Congress will turn its focus to the debt limit and federal spending when it returns next week. The debt limit – also called the debt ceiling – is the maximum amount of debt that the Department of Treasury can issue to the public or to other federal agencies. The amount is set by law and has been increased or suspended over the years to allow for additional borrowing needed to finance the federal government’s operations. The debt limit was last raised to a total of $31.4 trillion on December 16, 2021. On January 19, 2023, that debt limit was reached, and the Treasury announced a “debt issuance suspension period” during which it can take “extraordinary measures” to borrow additional funds without breaching the debt ceiling.
Treasury Secretary Janet Yellen sent a letter to House and Senate leadership on January 24, 2023 in which she wrote that the extraordinary measures would last through June 5, 2023, and urged “Congress to act promptly to protect the full faith and credit of the United States.” April tax receipts could change this outlook.Wrightson ICAP thinks that the end date is more likely the end of July. And the Congressional Budget Office estimates that extraordinary measures will be exhausted sometime between July and September 2023.
Since then, there have been a few statements from both sides of the negotiating table and an exchange of letters, but no serious discussions on lifting the debt limit. Behind the scenes, there have been a few recent developments. House Republican leaders have begun informally putting together a debt-limit package they intend to socialize with their members when Congress returns next week. Republicans don’t want to lift the debt limit without spending reductions.
The proposed Republican bill would lift the debt limit until May 2024 in exchange for either a cap on non-defense discretionary spending or a cap on overall discretionary spending after reducing it to FY 2022 levels (i.e. limiting appropriations growth to 1-1.5% annually over the next decade). The Republican proposal also would rescind unspent Covid money, prohibit President Biden’s student loan forgiveness program, repeal some green tax credits that were in last year’s Inflation Reduction Act (P.L. 117-169), institute work requirements for some federal benefit programs (e.g. SNAP), and implement the House Republican energy plan (H.R. 1) and regulation-cutting REINS Act. While Republicans are not planning to touch Social Security or Medicare benefits as promised, Main Street members and others are pushing to include a provision setting up a bipartisan commission to come up with solutions to ensure the long-term solvency of those programs.
The Republican proposal would require action by several House committees making passage a difficult process. While it has no chance of passing the Senate, it could jump start negotiations with the White House and Senate. However, Democrats say they won’t bargain on such conditions and are insisting on a clean bill.
A congressional stalemate over lifting the debt ceiling could have serious consequences for the U.S. military even if a breach never occurs. Swirling economic uncertainty makes it difficult for the Pentagon and defense industry to execute their long-term plans, and questions over military pay and benefits could discourage people from joining the military amid an ongoing recruiting crisis. More broadly, lawmakers argue that risking a never-before-seen breach would project weakness to adversaries like Russia and China as the U.S. races to aid Ukraine in its war against Russia and deter Chinese aggression.