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The federal government will soon run out of the funds it needs to pay its bills.
The federal government routinely borrows money to pay the ongoing costs of operating the government – paying for Social Security and Medicare, ensuring that our food supply is safe, and paying federal workers and the businesses that sell goods to the government to support our public investments. However, a special law – the debt limit – caps the amount of money that the U.S. Department of Treasury is allowed to borrow, and Congress must soon act to increase that limit.
On January 19, 2023, Secretary Yellen announced that the nation’s borrowing had reached the limit allowed under the law and that the Treasury Department would use “extraordinary measures” to manage the nation’s cash and avert default. The Treasury Department’s strategy is not a long-term solution. In fact, the Congressional Budget Office estimates that the Treasury Department will exhaust available measures sometime between July 2023 and September 2023.
Congress must vote to suspend or raise the limit before that time to allow the government to borrow sufficient funds to meet its ongoing legal obligations. Since the enactment of the debt ceiling in 1917, Congress has routinely approved raising or suspending the limit, voting to do so 102 times since World War II. Failure to raise or suspend the limit would cause the nation to default on its obligations, in other words, unable to pay all of its bills. This has never before happened in the history of our nation.
The impact would be catastrophic for hundreds of millions of Americans. Americans who rely on the public services supported through the federal budget—from Social Security and Medicare to food safety inspection, air traffic control, school nutrition, and environmental protection—would not have to access these critical benefits. Congress must not allow this to happen.
Federal workers and the thousands of vendors that supply goods and services to the federal government would be asked to work without pay, leaving their families and businesses without the money needed to meet their own financial obligations.
Breach of the debt limit would result in lasting harm to the U.S. economy, the global financial system, and the everyday lives of all Americans. Financial markets would lose faith in the dollar, the nation’s credit rating would be downgraded, and interest rates would rise, increasing the cost of borrowing for consumers and American businesses.
The U.S. economy would be thrown into a recession. And the damage to the nation’s credit rating would be irrevocable.
Let’s not forget that during the Trump administration, Congress voted to suspend the debt ceiling—allowing the issuance of an unlimited amount of debt—in September 2017, February 2018, and August 2019. Notably, two of the suspensions occurred under Republican control of both the House and Senate.
However, this year, some members of the new Republican majority in the U.S. House of Representatives have threatened to block an increase, causing the federal government to default on obligations that represent decades of past decisions and debts that must legally be paid.
The U.S. government is built on a foundation of financial stability that dates back to the nation’s founding. A Congressional failure to increase the debt limit would undermine that foundation and it could take decades to repair the damage that would be done to families, businesses, and the global economy.
Congress must act now to raise, suspend, or eliminate the debt ceiling.
* Jean Ross, Senior Fellow, Economic Policy of the Center for American Progress (CAP)
