Why Trump is working to defuse the debt ceiling and what it means

President-elect Donald Trump has called on Congress to raise or eliminate the debt ceiling. He said doing so before his term would put the onus on Joe Biden and allow him to avoid an early fight. Exceeding the debt ceiling could lead to default and a deep recession.

The debt ceiling is the unexpected debate in Washington this week after President-elect Donald Trump caused disarray during the annual government funding negotiations during the holiday season.

Trump has said he wants to increase or eliminate the cap on how much the federal government can borrow. Doing it now would mean this highly controversial move would happen during President Joe Biden's presidency and would be resolved before Trump takes office, when he will want to implement his agenda without fighting over borrowing limits.

“Congress must eliminate, or perhaps extend until 2029, the ridiculous debt ceiling,” Trump wrote Friday in a Truth Social article. “Without that, we should never reach an agreement. Remember, the pressure is on whoever is president.”

All this comes amid a chaotic scramble to reach a funding deal for the U.S. government and avoid a shutdown late Friday. The debt ceiling was one of the sticking points Trump used to abandon a bipartisan deal to keep the government funded through March. He is now revisiting a widely used political tool.

“Trump is right to point out that he doesn't want to leave his mark on raising the debt ceiling, and he doesn't want to have to deal with it in six months as he tries to pass what “he considers it a must-have tax expansion bill,” Elizabeth Pancotti, director of special initiatives at the left-leaning think tank Roosevelt Institute, told Business Insider.

Exceeding the debt ceiling has become a political tool that Trump is trying to use for the last time.

The debt ceiling limits the amount the federal government is allowed to borrow to finance its programs and operations. If it is not regularly raised or suspended, the US government risks defaulting on its debt and not paying its bills.

This could jeopardize ordinary Americans' access to crucial government programs such as Social Security, Medicaid and housing vouchers. Len Burman, a fellow at the Urban Institute think tank, told BI that default could also lead to a drastic rise in interest rates if investors no longer view the U.S. government as a creditworthy borrower. That would mean Americans could face higher rates on mortgages and credit cards, which could lead to a broader financial crisis and deep recession.

Because of these widespread consequences, the debt ceiling has become a political bargaining chip, and the United States has come close to breaking it several times due to partisan disagreements, most recently in 2023. This is why some Democrats have long advocated abolishing the cap, arguing that Republicans would use it as a weapon to push for spending cuts. Sen. Elizabeth Warren capitalized on Trump's recent comments, writing on X Thursday morning that she agreed with him on ending the debt ceiling.

During the recent confrontations over the debt ceiling, various plans to circumvent the limit have been floated. Democratic Rep. Jamie Raskin told BI the president could invoke a clause in the 14th Amendment that would declare a default and the debt ceiling that caused the default unconstitutional.

Other ideas for eliminating the debt ceiling have included minting a $1 trillion platinum coin, which some economists say would allow the Treasury secretary to deposit the coin to pay off debts.

In an interview with Fox News Digital on Thursday, Trump said Republicans who don't support repealing the debt ceiling could face major challenges; Many Republicans have historically opposed its elimination, arguing that it was a control on borrowing. Trump told NBC News that Democrats have indicated they want to get rid of the debt ceiling and that he will “lead the charge” to do so.

The country will technically reach the debt ceiling early next year, but the Treasury Department can delay default and continue paying the bills through various accounting tricks, probably until late spring or later. beginning of summer.

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