The clock is ticking for Congress to reach a deal to raise the federal borrowing limit — the debt ceiling. On July 23, 2021, Secretary of the Treasury Janet Yellen notified Congress that, as of Aug. 1, the outstanding debt of the United States will be at the statutory limit and the Treasury would use extraordinary measures, including suspending the sale of nonmarketable debt, to prolong the period before Congress needs to act.
Under normal circumstances, the Treasury has sufficient financial resources to pay all obligations arising from discretionary and mandatory spending, including interest payments on the debt partly due to its ability to borrow funds. Once the country hits the debt ceiling, the Treasury cannot borrow more unless Congress votes to raise the ceiling. The Congressional Budget Office (CBO) and other third-party analysts predict that the extraordinary measures probably will allow the Treasury to make it to early fall or October or November before congressional action would be needed, either to raise the debt limit or suspend it. The CBO also notes that the government’s obligations are about twice as much as the revenue it expects to collect.
When Senate Democrats released their budget resolution, it did not contain a provision to raise the debt limit. On the same day, Senate Minority Leader Mitch McConnell (R-Ky.) doubled down, saying Republicans would not be a part of raising the debt limit for Democrats to spend. He in essence dared the Democrats to push through an increase in the debt limit using only Democratic votes, just as they plan to do for budget reconciliation. On Aug. 11, Senate Majority Leader Chuck Schumer (D-N.Y.) pointed out that this usually has been a bipartisan issue and that the White House and the Treasury wanted this to be resolved outside of budget reconciliation, so it would be a bipartisan response and because rules related to reconciliation would limit solutions.
Read more on the debt ceiling on McGuireWoods Consulting’s website.