The federal debt limit is not the same as funding the government. If the U.S. defaults on its debt, the ramifications are different than when Congress fails to fund the government. The recently released House Budget Resolution includes an increase in the debt limit of $4 trillion, which is estimated to cover about two years. The Senate Budget Resolution does not include an increase in the debt limit.
What is the debt limit?
Created by Congress in 1917, the debt limit or ceiling is a congressional tool to help with fiscal policy. It establishes the maximum amount of outstanding federal debt the U.S. government can incur. As part of its “power of the purse”, Congress uses the statutory debt limit as a means of restricting federal debt. Debt subject to the limit is more than 99% of total federal debt. It includes debt held by the public, used to finance budget deficits and debt issued to federal government accounts, used to meet federal obligations.
Efforts to raise the ceiling at one time were routine. In recent years, it has become a heated debate among those who decry government debt and have used negotiations on altering the debt limit to try and force spending cuts. Any change in the debt limit must be approved by the House with a majority and by the Senate where 60 votes are needed to pass the change. Since 1960, Congress has raised the ceiling 78 times.
Once the debt ceiling is reached, the U.S. Treasury has no authority to continue to borrow funds.
The Fiscal Responsibility Act of 2023 (FRA, PL-118-5), enacted June 3, 2023, suspended the debt limit until Jan. 1, 2025. The FRA also reimposed statutory caps on discretionary spending and rescinded unobligated funds from various federal accounts. Since 2013, Congress has largely resolved the debt limit by suspending the limit for a set period of time. In 2021, however, the limit was raised twice by specific dollar amounts.
Extraordinary Measures
It is customary as the nation approaches the debt limit, for the secretary of the Treasury to write to the speaker of the House to notify Congress that the country is approaching the debt limit, and the Treasury will begin to use “extraordinary” measures. The extraordinary measures are an attempt to keep the government’s borrowing amount under the debt ceiling. The Treasury secretary has authority to declare “debt issuance suspension period” (DISP) when deposits in the form of special Treasury securities into the Civil Service Retirement and Disability Fund (CSRDF) cannot be issued without exceeding the debt limit. During a DISP, the U.S. Treasury can use financial resources from civil service and postal service retirement funds to meet federal obligations. Other extraordinary measures include dollar holdings of the Exchange Stabilization Fund and the Thrift Savings Plan’s holds of Treasury securities.
In December 2024, then Secretary Janet Yellen wrote to Congress to state that she expected extraordinary measures would become necessary sometime between Jan. 14 and Jan. 23, 2025. On Jan. 17, she notified Congress again to say the debt limit would be reached the following Tuesday and extraordinary measures would begin on Jan. 21. She went on to say in her letter that it was unclear how long extraordinary measures could be used given the challenges of forecasting payments and receipts of the U.S. government months into the future.
What happens if the debt limit is not raised?
Even a short period of default means that the federal government would not have enough funds to finance its operations, including providing for the national defense or funding entitlements such as Medicare or Social Security. A default would likely lead to a downgrade by credit rating agencies, increasing borrowing costs for business and homeowners, no payments to Medicare providers and no Social Security checks being issued as well as a decrease in consumer confidence that could lead to a recession. Some have argued that in a default situation, the Treasury could prioritize what is paid and what is not.
Recent Activity in Congress
When Congress was considering a bill to fund the government through March 14, 2025, then incoming President Donald J. Trump asked for the inclusion of a provision to raise the debt ceiling for the entirety of his presidency. That request was rejected, and the bill did not include any provision related to the debt limit.
Now, as Congress considers both a continuing resolution to fund the government for the rest of the fiscal year, and a budget resolution that would trigger additional legislation known as budget reconciliation, the idea of including a raising of the debt ceiling has been floated and included in the House Budget Resolution draft.
In general, the debt ceiling has usually been considered as part of a free-standing legislative effort. It is highly unusual to include it as part of either the appropriations process or the budget resolution/reconciliation process.
