What it means that the United States federal government is currently over the debt limit
Lawmakers and the media are discussing the federal debt limit, but what that means isn’t always clear. The United States federal government is currently over the debt limit – here’s what that means and what’s likely to happen next.
While the current debt limit is $31.4 trillion, the federal debt is $31.5 trillion. The debt is the total amount of money that the U.S. has borrowed over time, with the debt limit being the maximum amount that the government is legally allowed to borrow to pay its bills. The U.S. Treasury Department can borrow more money by raising the debt limit to pay for past spending obligations authorized by Congress and the President.
The Bipartisan Policy Center (BPC), the foremost organization that estimates when the U.S. federal government will start defaulting on its debt obligations, anticipates that the Treasury Department will be unable to pay every one of its bills sometime in the summer or early fall of 2023. This is called the “X date range” or the cliff. The Congressional Budget Office (CBO) also projects a similar timeline for the X date.
To default on the federal debt, or to “go off the cliff”, would severely damage the U.S. credit rating, causing the U.S. to pay higher interest rates when borrowing. That’s why the U.S. government will most likely find a way to either pay interest on or refinance the national debt. However, the payment of other bills such as salaries, benefits, entitlement programs, subsidies, etc. could be impacted.
So far, the U.S. Treasury has avoided “going off the cliff” by using accounting maneuvers called “extraordinary measures,” to prevent defaulting on some of its debts, but not on Treasury bonds. However, when these accounting measures are no longer available, political leaders will have to come to an agreement as creditors and programs receive less money from the government. Taxes, spending, and borrowing levels will have to be adjusted to “balance the books.”
Learn more about the debt ceiling by reading the NFIB one-pager here.
