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Fact check: Debt ceiling myths and misconceptions

ARI SHAPIRO, HOST:

If you're confused by the fight over the debt ceiling, you're not alone. We've heard a lot of questions from listeners, and we are going to try to answer some of them now with NPR's Scott Horsley. Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Ari.

SHAPIRO: Let's start with timing. A lot of people have been counting the days until June 1. Is that actually the deadline to get this resolved?

HORSLEY: We don't really know for sure. Treasury Secretary Janet Yellen has warned the crunch date could come as early as June 1, but she's also been clear that the actual deadline is uncertain. That's because billions of dollars flow in and out of government coffers every day, and it's just hard to know precisely when a bill is going to come due that the government doesn't have the cash to cover. What the secretary has said is that it's highly likely that moment will come sometime in early June. If we somehow manage to limp along until June 15 - that's when quarterly tax bills are due, and the government will get a fresh infusion of cash. So that could push the crunch date later into the summer. But given the money the government has on hand now and the bills we know are coming due, Yellen says it's doubtful the government can make it to the middle of June unless Congress OKs additional borrowing.

SHAPIRO: So it may be a moving target. Let's talk about why we're here. House Republicans say it's because of runaway spending by President Biden and the Democrats even though they voted to raise the debt ceiling without conditions under President Trump. Is excessive spending the reason the country's bumping up against the debt limit?

HORSLEY: You know, spending over the last 2 1/2 years is just the latest chapter in a much longer story. The government is $31 trillion in debt. That's been piling up for a long time, and both parties have their fingerprints on it. You have to go back to the Clinton administration to find the last time the federal government actually lived within its means. Since then, of course, we've had two wars that weren't paid for, three rounds of tax cuts, three recessions and a global pandemic. Thirty percent of the federal debt was amassed during Barack Obama's eight years in office. Twenty-five percent came during the four years Donald Trump was in the White House. Sixteen percent was added under George W. Bush. And about 12% has been added on President Biden's watch.

SHAPIRO: Here's something a lot of people are unclear about - what is the difference between a debt default and a government shutdown?

HORSLEY: Yeah, they're both symptoms of political gridlock, but they have very different consequences. Shutdowns happen with some regularity when Congress can't agree on spending. A debt default has actually never happened, but it could if Congress can't agree on borrowing. Now, shutdowns are inconvenient, but essential government services still go on and the lasting damage is pretty limited. A debt default, if it were to actually happen, could be much worse. It would likely do lasting damage to the government's reputation as a dependable debtor, so it could result in permanently higher borrowing costs for the government. And what's more, because a lot of other investments are priced in relation to U.S. Treasury debt, a default could be destabilizing for financial markets around the world.

SHAPIRO: Then why doesn't the government just get rid of the debt ceiling?

HORSLEY: Well, some Democrats wanted to, especially last fall, to avoid just the situation we now find ourselves in. President Biden said at the time it would be irresponsible to get rid of the debt ceiling, and that's why he's now forced to negotiate with the full faith and credit of the government hanging in the balance. Raising the debt limit is always politically unpopular with lawmakers. They worry about being branded as profligate spenders. But in recent times, this has only reached crisis levels when there has been a Democrat in the White House and Republicans in Congress try to use the debt limit as leverage to extract concessions. By contrast, congressional Democrats repeatedly raised the debt limit with little drama during periods of divided government including twice during the Trump administration and three times under George W. Bush.

SHAPIRO: That's NPR's Scott Horsley. Thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.