increased infrastructure spending, tax cuts and decreased regulation to pass legislation suspending or raising the ceiling before October 1st 2017 deadline.
In addition to potentially spurring a default and causing instability in financial markets, the risk of not raising the debt ceiling is that it could negatively impact various government programs including Social Security, Medicare and Medicaid. It could also cause major economic problems for individuals and businesses. For example, interest rates on mortgages may increase as the federal credit rating is downgraded and money becomes more scarce for consumers and businesses alike who need loans for short-term investments or bigger purchases like homes or cars.
While some say that fiscal responsibility should be prioritized at all costs, others argue that allowing government to default would have even worse consequences with no clear benefit to taxpayers. As Congress prepares to vote on yet another debt ceiling increase before October 1st 2017, it remains to be seen whether they can put aside partisan bickering and make a decision that will best benefit the country as a whole.