The United States has nearly surpassed the national debt limit, sparking congressional debate on how to raise the limit to at least temporarily avoid default.
The U.S. has accumulated over $31 trillion in debt through funding domestic social programs, foreign endeavors and national debt, far surpassing the generated revenue from corporate, individual and other taxes, according to the U.S. Department of the Treasury website. If the U.S. is unable to pay these debts, it will be forced to default – an unprecedented decision that could induce a global financial crisis and possible recession, said Lee Ohanian, a professor of economics. Defaulting means the government fails to pay its debts on time and thus cannot continue to borrow money.
“The U.S. dollar is used for all sorts of financial transactions and international trade transactions. And that process might be affected if the United States were to default,” Ohanian added.
The current debt ceiling is at around $31.4 trillion. The debt ceiling was originally created to keep government spending in check and is set at an amount that corresponds to the gross domestic product and the amount of debt the government accrues. Once this limit is reached, it cannot be exceeded, meaning no additional debt can be issued and no loans can be taken out by the government, according to the U.S. Department of the Treasury website.
Ohanian added that the government has had increasingly larger deficits in the last 15 years. In 2007, the debt was equal to 40% of one year’s value of the country’s gross domestic product – today, it is closer to 120%. Congress continues to approve higher spending limits, placing the country in a level of debt that has nearly tripled since 2009, according to Ohanian. The government often has trouble deciding on whether to raise the limit or not because of differences in how the two parties want to approach funding public programs.
After months of debate and negotiation, Republican House Speaker Kevin McCarthy and President Joseph Biden reached a deal on the debt limit May 27, agreeing to suspend the debt limit for two years so debts may be repaid. Once this time period concludes, the debt limit will be set at the amount of newly accumulated debt. The bill was passed by the House on May 31 and is set to be voted on by the Senate, according to the New York Times.
If the Senate approves the bill, politicians will need to make decisions about where to direct spending and how much should be dedicated to public programs, said Edward Leamer, a professor of management and economics. This could affect programs such as Social Security and Medicare, Leamer said.
“The real problem is that Social Security and Medicare – those funds are going to be exhausted if nothing is done, probably within the next 10 to 15 years, if not sooner,” Ohanian said.
Additionally, UCLA students may be affected through student loans, said Luis Cabezas, a macroeconomics doctoral student. He added that interest rates on loans are likely to be marginally affected, increasing how much young people have to pay for their education.
Leamer said excessive government spending is likely to disproportionately affect younger generations in the country.
“The bottom line is that accumulated debt is going to be a heavy burden on the future taxpayers and … younger Americans are going to have to pay incredible local taxes unless we do something now to prevent this,” Leamer said.
Leamer and Cabezas both said young Americans should center themselves in public discussion about getting relative government spending under control due to their large stake in politics.
“The problem is young people in America are not involved in the discussions. They’re not expressing dissatisfaction with these deficits,” Leamer said. “And if they were, then the politics would have to respond because there’s a lot of potential votes that will be against them if they don’t do something.”
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