What is the Debt Limit?
- The debt limit places a statutory limitation on the amount of money that the U.S. Treasury Department may borrow to fund the federal government’s operations.
- The U.S. Congress has historically restricted federal debt.
- The federal debt limit was first authorized in 1917.
- Since around the 1960s, the U.S. Congress has raised the debt limit more than 70 times.
- When needed, the U.S. has always raised its debt limit.
- One of the roles of the U.S. Congress is to pass spending (appropriations) bills and tax laws. The revenues from the taxes we pay are meant to cover the spending of the U.S. federal government. This includes Social Security, Medicare, and the Transportation trust funds.
- Often there is not enough revenue to pay for that spending. This leads to the U.S. Treasury Department having to borrow money to make up that difference.
- That borrowed money is the U.S. national debt, and it is estimated to currently be at $31 trillion.
- Please note that debt has been accrued no matter which political party is in the White House or has the majority in the U.S. Congress.
What is Happening Now?
- The United States federal government reached its current debt limit of over $31 trillion in January of 2023, and the U.S. Treasury Department is implementing what are called “extraordinary measures” to prevent a default.
- The U.S. Treasury Department is currently predicting that the federal government will now reach the debt limit in early June 2023.
- The Speaker of the U.S. House of Representatives, Kevin McCarthy (R-CA), previously publicly stated that he would agree to raising the debt limit if the Fiscal Year 2024 Appropriations bills were written at Fiscal Year 2022 funding limits.
- The U.S. House of Representatives, with the Republican Party in the majority, recently passed H.R. 2811, the Limit, Save, Grow Act of 2023.
- This legislation would raise the debt limit but would also reduce federal spending to Fiscal Year 2022 levels by largely cutting social spending.
- This legislation will not likely be taken up by the U.S. Senate who has a Democratic Party majority.
- Discussions are on-going between the White House and the U.S. Congress, largely between President Biden and Speaker McCarthy, to reach a resolution of the situation.
What Would Happen if the U.S. Does Breach the Debt Limit?
- As with any of us, the U.S. federal government is required to pay its bills.
- If the U.S. does breach the debt limit, there will be consequences.
- This has never happened before and due to this it is not exactly clear what steps the U.S. federal government would take.
- We came extremely close to breaching the debt limit in 2011.
- In a document released following that occurrence, it was revealed that if the debt limit had been breached at that time, the Federal Reserve and the U.S. Treasury Department had planned on prioritizing interest payments and that payments for things such as Social Security benefits and veterans’ benefits would likely have been missed.
- It is believed that if we do breach the debt limit, the U.S. economy would enter a recession and it could lead to a worldwide financial crisis.
- Our country’s credit rating would almost certainly be downgraded.
- Unfortunately, because this is unprecedented, it is not known how exactly a breach of the debt limit would affect the Corps community.