The U.S. hit its spending limit of $31.4 trillion on Thursday, leaving Congress once again at odds about how to increase it so the country can borrow more to pay outstanding bills and interest.
The debt ceiling, also called the debt limit, has been raised 78 times since 1960. The country has never defaulted. But some experts are worried that may change this time because House Republicans want to cut spending dramatically and are at odds over that with President Joe Biden.
If the ceiling is not increased and the U.S. defaults on its debt, there could be dire consequences for average Mainers, who may see Social Security, military, tax refunds or other checks from the federal government paused. It also would affect the state’s 9,600 federal employees, though they make up less than 1 percent of total workers, according to the U.S. Bureau of Labor Statistics.
“I think it’s very likely we’ll default,” said Charlie Colgan, a retired University of Southern Maine economist. “I think the Republicans who are negotiating now see the default scenario as the better option because it would mean massive spending cuts.”
Even if there isn’t a default, he said the spending cuts Republicans will demand could be substantial.
Many congressional Republicans said they would block efforts to increase the ceiling without deep concessions on spending, with Democrats bristling against negotiating. House Speaker Kevin McCarthy, R-California, has tied cuts to Social Security and Medicare to negotiations on the debt ceiling.
Senate Republicans have been more willing to negotiate with the White House on fiscal issues. In a Thursday statement, U.S. Sen. Susan Collins of Maine, a top Republican appropriator, said a deal between House Republicans and the president is necessary.
“Doing so will require the president to negotiate with the House, and those discussions should begin without delay,” she said.
Nancy Altman, president of the liberal advocacy group Social Security Works, called the stalemate in Congress “extremely threatening to Social Security” and urged Mainers to contact the congressional delegation. Some 235,000 Mainers received Social Security benefits in 2020, according to federal data.
“Social Security does not add a penny to the deficit,” Altman said. “It is completely self-funded and should not be part of the debt negotiations.”
Another big impact of a default would be on 10-year and 30-year Treasury bonds, which are considered some of the safest investments in the world. Home mortgages and other variable interest loans whose rates are tied to those bonds would immediately rise in a default situation, Colgan said. That in turn could cause the real estate market to grind to a halt.
Federal estimates say defaulting on debt could cause 3 million lost jobs, declines in 401(k) plans, a U.S. recession and instability in world financial markets.
The debt ceiling is somewhat similar to the limit on a credit card, which the cardholder can ask to be increased if they hit the cap. It applies to payment of debt to U.S. bondholders and spending obligations Congress has already agreed upon.
The U.S. should be able to shift money between accounts to cover its debt obligations until June, Treasury Secretary Janet Yellen said.
In a letter to congressional leaders on Thursday, she urged Congress “to act promptly to protect the full faith and credit of the United States.”
BDN writer Michael Shepherd contributed to this report.