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1 Federal Debt and the Statutory Limit, July 2021 1 (July 21, 2021)

handle is hein.congrec/cbofddbstlmtj0001 and id is 1 raw text is: he debt limit-commonly called the debt ceiling-is the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agen- cies. The amount is set by law and has been increased over the years to finance the government's operations. Currently, there is no statutory limit on the issuance of new federal debt because the Bipartisan Budget Act of 2019 (Public Law 116-37), enacted in August 2019, sus- pended the limit through July 31, 2021. On August 1, 2021, the debt limit will be reset to the previous ceil- ing of $22.0 trillion, plus the cumulative borrowing that occurred during the period of suspension. Unless additional legislation either extends the suspension or increases the limit, existing statutes will allow the Treasury to declare a debt issuance suspension period and to take extraordinary measures to borrow addi- tional funds for a period of time without breaching the debt ceiling. The Treasury's cash balance and those extraordinary measures would enable it to continue financing the government's activities for a while. However, if the debt limit remained unchanged, the ability to borrow using those measures would ultimately be exhausted, and the Treasury would probably run out of cash sometime in the first quarter of the next fiscal year (which begins on October 1, 2021), most likely in October or November, the Congressional Budget Office estimates. If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both. The timing and size of revenue collections and outlays over the coming months could differ noticeably from CBO's projections. Therefore, the extraordinary measures could be exhausted, and the Treasury could run out of cash, either earlier or later than CBO projects. What Is the Current Situation? P.L. 116-37 specifies that the amount of borrowing that occurs during the suspension of the debt limit will be added to the previous ceiling of $22.0 trillion. As of June 30, 2021, an additional $6.5 trillion had been bor- rowed, bringing the amount of outstanding debt subject to the statutory limit to $28.5 trillion. The new debt limit, which will be established on August 1, 2021, will reflect additional borrowing through July 31. If the current suspension is not extended or if a higher debt limit is not legislated before August 1, from that date forward, under normal procedures, the Treasury will have no room to borrow other than to replace maturing debt. To avoid breaching the limit, the Treasury would then begin to take the extraordinary measures that, along with cash inflows, should allow it to finance the govern- ment's activities for a limited time without an increase in the debt ceiling. What Constitutes Debt Subject to the Statutory Limit? Debt subject to the statutory limit (commonly referred to as debt subject to limit) consists of debt held by the public and debt held by government accounts.1 Debt held by the public is mostly in securities that the Treasury issues to raise cash to fund operations that 1. For more information about different measures of federal debt, see Congressional Budget Office, Federal Debt: A Primer (March 2020), www.cbo.gov/publication/56165. Note: All years referred to are federal fiscal years, which run from October 1 to September 30 and are designated by the calendar year in which they end.

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