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The federal government is perilously close to being unable to make payments on the country’s debt. It is up to Congress to vote to increase the nation’s borrowing cap, known as the debt limit. But House Speaker Kevin McCarthy, R-Calif., is in a standoff with President Joe Biden over Republican demands to tie the debt limit to spending caps and other policy demands.
Treasury Secretary Janet Yellen has warned that the country could run out of borrowing authority by June 1, leaving negotiators little time to reach an agreement.
Biden recently met with McCarthy, House Democratic Leader Hakeem Jeffries, D-N.Y., Senate Majority Leader Chuck Schumer, D-N.Y., and Senate Minority Leader Mitch McConnell, R-Ky., to discuss a path forward. The group failed to reach a deal but staff level talks are ongoing in an effort to avoid default.
Here are nine questions you may be asking about the debt ceiling and the fight over it.What is the debt ceiling?
The „debt ceiling“ or „debt limit“ is a cap on how much debt the federal government is allowed to accumulate. Congress is constitutionally required to authorize the issuance of debt. Doing so then allows the government borrow to meet its existing legal obligations like Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds and other payments.
„It used to be that every time you did a Treasury auction where you borrowed, Congress would pass a new law just for that one auction,“ said Jason Furman, a top economic adviser to former President Obama and an economics professor at Harvard.
„In 1917, the United States needed to borrow a lot of money for World War I,“ He said. „So in order to simplify that process and make it easier, Congress shifted to a new system where they said, you can borrow up to this amount of money and then come back to us and we’ll raise it.“
Congress has increased or suspended the debt limit 78 times since 1960, according to the Treasury Department.How do experts know when when the government has really run out of funds?
Economists look at how much the government is expected to bring in through tax payments, when those payments are expected to arrive in Treasury accounts and scheduled debt payments to determine a timeframe, known as an X-Date for when the debt authority might run out.
However, the Treasury Department has access to a few tools, known as extraordinary measures, to avoid default. Those measures include moving investments and deploying accounting tools to shift funds around.
The federal government technically hit the debt limit in January and extraordinary measures have kept payments flowing since then. Experts cannot pinpoint the exact date when funds will run out but they can identify a general range which is expected to fall sometime in early June or possibly as late as July or August.Why is there a fight over it?
Debt has generally been an unpopular concept in American politics.
Every vote a lawmaker casts is part of that person’s political record and many lawmakers do not want to be seen as signing off on more federal borrowing or spending.
Lawmakers also like to tack extraneous priorities onto bills that are seen as must-pass legislation. That makes the debt limit a prime target for political fights.
