The White House has warned state governments that a potential failure of Congress to raise the debt limit would cause a nationwide recession.
In 2019, Congress suspended the debt ceiling — a measure that stops the federal government from taking on a certain level of national debt — for two years. However, the policy’s expiration occurred at the beginning of August — prompting Treasury Secretary Janet Yellen to enact “extraordinary” cash saving measures to fund the federal government.
As of August, the Treasury Department was expected to keep the government solvent for two or three months. However, the United States may risk defaulting on its debt for the first time in history if Congress does not soon amend the debt limit.
On September 17, CNN obtained a letter sent by the Biden administration to state governments warning that the policy would throw the economy into recession:
Raising or suspending the debt limit does not authorize new spending commitments. It simply enables the government to pay for obligations that Congresses and presidents of both parties have already approved. We expect Congress to act promptly to raise or suspend the debt limit and protect the full faith and credit of the United States — just as it did in a bipartisan fashion three times during the prior Administration and about 80 times since 1960.
Hitting the debt ceiling could cause a recession. Economic growth would falter, unemployment would rise, and the labor market could lose millions of jobs. City and state revenues often decline during a recession, as revenues fall due to declining incomes and spending… if the U.S. defaults on its debt — cities and states could experience a double-whammy: falling revenues and no federal aid as long as Congress refuses to raise or suspend the debt limit. This means critical state services will be at risk for budget cuts, from education to healthcare to pensions.
The letter listed several state programs that could be affected by a default on federal debt — including the Children’s Health Insurance Program; disaster relief efforts from FEMA, the Small Business Administration, the Department of Housing and Urban Development, and the Department of Transportation; the National School Lunch and National School Breakfast programs, which serve 30 million children; and $100 billion in infrastructure funding.
Meanwhile, Republicans in Congress are forcing Democrats to own the higher debt ceiling alongside their $3.5 trillion social welfare bill, which Democratic leadership plans to pass through budget reconciliation without any Republican support.
“I can’t imagine a single Republican in this environment that we’re in now — this free-for-all for taxes and spending — to vote to raise the debt limit,” Senate Minority Leader Mitch McConnell (R-KY) added. “I think the answer is they need to put it in the reconciliation bill.”
The current national debt is $28.7 trillion.