Editor’s note: This story has been updated to reflect the correct debt ceiling estimate. We regret the error.
The federal government is closing in on the $31.4 trillion borrowing limit, meaning a high-stakes fight over raising the debt ceiling is fast approaching.
An estimate from the Peter G. Peterson Foundation shows the nation’s debt climbing above $31 trillion and within striking range of the limit set more than a year ago.
That doesn’t mean the debt ceiling will have to be lifted this week — or even this month. The Treasury Department can generally use what are known as extraordinary measures to put off an actual debt crisis.
But it’s clear the fight is edging closer, putting the White House on a collision course with a new House majority demanding deep discretionary spending cuts in exchange for any increase to the debt ceiling.
“I think this is going to be the defining moment of the year,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB) said, adding it’s “certainly possible that we’ll hit that limit this month, or next month.”
The extraordinary measures used by Treasury generate cash to help the government pay its debts, which include halting pension fund contributions and prematurely redeeming Treasury bonds, could run out sometime in July, according to an estimate from the CRFB.
That means Congress will need to act by mid-summer at the latest to prevent the government from defaulting on its debt.
Just getting close to the so-called X-date poses risks. After the 2011 debt ceiling fight between Republicans and then-President Obama, S&P downgraded the nation’s long-term credit rating.
Speaker Kevin McCarthy (R-Calif.) promised that any debt ceiling increase would be paired with spending cuts to win over his GOP opponents in last week’s Speakership fight. But Democrats will likely refuse to go along with those cuts, setting up a stalemate.
“If you’re going to ask for an increase in the limit, at some point in time, you’ve got to sit down and say why are we hitting the limit? Why are we maxing out the credit card?” House Majority Leader Steve Scalise (R-La.) told reporters Tuesday.
Experts say that a default on the federal debt could upend the financial system and send the U.S. economy into a recession, in addition to pausing government benefits such as Social Security and Medicare.
A 2021 report from Moody’s Analytics found that a default would cost the U.S. roughly 6 million jobs and $15 trillion in household wealth. Damage to the U.S. credit rating would likely cause interest rates for homes and cars to spike.
There’s also concern about how it would impact the country’s standing on the global stage.
“We borrow a lot of money in world markets, and the U.S. Treasury bond is the single most valuable risk-free security there is,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.
“So why would we want to put in doubt the possibility that we might not be able to pay our obligations?”
A recent report from The Associated Press indicated the government could hit the debt ceiling as soon as this week. The Treasury Department declined to comment on the report to The Hill on Wednesday, but members also stress that point is not so far in the future.
Rep. Brendan Boyle (Pa.), the top Democrat on the House Budget Committee, told The Hill on Wednesday that the public treasury debt statements reflect that the country is “rapidly approaching the statutory debt limit, which will require the use of extraordinary measures.”
Experts are expecting more clarity after tax season heats up in April and the government collects a heap of revenue, which can have a significant impact on when the nation hits the debt ceiling.
“That’s where we find out whether it will come in at above or below expectations, and will give us another sense for how long those extraordinary measures combined with incoming revenues will be able to fund the government,” MacGuineas said.
Among the concessions some House Republicans have floated in recent months are potential reforms to Social Security, which is on track to insolvency. But some Republicans have also sought to dial down the focus on such proposals since the party took control of the House last week.
“What we have been very clear about is, we’re not going to touch the benefits that are going to people relying on the benefits under Social Security and Medicare,” Rep. Chip Roy (R-Texas) said during a recent appearance on CNN.
“But we all have to be honest about sitting at the table and figuring out how we’re going to make those work, how we’re going to deal with defense spending and how we’re going to deal with nondefense discretionary spending,” he said.
Roy is among the more than a dozen GOP members who voted against McCarthy’s Speakership bid last week until the leader agreed to several key concessions, including new limits on discretionary spending.
That attitude has encouraged some budget hawks, though some experts downplay the chances of a significant deal as part of any compromise in a divided Congress.
“Congress should decide what do they want to spend more money on and how do they want to change taxes, and they ought to do that in a way that looks over the next several years decades,” Wessel said, adding, “Using the debt ceiling to do that is like playing Russian roulette and putting a gun to your head.”