The Fire Next Time: Before You Know It, The Debt Ceiling Will Return

 by Neil H. Buchanan and Michael C. Dorf

The debt ceiling is gone but not forgotten. The legislation President Biden signed into law on Saturday suspends the debt ceiling until January 2, 2025. That's the last day of the current Congress, meaning that the next time the debt ceiling will need to be raised or suspended will be after the 2024 election. Although that fact has been widely touted as a victory for President Biden and the Democrats, there are a number of ways in which it is highly problematic.

Kicking the can down the road for 19 months is certainly preferable to failing to raise or suspend the debt ceiling at all. Even so, having to endure the pain of the last month all over again in a year and a half is hardly a victory for sensible governance. Extending the default deadline until after the next federal election looks like a win for Biden and the Democrats mostly because of what psychologists call a framing effect. Had House Republicans gotten all that they demanded in the bill they passed in late April, millions of people would have suffered and the debt ceiling would have been suspended until only March 31, 2024 at the latest. If the alternative is a need to raise the debt ceiling again right in the middle of the Presidential primaries--when Republican candidates for the nomination and their allies would have been competing to stake out the most extreme position--then, yes, an extension to January 2, 2025 looks pretty good.

But why is the hostage takers' most extreme demand the baseline? Congress should repeal the debt ceiling. And yet, even as President Biden has proposed bringing a test case of the debt ceiling's constitutionality--which every legal expert quoted in this recent WaPo article (including one of us) explained would not be possible because there would be no case or controversy--he has not endorsed the much simpler idea of repealing the debt ceiling. Indeed, in a display of either demagoguery or, slightly more charitably, mere stupidity, he said this last October when asked about the possibility of repeal: "You mean, just say we don't have a debt limit? No. That would be irresponsible." Amazingly and inexplicably, even Bernie Sanders--who voted no on the debt ceiling increase last week--has opposed repeal.

As the kids say, WTF?? Debt ceiling repeal would not permit unlimited borrowing. The borrowing authorizations in 31 U.S.C. § 3102 et seq already limit borrowing to "amounts necessary for expenditures authorized by law." In other words, as has long been obvious to anyone who understands second-grade arithmetic, the debt ceiling is wholly superfluous as a borrowing constraint, because the borrowing authorizations set the level of debt as the cumulative total of the gap between congressionally authorized expenditures and non-borrowing revenues (mostly taxes).

Thus, presumably Biden (and certainly Sanders) could be made to understand that they absolutely should support debt ceiling repeal. To be sure, that's a non-starter with Republicans in charge of the House. But even if debt ceiling repeal isn't possible during divided government, repeal should be near the top of the Democrats' to-do list next time they control both chambers of Congress and the White House (assuming Trumpist Republicans and their brownshirts allow there to be a next time). At the very least, debt ceiling repeal should be the Democrats' opening offer in the next round of negotiations. 

And to be clear, there almost certainly will be negotiations. By setting the debt ceiling to rise again like an undead ghoul and thereupon immediately begin its predations at the end of the current Congress, the new legislation takes advantage of the fact that lame-duck members of Congress sometimes do the right thing even though they lacked the courage to do so when they were still worried about re-election. But how many of them will there be? Just about every Senator and House member not planning to stand for re-election in 2024 already knows that. A few incumbents will lose their seats in 2024 and thus might feel liberated to put the country's interest first. But overall, the Congress that has to raise the debt ceiling on January 2, 2025 will look a whole lot like the one that just acted.

Except that in one crucial respect it will be very, very different. In the month leading up to January 2, 2025, the outgoing Congress will probably know what the incoming Congress will look like and whether President Biden will be serving a second term or will be succeeded by a Republican. We say "probably" because none of that was true in 2020. The Georgia runoff meant that the fate of the Senate was uncertain, and Trump's coup efforts made congressional certification of the Electoral College vote on January 6, 2021 anything but the purely ceremonial affair it had theretofore been. What the current Congress does with respect to the debt ceiling in the month before January 2, 2025 thus depends on the election's outcome.

Let's consider the possibilities:

1) Republican sweep of the Presidency and both houses of Congress. Both Trump and Ron DeSantis have made grossly irresponsible statements about the debt ceiling. However, if either of them were actually about to be president, presumably he would not want a default and economic chaos to begin less than three weeks before his term starts. We know as much because Trump sought and obtained debt ceiling increases during his first term. And of course a somewhat less odious Republican president would likewise want a debt ceiling increase. Accordingly, in this scenario, the incoming Republican administration would lean on Speaker McCarthy to raise the debt ceiling before January 2, 2025. They wouldn't need to push hard for future spending cuts or any other items on the GOP wish list, because they could get those anyway a few weeks later following the president's inauguration.

2) Democratic sweep of the Presidency and both houses of Congress. In these circumstances, one could imagine McCarthy, who seemed over the last month to genuinely wish to avoid default even as he played an extremely dangerous game, losing control of his caucus. Republicans about to lose their power in the House could seek to hobble the second Biden administration by immediately causing a default. They might try to do that by making outrageous demands that they know the administration would find unacceptable. Yet such an effort would be largely futile because the new Congress would simply reverse the concessions in any debt ceiling package that got enacted.

Indeed, Biden wouldn't even need to negotiate with the outgoing Congress. He could simply run out the clock. The very last provision of the legislation enacted Saturday forbids the Secretary of the Treasury from borrowing extra money during the period while the debt ceiling is suspended as a cushion against its resurrection. However, we do not read that provision to forbid the "extraordinary measures" that the Secretary of the Treasury takes to extend the deadline by months. Hence, if Biden wins re-election, the Democrats hold the Senate, and Democrats also retake the House, the debt ceiling will be increased without much fuss--either on or shortly after January 3 or by the outgoing Congress in recognition of the futility of putting up a fight.

3) Divided government with an incoming Republican president. Some Democrats would cite the Republicans' hostage taking as a justification for tit-for-tat retaliation, but the parties are asymmetrical. The Republican Party's far right members are both much more numerous and much farther from the center of public opinion than are the Democratic Party's most left-leaning members. More fundamentally, Republicans play hardball, while Democrats play kickball. Democrats would not demand much if anything in exchange for a debt ceiling increase in the lead-up to the inauguration of the Republican president.

4) Divided government with Biden elected to a second term. This scenario is extremely dangerous and reasonably likely (given the brutal 2024 Senate electoral map). Mitch McConnell was content to allow Kevin McCarthy to take the lead in the most recent negotiations, but in anticipation of regaining his status as Senate majority leader, he would stake out a tougher position in the lead-up to January 2, 2025 and thereafter as majority leader. Based on the experience during the Obama administration, McConnell probably would not shoot the hostages, but he certainly would walk right up to the line. Biden would be forced to make deep and painful concessions that would hobble his administration before he even started his second term--or else finally get his test case for the debt ceiling's constitutionality, only in real time with real stakes.

5) Uncertainty in the post-election period. Some combination of close congressional races and shenanigans by Trump (or a Trump-lite GOP candidate), state legislatures, and the joint session of Congress on January 6 could mean that Congress and President Biden would be uncertain which of scenarios 1 through 4 would be operative. It's conceivable that a deal to raise the debt ceiling could be struck as a hedge under these circumstances, but it seems more likely that until the dust settled, congressional Republicans wouldn't act. Default would be avoided through extraordinary measures. After it became clear who had won what, this scenario would become one of the foregoing four possibilities.

Thus, the landscape is bleak. There are essentially four scenarios. In one of them--scenario 4--there's a serious risk of either default or capitulation by Biden to the GOP agenda. In another--scenario 2--we avoid default without incident, but this scenario is highly unlikely, given the Democrats' challenging Senate electoral map. In the other two scenarios--1 and 3--the debt ceiling will be raised or suspended without much fanfare, but we hasten to remind readers that in these scenarios, a Republican will have won the 2024 presidential election, and given the divided field and the weakness of the principal challenger, that Republican would very likely be Donald Trump. How much consolation is it really that a second Trump term--while disastrous in virtually every other imaginable way--would not include a debt ceiling impasse?