The debt ceiling is back, but no need to worry – yet
CNN
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The nation's debt ceiling was reinstated Thursday, giving congressional Republicans yet another divisive challenge to contend with in 2025.
President-elect Donald Trump is demanding that GOP lawmakers address the limit before he takes office on January 20, but lawmakers have some time since the US is likely months away from a potential first-ever default on its obligations.
The new ceiling is the amount of debt outstanding at the end of the previous day. That figure stood at just under $36.2 trillion earlier in the week, up from $31.4 trillion in June 2023, when the cap was suspended as part of the bipartisan Fiscal Responsibility Act.
But in a technical quirk, the nation won't actually be at the limit on Thursday, allowing the Treasury Department to continue borrowing for a little longer to pay the federal government's bills in full and on time. The debt level is projected to dip by $54 billion that day due to the scheduled redemption of certain securities, according to a letter Treasury Secretary Janet Yellen sent to congressional leaders on Friday afternoon.
Therefore, the US isn't expected to reach the reinstated limit until sometime between January 14 and January 23, Yellen wrote in her letter. It will then be necessary for the Treasury Department to start taking so-called extraordinary measures to prevent a default. That's because the nation spends more than it receives in revenue, and it has to borrow to cover the difference. But it can't once it hits the debt limit.
Yellen, or the acting agency leader if the limit is reached after Trump's inauguration on January 20, will inform Congress at that time and outline how the department will proceed. The letter also will likely provide lawmakers with an estimate of when these efforts could be exhausted, or the so-called X date.
Treasury's cash and extraordinary measures should last for at least several months after the first quarter of 2025, according to an early analysis by the Bipartisan Policy Center.
"The federal government will begin 2025 with significantly more cash on hand compared to the start of the most recent debt limit debate in 2023," said Shai Akabas, executive director of the center's economic policy program. "This cushion, followed by the buoy of extraordinary measures and April tax receipts, means that the debt limit will not be the first deadline Congress faces in the new year. Each bill they work on in the coming months offers an opportunity for a timely debt limit resolution."
Just how long Congress has to handle its debt ceiling dilemma depends heavily on the amount of federal tax revenue collected this spring, the pace at which supplemental disaster assistance funds are spent, additional federal spending legislation and the health of the economy, according to the center.
Just what would happen if the nation actually defaults on its debt is unknown because it's never happened. The Treasury Department would have to decide what bills to pay, including Social Security benefits and federal workers' salaries, based on the revenue it receives daily. A default could also roil the global economy and stock markets and likely prompt yields on US Treasuries to rise, increasing borrowing costs.
Congressional challenge
Although Republicans will control Capitol Hill this year, it won't be easy for the party's leaders to address the debt ceiling, especially if they opt to craft legislation without Democratic support. Since the GOP will hold a super-slim majority in the House, Speaker Mike Johnson won't be able to afford many defections, particularly among conservative lawmakers, who have demanded that any increase or suspension of the limit be accompanied by spending cuts.
Trump, however, is ramping up the pressure on congressional Republicans. He derailed a bipartisan temporary government spending agreement last month by demanding the GOP deal with the debt ceiling as part of the package. Ultimately, Congress passed a short-term funding bill without a debt ceiling provision.
The president-elect reiterated his demands on Sunday.
"The Democrats must be forced to take a vote on this treacherous issue NOW, during the Biden Administration, and not in June," Trump posted on Truth Social. "They should be blamed for this potential disaster, not the Republicans!"
GOP leaders in the House last month floated an idea to raise the debt limit by $1.5 trillion in 2025 as part of a first reconciliation package, which may include border security and energy measures. The legislation would also include $2.5 trillion in cuts to net mandatory spending, aimed at satisfying conservative members who oppose increasing the debt ceiling without accompanying cuts.
Republicans are looking to use the reconciliation process to pass some of their top priorities because they would need only a simple majority of votes in the Senate. The party will have 53 Senate seats this year.
However, even if the GOP increases the debt limit by $1.5 trillion on its own, that would not buy the party much time, Akabas said. The US would hit the new ceiling in the second half of the year, with the potential of default coming in the first half of 2026, according to his back-of-the-envelope calculation.
