Congressional Democrats passed legislation hiking the federal debt ceiling by $2.5 trillion in an all-night sprint to allow President Biden to continue borrowing money to pay for government expenditures until at least early 2023.
Senate Democrats narrowly passed the bill, 50 votes to 49, in the evenly split chamber before the Democratic House majority muscled it across the finish line early Wednesday morning.
The bill, which Mr. Biden is expected to quickly sign, will push the national debt limit to $31.4 trillion from roughly $29 trillion.
“Responsible governing has won on this exceedingly important issue,” said Senate Majority Leader Charles E. Schumer, New York Democrat. “The American people can breathe easy and rest assured there will not be a default.”
Senate Republicans opposed the bill, arguing that because Mr. Biden was undertaking a massive “spending spree” with his roughly $1.74 trillion social welfare and climate bill, Democrats alone were responsible for making more spending possible by raising the debt limit.
“This massive debt increase will just be the beginning,” said Senate Minority Leader Mitch McConnell, Kentucky Republican. “More printing and borrowing to set up more reckless spending to cause more inflation to hurt working families even more. What the American people need is a break.”
Similarly, every single House Republican opposed the bill except for Rep. Adam Kinzinger of Illinois.
Treasury Secretary Janet Yellen warned that the U.S. will be at risk of defaulting on its debts if the cap is not raised by Dec. 15.
Once passed by the House, Mr. Biden is expected to sign the measure immediately. The debt ceiling increase would ensure the White House can continue borrowing money to pay for federal expenditures until at least early 2023.
Economists warn that mounting national debt, if left unchecked, can spur an economic disaster. Both parties, when in power, have piled on the debt over the past two decades.
“While it’s hard to predict the exact moment the national debt became a ticking time-bomb, the experiences of countries like Greece show that ignoring the problem can have disastrous consequences,” said Matthew Dickerson, the director of the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget.
Greece defaulted on its debt in 2015. High fiscal debt was just one piece — albeit a big piece — of the country’s mismanaged economy. Combined with high trade deficits, low growth rates and soaring inflation, the heavy debt burden contributed significantly to the collapse of the Greek economy.
In the U.S., debt has reached a staggering $29 trillion, or 125% of gross domestic product, the value of all goods and services that Americans produce in a year.
If the current national debt were evenly divvied up, each taxpayer would owe more than $229,700.
However, today’s historically low interest rates make now the best time to borrow money. The Federal Reserve is expected to announce a major policy shift on Wednesday to set up interest rate hikes next year, inching up from the central bank’s near-zero rate. The rate increase won’t be enough to significantly inflate the government’s debt payments.
The $2.5 trillion hike to the debt limit will give Mr. Biden room to push more initiatives without worrying about raising the debt limit every few months. Some Democratic lawmakers say the reprieve should be used to push forward on liberal initiatives that have been sidelined in recent months by budgetary fights.
“Once we handle the debt ceiling, the Senate must prioritize passing federal voting rights legislation,” said Sen. Raphael Warnock, Georgia Democrat.
Budget hawks warn that the one-year borrowing greenlight could prove disastrous for the nation’s fiscal health. They say that without having to keep a continuous watch on the national debt, lawmakers will be free to indulge in “turning up the spigot and keep federal money flowing.”
Mr. Dickerson blamed the present spending crisis on Congress’ decision in 2019 to suspend the debt limit for two years.
“The national debt has skyrocketed in recent years, currently standing at $28.9 trillion,” said Mr. Dickerson. “Now it’s set to climb to $31.4 trillion. This rise has been enabled by lawmakers kicking the can down the road on the debt while passing multitrillion-dollar spending bills every few months.”
The Biden administration spent feverishly in the first 10 months since Mr. Biden took office. Part of that is the result of the COVID-19 pandemic. Earlier this year, lawmakers pushed through a $1.9 trillion economic relief package meant to address the lingering effects of the coronavirus economic shutdowns.
The bill gave $1,400 in direct payments to individuals making below $75,000 annually. It also included a temporary $400-a-week unemployment boost and expanded the child-care tax credit, giving families up to $3,600 in monthly payments.
That spending pushed the federal deficit to a record-breaking $3.1 trillion for the 2020 fiscal year, which ended Sept. 30.
Since then, lawmakers approved more spending that adds to the national debt.
In November, Congress passed a $1.2 trillion bipartisan infrastructure package. The bill, which focuses on rebuilding the nation’s roads and bridges, will add $256 billion to the federal deficit over the next decade, according to the Congressional Budget Office.
“When Congress doesn’t have tight control over the national debt, spending tends to balloon,” Mr. Dickerson said.
Economists say that is only amplified as Congress readies to raise the debt ceiling by another $2.5 trillion. Most note that the increase comes as Mr. Biden is working to secure passage of his mammoth social welfare bill that is known as the Build Back Better Act.
The legislation, which would be the biggest expansion of the social safety net since the Great Society of the 1960s, is estimated to cost $1.75 trillion. Budget hawks say it likely will cost double after discounting budgetary gimmicks, however.
Sen. Joe Manchin III, a West Virginia Democrat who is undecided on the bill, notes that much of the social welfare programs being proposed run for only a short time, while the package’s tax hikes last a decade.
“As far as I’m concerned, whatever plan it would be — pre-K, child care, in-home care — then it should be 10 years,” he said. “It shouldn’t just be one year here, three years here, five years there. I think it would be very transparent for the public to see.”
The CBO, a nonpartisan governmental agency tasked with analyzing legislation, estimates that if all the programs within the bill were made permanent the deficit would grow by $3 trillion. That boosts the cost of the bill to about $4.75 trillion.
Republicans charge that Mr. Biden’s decision to only fund the programs for a short time is meant to obscure the real cost.
“As a wise man once said, ‘nothing is so permanent as a temporary government program,’” Mr. McConnell said. “Democrats aren’t even pretending they think the spending would stop. They’re boasting about a permanent transformation.”