The U.S. can’t legally default on its debt, but a failure by Congress to raise the cap on how much the federal government can borrow could spark a funding crisis for major programs. 

Republican and Democratic lawmakers agree that the U.S. Consitution requires the federal government to honor its debt, which currently stands above $31.5 trillion. The requirement means that even if Congress refuses to raise the debt ceiling, incoming tax revenue will be used to pay the roughly $500 billion in annual interest owed to the nation’s creditors.

“There’s a reason why everyone says the debt ceiling is a bad hostage to take in budget negotiations,” said a centrist Republican lawmaker, who privately expressed reservations about the GOP’s debt ceiling stance. “If you’re taking a hostage, everyone needs to believe you’ll shoot the hostage if you don’t get what you want. We can’t really shoot the debt ceiling because the Constitution says you have to honor the debt.” 

That is not to say there are no consequences for Congress refusing to raise the debt ceiling. The federal government borrows money annually to cover the cost of defense and social welfare programs as it waits for tax revenue to come in. 

“Without raising the debt ceiling, the federal government would be obligated to keep paying interest on its debt and funding mandatory spending programs like Social Security and Medicare,” said David Ditch, a federal budget analyst at the Heritage Foundation. “But that leaves little money for other programs, including food stamps, unemployment benefits, tax credits, homeland security, among others.” 

If the debt ceiling is not raised later this year, the U.S. will face a shortfall between its more than $6 trillion budget and the $4.8 trillion it expects to take in from tax revenue. 

The Treasury’s $4.8 trillion haul includes:

• Roughly $2 trillion from income taxes.

• $1.4 trillion from payroll taxes such as Social Security and Medicare taxes.

• $370 billion from corporate taxes.

• 140 billion from excise taxes, tariffs and customs duties.

That barely covers the budget’s big-ticket items if the government is forced to stop borrowing.

“Social Security, Medicare, Medicaid, defense, veterans’ benefits, and interest alone cost $4.2 trillion,” Brian Riedl, an economic policy expert at the Manhattan Institute, recently wrote in National Review. “Exempting these popular programs would force the immediate elimination of two-thirds of all remaining spending from programs such as food stamps, child nutrition, disability benefits, refundable tax credits, infrastructure, highway aid, the NIH, the FDA, national parks, homeland security, U.S. embassies, NASA, federal prisons, K–12 education, Pell Grants, unemployment benefits, and disaster aid.”

House Minority Leader Hakeem Jeffries, New York Democrat, said forcing such a scenario to occur would be a veritable criminal act.

“That’s not negotiation, that’s blackmail,” he said. “What they’re essentially saying on the other side of the aisle is, ‘We will detonate Social Security, detonate Medicare, detonate veterans’ benefits or possibly even risk a catastrophic default for the first time in American history.’” 

House Speaker Kevin McCarthy has taken cuts to entitlement spending such as Social Security, Medicare and Medicaid off the table when meets Wednesday with President Biden for debt limit negotiations. But he insists that borrowing money to pay debts is unsustainable and getting spending under control must be a top priority.

“We’re not going to default. But let me be very honest with you right now,” Mr. McCarthy said on CBS. “[Default] won’t come to fruition until sometime in June. So the responsible thing to do is sit down like two adults and start having that discussion.”

House Republicans are willing to raise the debt ceiling in exchange for targeted spending cuts that would balance the budget over the next decade.

“We believe there ought to be specific, concrete limits on spending, attached to a debt ceiling increase,” Rep. Chip Roy, a Texas Republican and member of the House Freedom Caucus, told The Washington Times.

While Republicans have yet to publicize what cuts would be acceptable, lawmakers have proposed capping federal spending at levels authorized by Mr. Biden’s 2022 fiscal budget. Those spending levels are at least $130 billion lower than what Congress opted to appropriate in December when passing a $1.7 trillion measure to fund the government until the end of September. 

Defense spending alone has grown by nearly 10% — from $782 billion to $858 billion — between the 2022 and 2023 fiscal years.

“I want to make sure we’re protected in our defense spending, but I want to make sure it’s effective and efficient,” Mr. McCarthy said. “I want to look at every single dollar we’re spending, no matter where it’s being spent. I want to eliminate waste wherever it is.”

Mr. McCarthy’s right flank has other spending cuts in mind.

Mr. Roy said that defense spending was not necessarily on the table and that the $130 billion can be made up by slashing funding for domestic programs.

“This means cutting funding for the woke and weaponized bureaucrats that received massive increases under the $1.7 trillion omnibus,” he said.