As the President and Congress attempt to reach an agreement on the “fiscal cliff,” a new Congressional Budget Office (CBO) report reminds policymakers that another deadline is approaching — the statutory limit on federal debt.
This is the maximum amount of debt the federal government can issue. The current limit of $16.394 trillion was set using procedures established in last year’s Budget Control Act. Based on estimates by the Department of the Treasury, CBO projects that borrowing will reach the debt limit near the end of this month.
In the past, Treasury has used measures to make continued borrowing possible, such as suspending some investments in the Thrift Savings Plan for federal employees or delaying the issuing of new bonds for several programs. CBO estimates that these measures could permit Treasury to continue funding the government without increasing the debt limit through mid-February or early March.
If the debt limit is not increased before these measures are exhausted, CBO warned in its report issued last week, restrictions on the issuance of new debt “would severely strain the Treasury’s ability to manage its cash and could lead to delays of payments for government activities and possibly a default on the government’s debt obligations.”
Given the risk of default, Congress should act on an increase without delay or political gamesmanship. Ideally, the increase should be accompanied by a comprehensive proposal that would place our nation on a fiscally sustainable path that makes future debt limit increases less frequent.
CBO: Federal Debt and the Statutory Limit
Treasury Department: The Debt to the Penny and Who Owns It
Bipartisan Policy Center: Debt Limit Analysis