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Tax expert warns US midterms could set up 2027 debt limit standoff between Trump and Democrats
US debt limit could trigger a 2027 standoff as Democrats may pressure Trump to reverse Medicaid cuts and restore health insurance tax credits.
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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.
Lautz said the US is likely to reach its debt limit sometime in 2027. Congress will then have to agree to raise or suspend the limit to allow the government to continue borrowing.
What is the US debt limit?
Deep Dive
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.
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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. He said the alternative to reaching an agreement could be a default on US debt. Such an event would be unprecedented and could cause major damage.
Lautz described the possible impact as bringing “catastrophic financial and economic consequences” for the US. 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.
Democrats could use the debt limit to put pressure on Trump
The political situation in Congress could make the debt limit debate more difficult. 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.
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 and food assistance cuts could become part of the negotiations
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.
Medicaid provides health coverage to eligible people, while food assistance programs help people with the cost of food.
Lautz said Democrats could ask the Trump administration to cancel some of these cuts in exchange for supporting an increase in the debt limit. This could bring the spending decisions made under the Republican-backed law back into the political debate in 2027.
Democrats may also seek the return of expanded health insurance tax credits
Another possible demand could involve the expanded premium tax credits that help people afford health insurance. The more generous tax credits expired at the end of 2025 after Democrats' earlier expansion was not extended. Democrats want to bring back those expanded benefits.
Lautz said Democrats could seek their restoration as part of negotiations over the debt limit. This means the 2027 debt limit debate could also bring health insurance costs and government support for households into focus.
Democrats could have more negotiating power if they control Congress
Lautz said Democrats could have an opportunity to push for these changes if they control Congress when the debt limit issue comes up. 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.
Lautz calls the debt limit a “sleeper issue”
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.
He also pointed out that the debt limit is a budget issue rather than a direct tax-policy issue. However, it is linked to tax policy because negotiations could involve government spending, health insurance tax credits and other financial decisions.
Rising US debt and deficits add to the pressure
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. A budget deficit occurs when the government spends more money than it collects in revenue. The government borrows money to cover the gap.
Lautz said the country's budget situation is becoming increasingly unsustainable. 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.
Debt and spending decisions will remain a challenge for Washington
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. He pointed to major spending programs such as Social Security and Medicare, along with tax deductions, credits and exemptions, as areas Congress could review.
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. These provisions are due to expire on December 31, 2028.
Extending them could cost hundreds of billions of dollars over 10 years. Congress would have to decide whether to add to the national debt or pay for the extensions through higher taxes or spending cuts elsewhere.
These wider budget pressures could add to the difficulty of reaching an agreement when the debt limit comes up in 2027.
Why the debt limit matters for the 2027 political debate
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.
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.
