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Federal Debt and the Statutory Limit, August 2015 1 (August 2015)

handle is hein.congrec/cbo2476 and id is 1 raw text is: t Federal Debt and the Statutory Limit, August 2015 The debt limit-commonly referred to as the debt ceiling-is the maximum amount of debt that the Department of the Treasury can issue to the public and to other federal agencies. That amount is set by law and has been increased over the years in order to finance the gov- ernment's operations. In March, the debt ceiling was reached, and the Secretary of the Treasury announced a debt issuance suspension period. During such a period, existing statutes allow the Treasury to take a number of extraordinary measures to borrow additional funds with- out breaching the debt ceiling. The Congressional Budget Office projects that if the debt limit remains unchanged, those measures will be exhausted and the Treasury will run out of cash between mid-November and early December. At such time, the government would be unable to fully pay its obligations, a development that would lead to delays of payments for government activities, a default on the government's debt obligations, or both. What Is the Current Situation? The Temporary Debt Limit Extension Act (Public Law 113-83), enacted in February 2014, suspended the debt ceiling through March 15, 2015. The act also specified that the amount of borrowing that occurred during the suspension period would be added to the previous debt limit of $17.212 trillion. Therefore, on March 16, the debt limit was reset to $18.113 trillion to match the amount of outstanding debt. 1. CBO previously projected that those developments would probably occur in October or November. The revised date primarily results from the smaller deficit now anticipated for fiscal year 2015. CBO projects that the deficit for this year will be $426 billion, $60 billion less than the agency estimated in March. For more information, see An Update to the Budget and Economic Outlook: 2015 to 2025 (August 2015), www.cbo.gov/publication/50724. Because the Temporary Debt Limit Extension Act did not provide additional borrowing authority above the amount of debt that had already been issued as of March 15, the Treasury has no room to borrow under its standard operating procedures. To avoid breaching the limit, the Treasury has used extraordinary measures that allow it to continue to borrow for a limited period. Continued use of those measures, along with the regular cash inflows over the next few months, should allow the Treasury to finance the government's activities through the end of this fiscal year and into the next without an increase in the debt ceiling. What Makes Up the Debt Subject to Limit? Debt subject to the statutory limit consists of two main components: debt held by the public and debt held by 2 government accounts. Debt held by the public consists mainly of securities that the Treasury issues to raise cash to fund the operations and pay off the maturing liabilities of the federal govern- ment that tax revenues are insufficient to cover. Such debt is held by outside investors, including the Federal Reserve System. Debt held by government accounts is debt issued to the federal government's trust funds and other federal accounts for internal transactions of the government; it is not traded in capital markets. Trust funds for Social Security, Medicare, military retirement, and civil service retirement and disability hold most of that debt. 2. For more information on federal debt, see Congressional Budget Office, Federal Debt and Interest Costs (December 2010), www.cbo.gov/publication/21960.

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