Trump Backs Eliminating Debt Ceiling: What Does That Mean?

U.S. Capitol dome surrounded by a crumbling "Debt Ceiling" ring. Money falls as the backdrop. Sky is blue, mood is tense and urgent.

On December 19 the federal debt ceiling re-entered political discussions as president-elect Donald Trump said that he would back getting rid of the ceiling entirely over a century after it was introduced.

What is the Debt Ceiling?

The US government often spends more than it earns, hence resulting in a deficit. To cover this the treasury borrows money. Originally introduced in 1917, the debt ceiling is the legal limit on how much money the US government is able to borrow.

Once reaching the debt limit, Congress has to either raise the limit or suspend it, or else the government can risk defaulting on its obligations. In other words, the US government would fail to make payments it is legally required to make. This therefore incentivizes finding ways to more efficiently spend government money.

What Happens when the Debt Limit is Hit?

In June 2023 the US treasury suspended the debt ceiling until January 2, 2025. This means that the treasury will be unable to borrow more money at this date as it reaches the debt limit.

To keep paying its necessary obligations, the treasury would have to employ temporary solutions such as: use its cash reserves (currently around $831 billion), wait until the extra tax revenue comes in April 2025, or introduce temporary measures in order to extend its resources.

Statue in front of a neoclassical building with tall columns. A U.S. flag waves atop the structure under a cloudy sky, evoking a solemn mood. — The debt ceiling limits how much the government can borrow to meet its financial obligations

These measures are taken in order to prolong the time until the “X-date” where the government will not be able to meet its obligatory payments. Experts suggest that the “X-date” might happen between mid-to-late 2025 if the debt ceiling isn’t either suspended or lifted entirely.

Upon reaching this date, the treasury might enter a process called prioritization. In this process the treasury would choose and prioritize certain payments over others which they deem with higher importance.

Why does Trump want to Eliminate the Debt Ceiling?

Historically, the debt ceiling is seen as a governing hassle for every administration that encounters it. Like others, Trump views the debt ceiling as a nuisance that can complicate governing. In addition, during his first term, the need to increase the limit gave leverage to Democrats where it allowed them to negotiate for more spending (Dendrinou).

Donald Trump — Trump saw the debt ceiling as a problem that made it harder to push his agenda, especially when Democrats used it to demand more spending

Furthermore, Trump’s desire to extend his 2017 tax cuts (which are set to expire in 2025) would add trillions of dollars to government borrowing needs as cautioned by the Nonpartisan Congressional Budget Office (CBO). Therefore, the necessity of a greater debt pile is required in order to achieve Trump’s goals, hence it is reasonable to identify how the debt ceiling can be a hindrance to Trump’s goals.

What Happens if the Debt Ceiling is Eliminated?

The elimination of the debt ceiling would first bring relief to staff and workers in the US treasury as suspensions or raising the ceiling wouldn’t be necessary, allowing the treasury to focus on other financial issues and priorities. In addition, approaching the debt ceiling has historically made major disruptions in the bond market as bondholders are at a state of uncertainty.

Red zigzag arrow points downward over a dark background with declining stock numbers and red down arrows, indicating a market drop. — The debt ceiling can cause uncertainty, leading to higher interest rates and lower bond prices.

This leads to warnings from credit-rating agencies which view these disruptions as “damaging for the fiscal credibility of the US” (Dendrinou). Therefore the removal of the debt ceiling would essentially eliminate this toll by stabilizing the bond market. However, the elimination of the debt ceiling has its consequences as well. Without a debt ceiling, the US treasury would be able to borrow unconditionally which can potentially lead to a loss of fiscal responsibility. Some Republicans view the debt ceiling as a source that controls government spending.

Essentially, oppositions to the removal of the debt ceiling suggest that its removal can lead to non-pragmatic borrowing and irrational government spending.

What’s Next?

In the upcoming months entering Trump’s presidency, the issue surrounding the debt ceiling will be up to congress and its leaders. Passing laws and legislations in the US is not a simple task; congress is the legislative body that would have to be responsible for the suspension of the debt ceiling.

In the upcoming future congress will have two primary courses of action: