CNN
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The national debt ceiling was reinstated on Thursday, leaving Congressional Republicans facing yet another divisive challenge in 2025.
President-elect Donald Trump has called on Republican lawmakers to address the restrictions before he takes office on January 20, but the possibility of the U.S. defaulting on its debt for the first time in history could be months away. It’s expensive, so lawmakers still have time.
The new limit is the debt balance subject to the limit as of the previous day’s end. That amount was just over $36.1 trillion as of Dec. 31, up from $31.4 trillion in June 2023, when the cap was suspended as part of the bipartisan Fiscal Responsibility Act.
But in a technical oddity, the country won’t actually reach the limit on Thursday, allowing the Treasury to continue borrowing a little more to pay the federal bill in full and on time. The scheduled redemption of some securities is expected to reduce debt levels by $54 billion that day, according to a letter from Treasury Secretary Janet Yellen to Congressional leaders Friday afternoon.
Therefore, the United States is not expected to reach the return limit until sometime between January 14 and January 23, Yellen said in the letter. In that case, the Treasury would have to initiate so-called extraordinary measures to prevent a default. This is because the country spends more than it receives and must borrow money to make up the difference. However, once your debt reaches the limit, you can no longer do that.
Yellen, or the acting agency chief if the cap is reached after Trump takes office on Jan. 20, will notify Congress at that time and outline the department’s future direction. The letter is also likely to provide lawmakers with an estimate of when these efforts will be completed, so-called date X.
Initial analysis by the Bipartisan Policy Center suggests Treasury funding and temporary measures should continue for at least several months beyond the first quarter of 2025.
“The federal government will begin 2025 with significantly more cash on hand than it did in 2023, when the most recent debt ceiling debate began,” said Shai Akabas, executive director of the center’s economic policy program. Probably.” “This cushion, plus the continuation of extraordinary measures and April tax revenue receipts, means that the debt limit will not be the first deadline Congress faces in the new year. Each bill they tackle in the coming months will It provides an opportunity to resolve debt restrictions in a timely manner.”
How long Congress has to grapple with the debt ceiling dilemma will depend on the amount of federal tax revenue collected this spring, the pace of disbursements of additional disaster relief funds, additional federal spending bills, and economic growth, according to the center. A lot depends on soundness. .
What would happen if a country actually defaulted on its debts is unknown because it has never actually happened. The Treasury Department would have to decide what bills to pay, such as Social Security benefits and federal employee salaries, based on the revenue it receives each day. A default could disrupt the global economy and stock markets, prompting U.S. bond yields to rise and raising borrowing costs.
Republicans will control Congress this year, but it won’t be easy for party leaders to tackle the debt ceiling. Especially if they choose to develop legislation without Democratic support. Republicans will hold a razor-thin majority in the House, and Speaker Mike Johnson is worried about many defections, especially among conservative members who have demanded that any cap increase or suspension be accompanied by spending cuts. I wouldn’t be able to accept it.
However, President Trump is increasing pressure on Republicans in Congress. Last month, he derailed a bipartisan temporary government spending agreement by demanding that Republicans agree on the debt ceiling as part of their policy. In the end, Congress passed a short-term financing bill without a debt ceiling provision.
The president-elect reiterated his demands on Sunday.
“Democrats must be forced to vote on this dangerous issue now, under the Biden administration, not in June,” Trump wrote on Truth Social. “They, not the Republicans, are to blame for this potential disaster!”
House Republican leaders last month floated a proposal to raise the debt ceiling by $1.5 trillion in 2025, which could include border security and energy measures as part of an initial reconciliation package. The bill also includes $2.5 trillion in cuts in net mandatory spending aimed at satisfying conservative lawmakers who oppose raising the debt ceiling without cuts.
Republicans are trying to use the reconciliation process to pass some of their top priorities, since they only need a simple majority vote in the Senate. The party is on track to win 53 seats in the Senate this year.
But even if Republicans were to raise the debt ceiling by $1.5 trillion on their own, it wouldn’t buy the party much time, Akabas said. According to his behind-the-scenes calculations, the U.S. will reach the new cap in the second half of this year, with a potential default in the first half of 2026.
