The US debt limit could become a major issue in Washington in 2027, potentially setting up a political standoff between the Donald Trump administration and Democrats . In an exclusive interview with HT.com, Andrew Lautz, Senior Director of Federal Policy at the Tax Foundation, said the US is likely to reach its debt limit sometime in 2027.
If Democrats control Congress at that point, they could use negotiations over raising the limit to push for changes to Republican policies, the tax expert opined.
He also discussed the cost of extending tax benefits introduced under the One Big Beautiful Bill, including deductions for tips, overtime income, senior citizens and auto loan interest. Congress will then have to agree to raise or suspend the limit to allow the government to continue borrowing. The debt limit is the legal cap on how much money the US government can borrow. When the government needs to borrow beyond this limit, Congress must take action to raise or suspend it. Congress has increased or suspended the debt limit dozens of times over the past few decades. This has allowed the government to borrow more money to meet its financial obligations. However, if Congress fails to reach an agreement when the limit is reached, the US could face the risk of defaulting on its debt. Lautz warned that failing to raise the debt limit could have serious consequences for the US economy and financial system. Such an event would be unprecedented and could cause major damage. This makes the debt limit more than just another political disagreement. Congress would have to reach an agreement to avoid the risk of a default. The political situation in Congress could make the debt limit debate more difficult. In that situation, Democrats may agree to support an increase in the debt limit only if the administration agrees to some of their demands. This could lead to a fresh standoff between Democrats and the Trump administration, followed by negotiations over government spending and other policies. Medicaid provides health coverage to eligible people, while food assistance programs help people with the cost of food. Another possible demand could involve the expanded premium tax credits that help people afford health insurance. Democrats want to bring back those expanded benefits. The Trump administration and Democrats would need to work together to reach an agreement. This could give Democrats room to seek changes to policies they oppose. However, Lautz did not say that Democrats would definitely make these demands or that the administration would agree to them. He described them as possible areas of negotiation. He also pointed out that the debt limit is a budget issue rather than a direct tax-policy issue. A budget deficit occurs when the government spends more money than it collects in revenue. The government borrows money to cover the gap. However, he added that it is difficult to know when the situation could reach a breaking point or whether that would happen slowly or suddenly. He pointed to major spending programs such as Social Security and Medicare, along with tax deductions, credits and exemptions, as areas Congress could review. Congress would have to decide whether to add to the national debt or pay for the extensions through higher taxes or spending cuts elsewhere. The debt limit could bring several disagreements together: government borrowing, spending cuts, health insurance support and the future of tax benefits. If Democrats control Congress, they may try to use the need to raise the debt limit to push the Trump administration to reverse some Republican policies. If the two sides fail to agree, the US could face the risk of a debt default. The election results could affect decisions on taxes, tariffs, government spending and business rules.
Lautz said the US is likely to reach its debt limit sometime in 2027. Lautz said that if Democrats control Congress when the debt limit comes due in 2027, they could use the issue as an opportunity to seek policy changes from the Trump administration. This could bring the spending decisions made under the Republican-backed law back into the political debate in 2027. The more generous tax credits expired at the end of 2025 after Democrats’ earlier expansion was not extended. This means the 2027 debt limit debate could also bring health insurance costs and government support for households into focus. The possible 2027 standoff comes as the US faces a growing debt and deficit problem. Lautz said US public debt held by the public has crossed $32 trillion and is now more than 100% of the country’s gross domestic product (GDP). The US budget deficit was around $2 trillion last year and is projected to remain close to that level for the foreseeable future. Extending them could cost hundreds of billions of dollars over 10 years. These wider budget pressures could add to the difficulty of reaching an agreement when the debt limit comes up in 2027. Lautz’s warning is that the issue may not be getting much attention now, but it could become one of the major political and economic challenges facing Washington in 2027. However, Lautz said the midterm elections could have a bigger impact on tax policies in 2028 and 2029 than in 2027.
Because negotiations could involve government spending, health insurance tax credits and other financial decisions, however, it is linked to tax policy. These provisions are due to expire on December 31, 2028.
He said the alternative to reaching an agreement could be a default on US debt. Lautz described the possible impact as bringing “catastrophic financial and economic consequences” for the US. Lautz said Democrats could ask the Trump administration to cancel some of these cuts in exchange for supporting an increase in the debt limit. Lautz said Democrats could seek their restoration as part of negotiations over the debt limit. Lautz said Democrats could have an opportunity to push for these changes if they control Congress when the debt limit issue comes up. Lautz said the country’s budget situation is becoming increasingly unsustainable. Lautz said economic growth could help improve the government’s financial position, but it would not solve the debt and deficit problem on its own. Andrew Lautz, Senior Director of Federal Policy at the Tax Foundation, said in an exclusive interview with HT.com that US businesses are caught in a political fight between Democrats and Republicans over future tax rules as the midterm elections approach.
One possible demand from Democrats could be to reverse some of the cuts to Medicaid and food assistance programs made by Republicans in the One Big Beautiful Bill last year. Earlier reporting noted: Andrew Lautz, tax expert, warns US businesses face ‘partisan tug-of-war’ over taxes and tariffs as midterm Election Day looms US businesses are facing uncertainty about future tax rules as the country prepares for the November midterm elections . Earlier reporting noted: Businesses and investors are already dealing with high interest rates, rising prices, government debt and concerns about the economy. Earlier reporting noted: The results will decide how much power Democrats have to question the Donald Trump administration and influence future government decisions.
Lautz described the debt limit as a “sleeper issue” because it is not receiving much attention but could become important next year. He said “not many people are paying attention” to it, even though it could have a major impact on the political debate in 2027.
