As the 118th Congress gets underway, the federal debt ceiling has taken center stage. In early January, Treasury Secretary Janet Yellen announced that the United States would soon breach its debt limit and only ‘extraordinary measures’ by the Treasury Department were preventing a government default. She also emphasized that those measures were temporary, with a likely expiration date in the summer of 2023. While avoiding a government default seems like it should be a bipartisan priority, House republicans have stated their intention to use the debt ceiling as political leverage to force cuts to federal spending.
In addition to acknowledging the reckless nature of using the federal government’s financial credibility as a bargaining chip, it is also important to remember what happened the last time there was a stand-off regarding the debt ceiling. Namely, in 2011, Congressional republicans used the debt ceiling to bring the United States government to the brink of default. The result was the Budget Control Act of 2011, which ushered in a decade of fiscal austerity that continually undermined Congress’s ability to address urgent societal issues. Nowhere has this impact been felt more deeply than the Department of Housing and Urban Development, whose budget has failed to keep pace with an affordability crisis that has spiraled out of control.
As we look ahead to the business of the 118th Congress, it is critical to avoid the same mistakes that were made in 2011, when political posturing resulted in a decade of zero-sum budgets and missed opportunities. Congressional leaders must do their part to set their differences aside, avoid austerity measures, and invest in proven solutions—especially for those most in need of support.
How We Got Here
The Debt Ceiling: A Brief History
Article I, Section 8 of the Constitution gives Congress the power “To borrow Money on the credit of the United States.” In its initial form, federal borrowing was relatively limited, and Congress had to authorize the precise amount and method of all debt it incurred (Bipartisan Policy Center). However, in 1917, in an act of war-time efficiency, Congress gave itself permission to borrow for any number of “other public purposes authorized by law” and streamlined the process, essentially delegating all procedural aspects to the Treasury department. (Hall & Sargent, 2015).
Two decades later, in 1939, Congress formalized the notion of an aggregate limit past which the Treasury could not issue bonds, setting the newly established “debt ceiling” at $45 billion (Bipartisan Policy Center). Importantly, this limit was static; Congress did not build in any self-adjusting measures to account for population increases, economic development, or inflation. As a result, the limit has had to be revised upwards many times in the decades since as the population, the size of the economy, and various price indices have risen (Vox, 2016).
How the Debt Ceiling Works
The debt ceiling is just one small part of the larger process of US government spending. The annual federal budget consists of two primary sets of programs, mandatory and discretionary. Congress establishes spending levels for ‘mandatory’ programs, such as Social Security and Medicare, via stand-alone legislation. These programs make up roughly two-thirds of annual spending and are authorized semi-permanently barring new legislation (CBPP, 2022). Separately, there is a recurring appropriations process sets the levels of ‘discretionary’ spending, which includes both military and domestic programs and makes up roughly thirty percent of the budget. Domestic budget lines include education, public health, scientific research, infrastructure, national parks and forests, environmental protection, law enforcement, courts, and tax collection. The government also spends a small percentage of its budget on interest payments, accounting for roughly 7% of spending in 2022 (CBPP, 2022).
The other side of the federal budget equation is revenue, primarily in the form of payroll, corporate, and individual income taxes. The size and scope of federal taxation—and thus, the amount of federal revenue—is determined by the tax code, which is periodically amended by Congress. Depending on the levels of spending authorized for both mandatory and discretionary programs and the revenue generated by taxation, the federal budget produces either a deficit or a surplus. When a deficit occurs, the Treasury sells bonds to bridge the gap between revenue and expenses. Thus, the bond issuance does not reflect government spending on its own—it is merely an instrument for the spending already authorized by Congress (Vox, 2016).
Debt Ceiling as Political Leverage
Despite its ostensibly procedural role, the debt ceiling has been seized upon as political leverage at various points over the past half century. While any borrowing the Treasury would do above and beyond the debt ceiling has, by definition, already been approved in Congress, the debt ceiling presents a highly visible veto point. The stakes of a potential default of the US debt are enormous–the fallout would destabilize the global economy and have innumerable unforeseen consequences–but, for precisely that reason, debt ceiling stand-offs have proven attractive to those seeking to impose their political will, especially around issues of government spending.
The debt ceiling took center stage in 2010 as a negotiating tactic when Speaker John Boehner and the newly empowered Republican caucus rallied around the ‘Boehner Rule,’ which demanded that any increase in the debt ceiling be accompanied by an equal amount of spending cuts. President Obama sought to defuse the situation with hopes of a ‘grand bargain.” The legislation directed a bipartisan commission to develop a strategy to address the deficit, using very low spending caps to add pressure. At the time, legislators thought the low caps were so draconian that it would push both parties to find a compromise. They were wrong.
The Budget Control Act of 2011
The result of the standoff was the Budget Control Act of 2011. The Budget Control Act, or BCA, contained mechanisms for two key actions: 1) increasing the debt ceiling (adding up to $2.4T in permissible debt) and 2) reducing government spending (by an equivalent amount to the increase in the debt ceiling). Specifically, the BCA:
- Imposed appropriations caps on discretionary spending that reduced their funding by more than $1 trillion from 2012 – 2021, relative to the Congressional Budget Office baseline from 2010. In effect, these caps locked in federal spending at its 2010 level.
- Established a joint select committee on deficit reduction to propose legislation reducing the deficit by another $1.2 trillion. Bipartisan in nature, this committee was supposed to succeed where previous negotiations had failed.
- Introduced a back-up mechanism (a “sequester”) that would be enacted if the committee failed to come up with anything. The sequester consisted of across-the-board cuts to both mandatory and discretionary programs.
On their own, the initial appropriations caps represented a significant infringement on Congressional spending autonomy (CBPP, 2015). By setting these caps for an entire decade of federal spending, the BCA significantly limited the ability of congressional representatives to be responsive to the conditions and priorities of the present. Especially at a pivotal time during the recovery from the great recession, these caps meant Congressional leaders had limited options when it came to proposing new and innovative programmatic solutions or seeking increased funding for existing programs during a time of enhanced need.
As opposed to the caps–which represented a tool intended to directly reduce federal spending–the sequester was supposed to be an incentive (or, more accurately, a threat) rather than a solution. The architects of the BCA believed that something as unpleasant and painful as across-the-board cuts to programs such as Social Security, Medicare, military spending, and other crucial federal programs would provide enough motivation to generate a breakthrough at the bargaining table. Unfortunately, this theory proved too optimistic, and the joint select committee was unable to find common ground within the designated time frame.
The American Taxpayer Relief Act of 2012 delayed the inevitable by two months, hoping additional time would prompt a breakthrough, but the sequester was ultimately triggered on March 1st, 2013. Its impact was most dramatic in that year because it reduced the federal budget in real time, resulting in office closures and staff furloughs alongside devastating programmatic cuts in programs spanning the federal budget.
Importantly, though, the sequester was not a one-time event–it enforced budget cuts over a ten-year period, not just in 2013. In subsequent years, these cuts took the form of further reducing the appropriations caps below the already reduced spending levels specified in the BCA. While Congress has acted since then to modify the levels of spending set forth by the BCA and the sequester, the effect of these spending parameters cannot be overstated.
After the high-stakes negotiations around the BCA, debt ceiling negotiations seemingly faded into the background for much of the rest of the decade. Somewhat surprisingly, given the acrimony that led to the sequester, the ceiling was either suspended or increased multiple times over the next eight years, with little fanfare. Each time, negotiations between leaders of both parties resulted in bipartisan legislation, with Democrats typically providing a majority of votes, but with enough Republicans voting in support to ensure passage.
For example, the Bipartisan Budget Act of 2013, negotiated by Sen. Murray and Speaker Ryan, raised appropriations caps in FY15 and FY216 in exchange for adding new caps on the back end, in FY22 and FY23. Similarly, the Bipartisan Budget Act of 2015 increased appropriations caps in FY16 and FY17, offset by permanent changes to mandatory programs and tax compliance efforts. The Bipartisan Budget Act of 2018 raised appropriations caps in FY18 and FY19 and the Bipartisan Budget Act of 2019 raised the appropriations caps again, while introducing offsets in the form of reductions in mandatory program spending and user fees. Most recently, Congress raised the debt limit by a mere $480 billion in October 2021, setting the stage for our current stand-off.
Without these bipartisan measures, the impact of the BCA could have been much worse. By raising the appropriations caps year after year, Congressional leaders prevented devastating cuts, especially to many domestic discretionary programs that provide crucial support to Americans across the country, especially those struggling to make ends meet. But while it is important to give credit where it’s due, there is no question that the BCA cap era (between 2012 and 2022) still represents a period of significant underinvestment during a critical time for the American economy.
A ‘Self Inflicted Wound’
A Decade of Austerity
Because the appropriations caps were revised upwards several times throughout the decade following the BCA, it can appear that the fiscal austerity intended at the time of its passage never fully materialized. However, the BCA and its impact on federal spending may be better understood as an anchor that prevented congressional spending from responding at the appropriate scale to many crucial issues that emerged throughout the past decade. Indeed, even with the upward revisions, federal spending failed to keep up with both societal needs and historical precedent for much of the last decade (CBPP, 2021).
To understand the impact of the BCA caps, it is helpful to have an objective measure of the scale of government spending over time. Because the United States economy is so dynamic, equivalent dollar amounts can mean dramatically different things depending on changes in GDP growth, population growth, and inflation. By measuring federal spending a) as a percentage of GDP or b) after accounting for inflation, we can get a more accurate understanding of overall spending levels, aiding comparisons between different time periods and putting the current budget in historical perspective.
Even after the upward revisions via the bipartisan budget agreements during the 2010s, federal spending has been at historic lows as a percentage of GDP (CBPP, 2021). In particular, non-defense discretionary (NDD) spending was particularly hard hit–NDD spending as a percentage of GDP is currently at a 60-year low (data only goes back to 1962) after continuously falling during the decade following the BCA. From a macro perspective, this limiting of federal spending capacity clearly undermined the American economy’s recovery following the great recession. By placing hard limits on every budget line, the caps tied congressional hands; any funding for new and urgent needs would have to be offset by caps elsewhere.
Even without taking GDP into account, the act of factoring in inflation illuminates a continual reduction in the scope of federal spending. In other words, stable funding levels actually represent steep cuts when inflation is factored into the equation. For example, NDD funding for 2016 was 13 percent below the 2010 level when taking inflation into account (CBPP, 2017). Given this fiscal reality, leaders across the federal government’s various departments have had to make a decade’s worth of difficult decisions about what to prioritize and what to cut. The result is a federal government significantly constrained in its ability to respond to the country’s most pressing needs.
Smaller HUD Budget, Higher Rents
Right before the sequester took effect, then-HUD secretary Shaun Donovan, echoing President Obama, referred to sequestration as a “self-inflicted wound” that would devastate the American economy when it was at its most vulnerable (HUD, 2013). In retrospect, it is clear he was right; the cuts from the sequester and the other BCA caps deprived the American economy of critical government investment when it was needed most. In the case of HUD, the BCA budget caps hindered its programmatic efforts throughout a crucial decade in the housing market–one in which rents rose at unprecedented rates and low-income households desperately needed additional rental assistance.
When the sequester occurred, HUD felt its impact immediately. In particular, cuts to housing choice vouchers, the largest rental assistance program in the country, had the largest and most immediate impact on low-income families during the immediate cuts that took place in 2013. By June 2014, housing agencies were helping close to 100,000 fewer families as a result of the cuts. Even after the cap relief provided by the Bipartisan Budget Act of 2013 for FY14 and FY15, housing agencies were still serving 45,000 fewer families in December 2015 than they had been in December 2012 (CBPP, 2016).
To their credit, lawmakers recognized the growing affordability crisis reflected in rising rent burdens and prioritized rental assistance funding in FY16 and FY17, resulting in an overall increase of rental assistance funds by twelve percent between 2010 and 2017–a real accomplishment given the broader context of fiscal austerity. However, this absolute increase pales in comparison to the size of the problem; the cost of housing dramatically outstripped inflation during this period, with market rents rising 23 percent, according to the consumer price index (CPI) data (CBPP, 2017). Because voucher renewals make up a large majority (up to 90%) of the voucher program budget, when rents rise faster than HUD budget lines, the result is coverage for fewer families. When considering the broader context, in which only one in four eligible households receives a housing voucher, the devastating impact of the appropriations caps becomes clear.
To make matters worse, prioritizing rental assistance funds came at the expense of other crucial HUD programs, such as public housing. As the Center for Budget and Policy Priorities outlines in this comprehensive blog post, Public housing funding fell by $1.6 billion (over twenty percent) between 2010 and 2016. This is especially unfortunate because it is part of a larger trend: capital funding for public housing has fallen by over 50 percent since 2000 in inflation-adjusted terms. This shrinking budget line doesn’t come close to covering annual repair costs at public housing complexes across the country. As a result, the current backlog of needed repairs may be as high as $70 billion, up from $26 billion in 2010. Furthermore, many of these units become uninhabitable, resulting in the loss of roughly 10,000 units of public housing each year. Given the shortage of affordable housing units nationally, this loss of units reflects an outsized loss.
Unfortunately, concerns about fiscal austerity and the underfunding of key federal programs–including affordable housing programs–are not in the rearview mirror. The current effort by House Republicans to dramatically cut domestic spending, including investments in affordable housing and homelessness, is the biggest legislative threat facing the millions of low-income and marginalized households who struggle to afford rent and make ends meet. With rents rising, eviction filings increasing, and more homelessness in many communities, federal housing investments are more critical than ever to sustain our communities and help low-income people thrive. Balancing the national budget should not be done on the backs of our nation’s lowest-income and most marginalized people and families.
First and foremost, Congress should reject any proposal to impose arbitrary and austere caps on domestic spending, such as those established through the “Budget Control Act of 2011.” Federal funding for HUD and U.S. Department of Agriculture (USDA) Rural Housing Service programs provide essential resources to promote strong and healthy communities and help more than 5 million of America’s lowest-income and most marginalized seniors, people with disabilities, veterans, parents with children, and others afford stable and safe housing. Instead of dramatically cutting housing and other domestic spending, Congress should provide the highest level of investment possible for federal housing and homelessness programs through the annual appropriations process.
Moreover, Congress must reject any attempts to cut housing assistance or impose harmful barriers to receiving or maintaining housing assistance, including placing time limits on assistance or imposing work requirements. Proposals to slash federal housing benefits would leave even more low-income people without a stable home, making it harder for them to climb the economic ladder and live with dignity. If enacted, these harmful proposals would undermine housing stability, increase evictions, and lead to more homelessness.
The reality is that cutting housing benefits does not address the underlying causes of America’s housing and homelessness crisis: the widening gap between wages and housing costs, and a severe shortage of homes affordable to people with the lowest incomes. Dramatic budget cuts and/or arbitrary restrictions on housing benefits will not create the well-paying jobs and opportunities needed to lift households out of poverty. In fact, these restrictions will make it more difficult for households to maintain employment and economic security. Congress should reject proposals to take away housing benefits and instead enact proven solutions to help struggling families earn more and get ahead. This requires expanding – not slashing – investments in affordable homes.
Importantly, protecting and expanding housing investments will improve outcomes beyond the housing sector alone. Research consistently shows that a lack of decent, stable, affordable housing causes and exacerbates negative outcomes in education, healthcare, food security, economic mobility, homelessness, civil rights, criminal justice, child welfare, climate, and more. With safe, stable, and affordable housing, students do better, patients are healthier, the economy is stronger, people can more readily avoid poverty and homelessness, and our nation is more just and equal. The Opportunity Starts at Home campaign is built upon this idea—that the fates of those advocating for better schools and healthcare, lower incarceration rates and emissions, and improved nutrition and working conditions are all inextricably linked together with those calling for investments in affordable housing. With this spirit of collaboration in mind, OSAH has brought together leading national organizations from these sectors and many others to advocate for more robust and equitable federal housing policies. At such a critical juncture for the United States, we need all hands on deck to avoid another decade of devastating self-inflicted mistakes.
Article Written by Samuel Adams, Consultant, Opportunity Starts at Home