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Personal reflections by Adept Economics Director Gene Tunny

One of the significant issues for 2025 is the US debt ceiling. The US debt ceiling (or debt limit) is a legal cap set by Congress on the total amount of money the US government is authorised to borrow to meet its financial obligations. Congress needs to lift it in the coming months so the US government can continue funding its operations. This is because the US runs a large budget deficit, projected at US$1.9 trillion or 6.5% of GDP for fiscal year 2025 (see Deficit Tracker | Bipartisan Policy Center). 

Congress suspended the debt ceiling temporarily in June 2023, but it is now back in force. The debt ceiling, previously at around US$31 trillion, has been reset at the level of debt that applied at the start of the year at over US$36 trillion (see Figure 1 and this CNN report). But this will need to be lifted in the coming months as the US Treasury needs to borrow to fund the deficit, and emergency measures (e.g. raiding funds set aside for other purposes) will only last so long. 

President Trump called the debt ceiling “ridiculous” and wants it removed or suspended until 2029. I agree with President Trump. Indeed, as a former Treasury official in the Budget Policy Division, I have bad memories of Australia’s one-time debt ceiling during the financial crisis of the late 2000s, as I discuss in my latest Economics Explored podcast episode, US Debt Ceiling: Why Trump is Right to Call for its Abolition & Gene’s Experience with Aussie Debt Ceiling – EP268. 

You can watch the video recording of the episode below. 

The main points I make in the episode are as follows.

1. Debt ceilings are ineffective: The US debt ceiling fails to control spending or debt accumulation, as it is consistently raised to avoid financial crises. Indeed, according to the US Treasury, Congress has amended the debt limit 78 times since 1960 (see Debt Limit | U.S. Department of the Treasury). 
2. Political grandstanding: The debt ceiling often serves as a stage for political drama rather than meaningful fiscal reform.
3. Alternative fiscal rules: Spending caps or frameworks like Switzerland’s debt brake, which limits spending growth to revenue growth over the business cycle, are more effective at managing fiscal discipline than debt ceilings (see US fiscal policy expert Dan Mitchell’s article More Evidence for Switzerland’s Spending Cap | International Liberty).

Thankfully, Australia eliminated the debt ceiling in the middle of the last decade (see Professor Richard Holden’s excellent article, Laugh at the US if you will, but Australia narrowly escaped a debt ceiling—UNSW BusinessThink. 

In conclusion, President Trump is right. The US debt ceiling is ridiculous.

Published on 3 January 2025. Adept Economics Director Gene Tunny prepared this article. For further information, please contact us via contact@adepteconomics.com.au or by calling us on 1300 169 870.