Savvy Solutions Readers Understand the Debt Ceiling Drama

Imagine trying to teach your teenager responsible spending, but she is no fool because she’s been reading CFC Solutions. She rebuts you, explaining the U.S. government has accumulated debt that amounts to more than its gross domestic product and yet it’s still a superpower. You explain how this caused the U.S. to be on the verge of a default. “Of course, we were going to avoid a default,” she claims. “We’ve done so 78 times since 1960. Why was everyone concerned we wouldn’t this time?” She is right. President Joe Biden and House Speaker Kevin McCarthy agreed on a deal to suspend the debt ceiling. 

The debt ceiling is suspended, not raised, until January 2025. The agreement allows the government to continue to borrow to pay its bills until after the 2024 presidential election. But there are concessions. First, nondefense spending is kept flat next year, with a 1% increase in 2025. Unused COVID funds will be returned and repurposed for discretionary spending. Veterans’ medical care will be fully protected. 

Second, and probably a more painful point for Democrats, is the expansion of a work requirement for welfare benefits. In order to get food and healthcare assistance, able-bodied recipients will face stricter work requirements. Vulnerable groups such as veterans and the homeless are exempted. Third is a funding cut of up to $21.4 billion to the Internal Revenue Service. Fourth, the deal requires the resumption of federal student loan repayments, which have been paused since the beginning of COVID. It maintains debt relief for qualified student borrowers, but the Biden Administration must oblige the Supreme Court ruling on the case. Finally, a win for the energy sector—key provisions on energy and climate in the Inflation Reduction Act are unscathed. Meanwhile, both parties agreed to expedite the creation of a natural gas pipeline in West Virginia.

As of now, the debt drama in Washington is beginning to subside—until 2025. Rest assured the same spectacle will resurface. But remember your teenager’s argument: They’ve raised the ceiling 78 times—and they will do it again. It’s a rare privilege to be able to raise your own credit limit, something that your teenager doesn’t have.