Is Joe Biden right that debt limit increase ‘has nothing to do with new spending’?

As a breach of the nation’s debt ceiling loomed earlier this month, President Joe Biden urged quick action by lawmakers.

The nation’s debt ceiling approximates the credit limit on a credit card: It’s a dollar figure that constrains how much debt the federal government can carry at a given time in order to pay for its operations. 

The nation was poised to hit its limit on federal debt in mid-October, imperiling all kinds of federal payments, especially interest on government bonds, which could have triggered a national and international financial crisis.

On Oct. 6, Biden urged Republicans not to use procedural maneuvers to block an increase in the debt ceiling, arguing that too much would be at risk if the United States defaulted on its debts.

"Let’s be clear," Biden said. "Raising the debt limit is paying our old debts. It has nothing to do with new spending or what may be coming this year or other years. It has nothing to do with my plans on infrastructure or Building Back Better, both of which are paid for but they’re not even in — in the queue right now."

Biden had a point about the most direct causes of the need to raise the debt ceiling; in fact, Republicans who said the immediate debt ceiling increase was needed because of new programs proposed by Biden were incorrect. However, Biden left out some important context.

Here’s where Biden is on solid footing: His new spending initiatives are not to blame for the immediate need to raise the debt ceiling. 

Neither his "human infrastructure" bill, which focuses on things like childcare, student aid, prescription drug prices and Medicare, nor his more traditional infrastructure bill addressing transportation and energy were the proximate cause of the debt limit increase he sought. 

"The president is correct that we are having to raise the debt limit because of past spending and revenue decisions," said Steve Ellis, president of Taxpayers for Common Sense. "The reason it has to be raised are for past decisions that are ongoing."

In fact, since the bipartisan infrastructure bill hadn’t yet been passed by the House — and since the text of the human infrastructure bill hadn’t even been nailed down yet by negotiators — there was no spending from either bill that would have required an urgent increase in the debt ceiling.

While Biden’s future infrastructure bills were not related to the immediate call to raise the debt ceiling, they could have an effect should they become law. 

If they are enacted, they would shift from theoretical plans to actual spending. This, in turn, would increase the fiscal pressure on the U.S. and add to the need to increase the debt ceiling in the future.

There would be one way to relieve that pressure: The two bills backed by Biden could be written in a way that they’re fully "paid for" through new revenues that offset the new spending and tax cuts..

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That’s theoretically possible, but it would not be easy.

Biden projected that his budget proposal would be paid for over the first 15 years and would reduce annual deficits after that. But that was before he split his agenda into two bills, one of which hasn’t been fully assembled yet, so it’s impossible to know whether that’s feasible yet.

And the only independent analysis of the bill that’s been completed so far — the bipartisan infrastructure measure — didn’t support Biden’s pledge. In isolation, the analysis found, the bipartisan bill would add to the federal debt.

The Congressional Budget Office, which is Congress’ official budgetary scorekeeper, has determined that the bipartisan bill would add at least $256 billion to the debt over 10 years. Outside groups, after sifting through the CBO’s assumptions, have said the actual impact would be even higher. The Committee for a Responsible Federal Budget, a fiscally conservative group, calculated that indirect spending increases contained in the bill would push that figure to just shy of $400 billion over 10 years. (There are additional revenue streams not considered in CBO’s analysis that could ease the fiscal imbalance, such as the reallocation of unused funds from coronavirus relief legislation or unused unemployment insurance.)

The second piece of legislation, the "human infrastructure" bill, isn’t finalized yet, so it’s impossible to know whether it will end up fully paid for. But as challenging as it would be to fully pay for a bill estimated to cost between $1.5 trillion and $3.5 trillion, the second bill would actually have to include $400 billion in excess revenue if it is going to cover the revenue shortfall from the bipartisan infrastructure bill.

If it doesn’t, then the bills collectively would add to the federal debt and require a debt ceiling increase, sooner or later.

In addition, even if the bills are fully paid for over 10 years, which is the standard CBO yardstick, new spending may exceed new revenues for a portion of that decade before they end up in balance, Ellis said.

It’s worth noting that, compared to the size of the federal debt, the additional pressure from even two big bills like Biden’s would be modest, said Paul N. Van de Water, a senior fellow at the liberal Center on Budget and Policy Priorities. "This increase is small compared to the $12 trillion in debt that would be added in those years" under existing obligations, Van de Water said.

It’s also important to remember that, unless lawmakers get rid of the debt ceiling mechanism altogether, it will continue to crop up periodically based on ongoing spending requirements having nothing to do with Biden’s proposals.

"The debt ceiling will have to be raised periodically as long as the federal government continues to run deficits, which is likely to be for the foreseeable future," Van de Water said. Federal borrowing needs are determined by "the underlying tax and spending legislation — almost all of which, like Social Security and Medicare, is already in place."

For this, both parties are responsible, experts say. Much of the recent growth in the debt stems from bipartisan coronavirus relief, while some came from the 2017 GOP-backed tax cut and some stemmed from the 2021 Democratic-backed American Rescue Plan.

"Neither party can credibly claim the debt is solely the other party’s fault or the other party’s responsibility," the Committee for a Responsible Federal Budget wrote.

Biden said, "Raising the debt limit is paying our old debts. It has nothing to do with new spending."

New spending initiatives, such as the two bills Biden is currently backing in Congress, were not the immediate cause of the debt limit increase that Democrats in Congress enacted. But if they become law, they will likely increase the fiscal pressure on the U.S. and add to the need to increase the debt ceiling in the future.

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