What to know about the debt ceiling debate as a government shutdown looms in Washington

[December 20, 2024]  By MEG KINNARD

A debate over the debt ceiling is at the center of a dispute over funding that is pushing Washington to the brink of a federal government shutdown.

President-elect Donald Trump has demanded that a provision raising or suspending the nation's debt limit — something that his own party routinely resists — be included in legislation to avert a government shutdown. “Anything else is a betrayal of our country," Trump said in a statement Wednesday.

Republicans quickly complied, including a provision in a revamped government funding proposal that would suspend the debt ceiling for two years, until Jan. 30, 2027. But the bill failed overwhelmingly in a House vote Thursday evening, leaving next steps uncertain.

Here's what to know about the debate over the debt ceiling and the role it's playing in the shutdown saga:

What is the debt ceiling?
The debt ceiling, or debt limit, is the total amount of money that the United States government can borrow to meet its existing legal obligations. For the Treasury Department to borrow above that amount, the limit must be raised by Congress.

The federal debt stands at roughly $36 trillion, and the spike in inflation after the coronavirus pandemic has pushed up the government’s borrowing costs such that debt service next year will exceed spending on national security.

The last time lawmakers raised the debt limit was June 2023. Rather than raise the limit by a dollar amount, lawmakers suspended the debt limit through Jan. 1, 2025. At that point, the limit will be automatically raised to match the amount of debt that has been issued by the Treasury Department.

The debt limit vote in recent times has been used as a political leverage point, a must-pass bill that can be loaded up with other priorities.

What is the debt ceiling fight all about?

Trump has tied a demand for dealing with the debt ceiling to the dispute over government funding, saying one should not be addressed without the other.

When he rejected the spending proposal on Wednesday, Trump said that he wanted the debt ceiling debate settled before he takes office next month.

Warning of trouble ahead for Johnson and Republicans in Congress, Trump told Fox News Digital, “Anybody that supports a bill that doesn’t take care of the Democrat quicksand known as the debt ceiling should be primaried and disposed of as quickly as possible."

What happens if the debt ceiling isn't raised?

There's actually no need to raise the debt limit right now. On Jan. 1, when the debt limit is triggered, the Treasury Department can begin using what it calls “extraordinary measures” to ensure that America doesn't default on its debts.

Some estimate these accounting maneuvers could push the default deadline to the summer of 2025 — but that's exactly what Trump wants to avoid, since an increase would then be needed while he is president.

Speaker of the House Mike Johnson, R-La., takes questions from reporters after presenting his final version of an interim pending bill to his caucus, at the Capitol in Washington, Tuesday, Dec. 17, 2024. President-elect Donald Trump has now abruptly rejected the bipartisan plan to prevent a Christmastime government shutdown. Instead, he's telling House Speaker Mike Johnson and Republicans to essentially renegotiate — days before a deadline when federal funding runs out. (AP Photo/J. Scott Applewhite, File)

Lawmakers have always raised the debt ceiling in time because the consequences of failure are stark. Without action, the government would go into default on its debts, a first-ever situation that Treasury Secretary Janet Yellen and economic experts have said could be “catastrophic" for the economy and global markets.

Raising or suspending the debt limit does not authorize new spending or tax cuts; it merely acknowledges past budgetary decisions — that is, current budget law — and so allows the federal government to meet its existing legal obligations. For that reason and others, some have advocated doing away with the limit altogether.

What could the debt ceiling fight mean for Speaker Mike Johnson?

Dealing with the debt ceiling could have ramifications for Johnson, as he angles to keep his job in the new Congress that begins on Jan. 3.

Trump said early Thursday that Johnson will “easily remain speaker” for the next Congress if he “acts decisively and tough” in coming up with a new plan to also increase the debt limit, a stunning request just before the Christmas holidays that has put the beleaguered speaker in a bind.

The last House speaker, Kevin McCarthy, worked for months with President Joe Biden to raise the debt limit. Even though they struck a bipartisan deal that cut spending in exchange for additional borrowing capacity, House Republicans said it didn’t go far enough, and it ended up costing McCarthy his job.

Now, Trump is looking for Johnson to pass a debt ceiling extension just hours before a partial government shutdown.

What are Democrats saying about the debt ceiling debate?

After meeting with his caucus, Democratic Leader Hakeem Jeffries rejected any possibility that his members would bail out Republicans as the shutdown threat looms.

“GOP extremists want House Democrats to raise the debt ceiling so that House Republicans can lower the amount of your Social Security check,” Jeffries posted Thursday on social media. “Hard pass.”

Jeffries and other Democrats say Republicans should honor the spending agreement that was negotiated before Trump got involved. He called the new GOP plan "laughable.”

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