Today the federal debt limit will be reset at a level equal to the outstanding federal debt (roughly $19.8 trillion). The debt limit, which caps the government’s total borrowing authority, has been suspended since November of 2015.
Because the federal government is still running deficits, elected officials will need to once again raise or suspend the debt limit to enable the Treasury to cover federal spending obligations. Failure to raise the limit would do nothing to reduce these deficits or spending obligations – it would be akin to simply refusing to pay the credit card bill when it comes due and could have severe economic implications. (For more background, please see Concord's updated issue brief: Understanding the Federal Debt Limit.)
Thursday is not the day by which lawmakers must act. The Treasury Department has a number of so-called “extraordinary measures” it can deploy to postpone a default. These measures allow the Treasury to reduce intragovernmental debt, such as by temporarily delaying payments to federal employee retirement funds. This create additional borrowing room under the debt limit.
These extraordinary measures cannot be utilized in perpetuity, however; at some point all bills become due and must be paid. A recent report by the Congressional Budget Office estimated these extraordinary measures would last for several months, partially because of a large surplus expected in April as the result of incoming tax payments. The Bipartisan Policy Center estimates the X-date by which extraordinary measures will be exhausted to be sometime in the fall.
In a recent letter to Congress, Treasury Secretary Steve Mnuchin urged lawmakers to raise the limit in a timely manner or risk the government defaulting on its obligations, saying:
“As I said in my confirmation hearing, honoring the full faith and credit of our outstanding debt is a critical commitment. I encourage Congress to raise the debt limit at the first opportunity so that we can proceed with our joint priorities."
It is imperative that policymakers heed his advice and work to address the debt limit and avoid unnecessary brinksmanship.