A crisis could be coming - no cap.*
*UPDATE | A previous version of this article and NSBA's Weekly Advocate incorrectly listed Speaker McCarthy’s party affiliation: Majority Leader McCarthy is Speaker for the Republican party (R-Calif.). NSBA would like to extend our apologies for this error.
This week, President Biden and Majority Leader Kevin McCarthy (R-Calif.) will meet to discuss the debt limit and budget priorities.
Internally, Republicans are continuing to contemplate best approaches to spending cuts in exchange for lifting the borrowing cap.
By technical standards, on Jan. 19, the U.S. debt limit exceeded its current $31.4 trillion ceiling, and, while the U.S. Treasury is able to continue operating by so-called extraordinary measures, these special fiscal accounting tools and further abilities to delay default will likely be exhausted by early June.
In plain terms, the debt ceiling – also known as the debt limit – caps the total amount of money the federal government is authorized to borrow through securities issued by the Treasury, like with bills and savings bonds.
Beyond the extraordinary measures currently being utilized in order for the bills to continue to be paid, when the government runs out of cash, the Treasury will be unable to issue new debt to pay its bills.
This could result in debt default if the government is unable to make required payments to bondholders and push the global economy into a devastating financial crisis.
Meaningfully addressing this debt will require significant spending cuts to crucial budget items, like money for defense, veterans, Social Security, and Medicare, as well as an estimated 85 percent cut on discretionary items. Those items are typically determined by majority party Members of Congress and laid out in their annual budgets.
The finer points of a proposed congressional budget for the first FY of the 118th Congress are still taking shape, but bridging differences in priorities and methods to achieve the varying objectives will be a steep hurdle, particularly in this deeply divided political atmosphere.
*No cap is a modern colloquialism, not a reference to NSBA's position on how to address the debt ceiling.