USA TODAY International Edition
Congress faces looming deadline to raise government’s debt limit
While Congress has been focused on creating a new health care law and confirming President Trump’s Cabinet nominees, lawmakers have paid scant attention to a looming Thursday deadline to raise the government’s debt limit so that it can pay its bills and avoid a potential economic crisis.
The U. S. Treasury Department’s power to borrow money will expire March 16 unless Congress acts to raise the debt ceiling. Although the Treasury won’t run out of cash to pay creditors until sometime this fall, any delay in raising the debt limit could risk the government’s credit rating and cost taxpayers billions of dollars in increased borrowing costs.
Here’s a look at what’s at stake:
WHAT IS THE DEBT LIMIT?
The debt limit, also called the debt ceiling, is the legal amount that the U. S. Treasury can borrow to pay the government’s bills, including Social Security and Medicare benefits, military salaries, tax refunds, interest on the national debt, and other obligations. The limit is set by Congress.
DOES RAISING THE DEBT LIMIT MEAN THAT THE GOVERNMENT CAN SPEND MORE MONEY?
No. When Congress raises the limit, it doesn’t allow the government to spend taxpayer dollars on new programs. It allows the Treasury to borrow money to pay existing bills for spending that Congress has already approved.
HOW HIGH IS THE CURRENT DEBT LIMIT AND WHEN DOES IT EXPIRE?
There is no set limit. Congress suspended the limit as part of a 2015 budget deal that expires on Thursday. Congress needs to reset the limit to about $ 20 trillion to reflect the current debt.
WILL CONGRESS RAISE THE LIMIT?
It always has, and it is expected to do so again. Still, it’s unclear if lawmakers will act by Thursday.
The issue could be complicated because some conservative Republicans are hoping to tie any increase in the debt limit to legislation to reduce the nation’s $ 441 billion deficit. Yet House Minority Leader Nancy Pelosi, DCalif., said Democrats will only support a “clean” debt limit increase that has no other legislation attached.
“We stand ready to work with the president to lift the debt ceiling — a clean debt ceiling, not one that is bogged down in ideological who- knows- what,” she said.
WHAT HAPPENS IF CONGRESS DOESN’T RAISE THE LIMIT BY THE DEADLINE?
The Treasury Department would be forced to use “extraordinary measures” to keep raising cash to pay the government’s bills. Treasury Secretary Steven Mnuchin has told congressional leaders that the department will begin Wednesday to suspend the sale of state and local government bonds, which count against the national debt.
Mnuchin’s extraordinary measures “would probably be exhausted sometime this fall,” according to the Congressional Budget Office. At that point, the government would be unable to pay its creditors and would default on its debt — something that has never happened before.
Congress has missed the deadline to raise the debt limit in the past, but it has always taken action before the Treasury ran out of money to pay its creditors. In 2011, lawmakers failed to raise the debt ceiling by that year’s May deadline, resulting in Standard & Poor’s downgrading the government’s credit rating for the first time. Congress finally lifted the debt limit in August, just two days before the Treasury estimated it would have run out of funds.
WHAT WOULD BE THE IMPACT IF THE GOVERNMENT DEFAULTS ON ITS DEBTS?
No one knows because Congress has never allowed it to happen, but economists say it could plunge the U. S. into recession and spark a global economic crisis.
The government wouldn’t be able to pay back people who invested in U. S. Treasury bonds. Because the government spends more than it collects in taxes, it relies on these investors to help raise revenue.
Failing to pay back investors would cause the value of U. S. bonds to plummet. And the government would have to pay a higher return to investors because bonds would no longer be seen as a safe investment. That could cause interest rates to rise worldwide.