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What does it mean for the Senate to raise the debt ceiling in the United States? What are the potential impacts?

Congress is set to raise the federal government's debt ceiling, preventing an imminent default which would have been disastrous to the US economy.

Congress is set to raise the federal government's debt ceiling, preventing an imminent default which would have been disastrous to the US economy.
Anna MoneymakerAFP

On Tuesday the Senate approved legislation raising the federal government’s debt limit by $2.5 trillion, taking the total figure to $31.4 trillion.

The bill will now be sent to the House of Representatives for the final passage, before moving to the White House for President Biden’s signature. In the Senate the bill passed along partisan lines, with all 50 Democrats voting in favour and all 49 Republicans in attendance voting against.

The Senate vote came just hours before a potential default on outstanding financial obligations, which would have had enormous consequences for the recovering US economy. The additional debt limit removes the prospect of a first federal default until 2023 at the earliest.

Democrats took advantage of ‘express’ debt ceiling mechanism

The Democrats faced a race against time to pass the vital debt ceiling increase before risking a debt default, and took advantage of a new Congressional mechanism that made it easier to pass economic legislation.

Last week the House approved a bill that allows the Senate to create a special pathway to raise the debt limit with a simple majority vote, eliminating the threat of filibuster. This route can only be used to raise the debt ceiling, and only at certain intervals, but it should streamline the process of raising the threshold in future.

In a Senate floor speech on Tuesday, celebrating the debt ceiling raise, Senate Majority Leader Chuck Schumer said: “The American people can breathe easy and rest assured there will not be a default.”

What is the debt ceiling?

The debt ceiling is the limit that Congress imposes on the federal government, ensuring that the government cannot borrow more than a certain amount. If government were to exceed it without Congress passing a raise or suspension the government could default on its debts, which has never before happened in US history.

The debt ceiling was introduced in 1917 by the Second Liberty Bond Act, which set what it termed a “statutory debt limit”. It has been increased and suspended countless times over the last century, often reflecting the economic policy of the incumbent in the White House.

In 2019 President Donald Trump was forced to suspend the debt ceiling for two years in 2019, caused partially by the $1.5 trillion tax cut package that he had signed two years earlier. Now a debt ceiling increase is needed to compensate for the additional federal spending to combat covid-19, as well as Biden’s ambitious Build Back Better legislative proposals.


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