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Summary

In a meeting with Congressional leaders on Wednesday, September 6, Trump proposed potentially eliminating the national debt ceiling.

The conversation began with plans in the House to temporarily raise the debt limit in order to provide financial aid for states affected by Hurricanes Harvey and Irma. Republican leadership had planned on an eighteen-month extension, but were opposed by Conservative Republicans ideologically opposed to raising the debt ceiling without accompanying fiscal reform.

Democrats ultimately bargained down to a three-month extension, which would allow the issue to resurface mid-December. The shorter extension period benefits Democrats particularly, as it will allow the debt ceiling debate to resurface sooner – in mid-December – which is a critical bargaining tool for the minority party. The bill raising the debt ceiling for three months passed.

When meeting with Trump about the proposal, though, the president expressed confusion about why raising the debt ceiling was an issue that necessitated a vote at all. Once explained, Trump expressed support for a removal of the debt ceiling entirely. Democratic leaders at the meeting did not take an outward stance, but said they would bring the proposal back to their caucuses.

What is the Debt Ceiling? 

The debt ceiling defines the total amount of money the government can borrow to meet its financial obligations. Rather than allowing the government to spend money, it is a statement on how the government plans to repay money it has already borrowed and spent. The debt ceiling was originally created in the early 1900s to allow the Treasury Department did not have to ask Congress’ permission to issue bonds every time it needed to pay bills. Since then it has remained the blanket tool to manage government debt, and has been raised throughout the years by Congressional vote.

Until relatively recently, the debt ceiling was raised automatically whenever Congress passed a new budget – a practice known as the Gebhardt Rule. However, in 2011 a Republican-controlled House changed the practice, only voting to raise the debt ceiling if the bill was accompanied by equal spending cuts and reforms.

Raising the debt ceiling commensurate with the needs of the budget is critical – if the government defaulted on its debt it would trigger an economic crisis. Given the seriousness of what is at stake with the debt ceiling, separating the vote on the debt ceiling away from an automatic accompaniment to the budget was a strategic political ploy, allowing both parties at times to use it as a bargaining chip whenever there were serious disagreements about fiscal policy.

There are alternatives to the debt ceiling as a means of keeping up with government spending, but none have ever been seriously pursued by Congress.


 

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