From its inception in 1917, the debt ceiling has been a major point of contention for lawmakers. Since then, the figure has been raised 78 times since 1960, each occasion serving as a flashpoint for debates over government spending. After much anticipation, we’ve once again reached the debt ceiling, now a whopping $31.4 trillion. This past week, Treasury Secretary Janet Yellen announced her department would have to take extraordinary measures to prevent the country from defaulting on its debts beyond Jan. 19, with an estimated default date in July. If the U.S. were to hit that point without a deal in place to raise the debt ceiling, the results would be catastrophic. With the American credit rating downgraded, interest rates would spike, likely sending the country into a recession.
Though we’ve been in this situation many times before, this round of negotiations poses unique threats. While both parties have historically reached a consensus to avoid a default, many Republicans in the House seem loath to raise the debt ceiling without significant Democratic concessions. In particular, a primary commitment that House Speaker Kevin McCarthy made to hold out Republicans in order to win the speakership was to prevent the increase of the debt ceiling without corresponding spending cuts. Because President Joe Biden has insisted that such a deal is off the table, we’ve entered a danger zone where neither side is willing to budge on negotiations.
While the short-term ramifications of this situation are certainly worrisome, even more concerning is the current trajectory of U.S. finances. With a bottom 15 debt-to-GDP ratio worldwide, the American government has accumulated high debt relative to the size of its economy, bringing it close to a point of no return. Without systemic changes in government spending, the country risks saddling the next generation with insurmountable debt that cripples growth.
Though the current debate over this issue is highly partisan, as recently as the 1990s, permanently reducing the deficit was a primary Democratic priority. When President Bill Clinton ran his first campaign, one of his major proposals was “Welfare to Work,” which was guided by his philosophy that “welfare is a second chance, not a way of life.” These programs limited cash benefits from welfare to two years and tied benefits to strong work requirements. Their objective was meaningfully different from most welfare programs today: to support people looking for work, not extend them an indefinite lifeline. While certainly controversial in the modern political climate, readopting this mentality is key to allowing the federal government to permanently lower the deficit and preserve programs such as Social Security, all while reforming the social safety net to support workers.
Perhaps the most logical way to start such reform would be by increasing SNAP work requirements from 80 hours a month and decreasing the length of unemployment benefits from 26 weeks. With a low unemployment rate and excess of available jobs, the natural unemployment rate in America is structurally lower than it has been for most of the country’s history. Because of this, individuals choose not to return to work because of reasons independent of a lack of opportunities. By tightening the welfare and unemployment requirements through an increase in hours required to be eligible for SNAP, the government could drive people back to work and free up cash to address the root causes of a heightened reluctance to enter the job market. In particular, by providing tax credits for government-subsidized child care and offering universal pre-K, the federal government could take steps to permanently increase the size of the labor force and help families get back to work.
While this idea may seem untenable in the modern Democratic Party, a core tenet of Biden’s campaign was restoring the “dignity of work” in blue-collar America, a mantra with very similar objectives to such reforms. Throughout the pandemic, the “Great Resignation” was a nationwide wake-up call about the dangers of creating excessively high government benefits. Even two years later, the labor force has meaningfully decreased, evidencing the need for an alternative approach. By reducing dependency on unemployment and welfare, Democrats can nudge more American families toward self-sufficiency.
On the Republican side, programs like subsidized child care, family tax credits and universal pre-K are surprisingly popular. While traditional Republicans like Sen. Mitt Romney, R-Utah, have been some of the biggest proponents of these programs, even highly conservative members such as Sen. Josh Hawley, R-Mo., have been tremendous backers of these populist ideas. In 2021, Hawley proposed a $1,000-a-month tax credit for families with children, a proposal that could be repurposed to achieve bipartisan support. By combining elements of Democratic and Republican proposals, a compromise that retools welfare and supports families is possible.
Another major issue that needs to be addressed is Social Security. For the past two decades, it’s been no secret that Social Security needs deep reforms to remain a viable program, yet little meaningful change has been made. Though there isn’t a cure-all to fix a highly flawed system, some initial steps include lowering benefits for high-income individuals and increasing the taxable limit for the program, which currently stands at $160,200. To satiate Republicans, some additional steps that could be taken include raising the retirement age and allowing for a partial privatization of Social Security that would allow citizens to directly invest some of their benefits before receiving them. These modifications would make Social Security more financially viable for future generations, preserving an important program for the coming decades.
Although Democrats and Republicans have struggled to find common ground on spending over the past two decades, a compromise that maintains the social safety net while sharpening its focus is possible. Rather than extreme proposals on both ends of the spectrum, such as implementing wealth taxes to directly redistribute or eradicating the IRS to curb government power, lawmakers should work to trim the fat while maintaining positive aspects of existing programs. While the spending track we’re currently on is troubling, by using the debt ceiling debate as a mechanism to drive positive change, Congress can bring us closer to a sustainable solution. If leaders act fast, they can prevent a default and hopefully save America’s long-term prospects in the process.
Nikhil Sharma is an Opinion Columnist and can be reached at nsnikhil@umich.edu.