WASHINGTON — President-elect Donald Trump has asked Congress to raise or eliminate the government’s borrowing limit. The federal government has more than $36 trillion in debt right now, and Treasury Secretary Janet Yellen has warned her agency will need to take special accounting maneuvers to prevent the government from reaching the debt limit.
“The Treasury can start to engage in what are known as extraordinary measures,” explained George Hall, an economics professor at Brandeis University, “effectively borrowing from various retirement accounts and trust funds and various sort of pension funds throughout the government.”
Hall said the Treasury Department can only do this so long, and if Congress doesn’t raise the debt ceiling by the summer, the economy could start to “freeze up.”
“If you break the promises on Social Security recipients, how do these Social Security recipients pay their rent? And if they don't pay the rent, what happens to the mortgages that depend on those rent payments? Things could cascade and get out of control,” Hall said. “Once there's this uncertainty in the economy, [people] don't want to engage in any sort of a long-term commitment. And that's where things get dangerous, and you can get crises. No one wants to be president when that occurs.”
Trump’s attempt to force Congress to raise the debt ceiling in December failed with members of his own party resistant to the idea.
“I felt like that debt ceiling was being lifted way too high. Look, I'm in favor of less spending,” said Rep. Tony Wied, R-Green Bay.
“I'm willing to raise the debt ceiling, but it has to be in exchange with reducing spending,” said Rep. Tom Tiffany, R-Minocqua, who suggested cutting spending by first going after “low-hanging fruit,” like fraud in certain government programs.
“There's going to be members of Congress, particularly on the Republican side, who don't want to be seen as raising the debt limit because it would sort of imply that they're in favor of deficit spending,” Hall said. “So it provides them, or some of the Democrats, some leverage in Congress, and that could limit what President Trump wants to accomplish.”
That includes his proposed tax cuts, since less revenue coming into the federal government could mean it needs to borrow more money down the line. One economist said he’s in favor of eliminating the debt ceiling altogether to avoid such politicking.
“Certainly within the economics profession, I think the vast majority of us are not in favor of the debt ceiling,” said Thomas Kemp, an economics professor at UW-Eau Claire. “It creates a lot of uncertainty, and it creates a lot of drama, and it creates a lot of opportunity for rent-seeking behavior that doesn't do us much good.”
Economists said the sooner Congress raises the debt ceiling, the better, especially since borrowing from retirement accounts can be expensive in the long run.
“The degree of calamity that would occur by defaulting on U.S. debt payments would be far greater than our continued spending,” Kemp said.