Low-income renters will be badly hurt if Congress fails to suspend the debt ceiling before the middle of October.
If the Treasury can no longer pay the nation’s bills, it would shut down most federal programs, including housing programs.
A federal default would be catastrophic. It would badly damage the U.S. economy and global markets, costing millions of American jobs. Here is what low-income renters may face if Congress does not suspend the debt ceiling in time.
Over the coming weeks, Congress needs to suspend the debt ceiling so that the government can pay its bills.
Summary of the Debt Ceiling Issue
The debt ceiling is the amount of debt the U.S. government is legally allowed to carry. The U.S. has an estimated national debt of about $28 million. Most of this was authorized by Congress over recent decades, but $8 million was added during just the four years of the Trump administration.
Congress can either raise the amount allowed, or suspend the debt limit for a certain amount of time. Congress has modified the debt limit 14 times since 2001. Raising the debt ceiling has always been a bipartisan effort. According to the U.S. Treasury, the debt limit has been adjusted 78 times since 1960; 49 times under Republican presidents, and 29 times under Democratic presidents.
Raising the debt ceiling has nothing to do with funding current proposals in Congress. It pays for past obligations and the current expenses faced by the federal government. The United States has never in its history defaulted on its obligations.
In July, the latest extension of the debt limit passed. When the U.S. Treasury reached its borrowing limit in July, it began using “extraordinary measures.” This means that the Treasury has been using creative measures to shift funds around and pay the government’s current bills. Treasury Secretary Janet Yellen recently wrote to congressional leadership that the Treasury will run out of money around October 18th.
When the Treasury can no longer use extraordinary measures, the federal government has defaulted on its debts. Social Security and veterans benefits would be delayed. Troops would go unpaid. Most federal programs would have to be slashed or suspended.
According to Mark Zandi, the chief economist for Moody’s Analytics, a default would hurt people through delayed government payments and loss of benefits. The federal government would have to significantly cut its spending, probably delaying for weeks about $80 billion in November payments for Social Security, veterans benefits, and active duty military pay.
If the U.S. government defaults, or even comes close to it, the government’s credit rating is also likely to be downgraded as investors see more risk. Investors, contractors, and foreign governments will no longer be able to rely on the U.S. government to pay its debts. This will raise interest rates for borrowing throughout the world economy.
How Will a Default Affect Low-Income Renters?
A federal default will absolutely hurt low-income renters. Several economists, including Treasury Secretary Yellen, have said the financial fallout would be catastrophic.
Default means the Treasury does not have enough money on hand to pay all its bills. As Secretary Yellen said, almost all government payments would be delayed.
Social Security checks, veterans benefits, and military pay would be delayed. Monthly child tax credit payments would also be delayed. For example, the Social Security Trust Fund has plenty of money to make the November payments, but they would be delayed because there would not be enough money to process the payments and get them to desperate seniors.
Food assistance would be halted. Federal workers who are not in essential positions would be furloughed. Those still working may have to do so without pay. The government would not be able to pay contractors, who employ millions of workers.
The recession triggered by a default would also hurt low-wage American workers. Mark Zandi estimates that a default could cost 6 million jobs and wipe out $15 trillion in wealth. The cost of everything from cars to homes to clothes and groceries would go up, putting more pressure on low-wage renters. Many of those jobs at risk during a recession are held by low-income renters.
What’s Coming Next?
Congressional Republicans have refused to help raise the debt limit. They argue that Democrats have the majority and are pushing through the $3.5 trillion Build Back Better Act without Republican votes. They say the Democrats can push through the debt ceiling suspension on their own too.
Democrats have pushed for a bipartisan solution, since most of the obligations were from past administrations. They also supported raising the debt ceiling three times under President Trump.
Democrats have proposed suspending the debt ceiling until December, 2022. House Democrats tried attaching this to legislation to keep the government operating after September 30th. Senate Republicans rejected this legislation.
Most legislation in the Senate needs the support of 60 senators to be brought to the floor for a vote. This is called the filibuster rule. The Senate is now split 50-50 between Democrats and Republicans.
Democrats have the majority because Vice President Kamala Harris casts a vote when there is a tie. This means that Democrats need the support of at least 10 Republicans to vote on most legislation.
Senate Republicans rejected a request by Senate Majority Leader Chuck Schumer (D-NY) to approve the debt ceiling measure by a majority vote. Schumer had argued that this would avoid the financial crisis, and Republicans would not have to vote for raising the debt limit.
Congressional Democrats are now looking for ways to suspend the debt ceiling on their own. It is likely they will have to include it with their Build Back Better Act. It is being passed through a special process known as budget reconciliation. Reconciliation bills can be passed with a majority vote, so Democrats do not need Republican support. The Build Back Better Act includes $327 billion for affordable housing, which is an investment that could end homelessness.
Democrats will have to start the reconciliation process from scratch if they want to include the debt suspension with the Build Back Better Act. It is a complicated process and takes at least 2-3 weeks. There is a risk that it may not be done before the Treasury runs out of funds.
The next few weeks will be critical. Members of Congress need to hear from their constituents, including low-income renters, how much a government default will hurt them and their communities. It has always been unthinkable that the U.S. would not pay its debts. Low-income renters will be among those who suffer the most if it comes to that.
